Written on April 4, 2012 (“I wish I would have known!”)
Apparently the sky is falling. At least that is what we’re expected to believe after reading many of the alarmist articles now circulating about the demise of real estate in America. But remember, much of what you hear through the media is based on national statistics. The only way to accurately assess our Denver market is to look at local market data. This simple idea seems obvious, but many people are not seeking local data in this market. One of the most common questions real estate investors ask is “Should I be buying now?”
Indications are that yes, this is a great time for investors to buy. The Colorado market is not in the kind of trouble faced by many other areas of the country. Denver’s inventory of homes has decreased this year and is considerably lower than last year. Pockets in the metro area are actually seeing appreciation too.
Interest rates for investor financing are at historic lows, there are many bargain properties out there, including REOs, short sales, and other distressed properties. And the rental market is hot, with rents increasing dramatically in the last two years, while vacancy rates flirt with all-time lows.
Denver’s market clearly looks to be well-priced. The FHA loan revival will help moderate income households buy their first homes. Builders have been limiting oversupply conditions. So the timing seems perfect. Right?
In his best selling book, The Millionaire Real Estate Investor, Gary Keller talks about market timing, which is one of the least understood investing concepts. “When people say timing is important, they are correct,” Keller says. “Timing is not only important, it’s critical to investment success. The economy is cyclical. Markets are cyclical. Buying and selling opportunities are created by the ebb and flow of the cycles. What is misunderstood is the way timing is accomplished.”
Area investors can learn about market timing and the current Denver market by working with successful real estate investor Kevin Mackessy at Blue Olive Properties, a Highlands Ranch based property management and real estate investment company.
“What Mr. Keller says is true. Market timing is about being active,” Mackessy says. “Great opportunities cannot be found sitting on the sidelines watching. The best deals come from the best opportunities, and the best opportunities go fast. Investors need to buy in a way that lets them afford real estate cycles, and investors must know where they are in the current market cycle. And the best way to find out about the market is by talking with local market experts. We track every possible statistic for our market.”
Denver’s resale home inventory has decreased slightly, with a 2 percent decrease since February 2012. Foreclosures and short sales remained the same as a percentage of the total market in March. The median listing price in Denver went up from February to March. There were a total of 50 price increases and 371 price decreases.
Lawrence Yun, National Association of Realtors, chief economist, said the market has been fairly steady but at a lower than desired level. “Home sales have been stuck in a narrow range despite several improving factors, such as job creation, rising rents and high affordability. Many people who are attempting to buy homes are thwarted,” he said. “A higher rate of contract failures has held back sales recovery. Recent contract failures jumped to 33 percent but were only 8 percent a year ago, so we should be seeing stronger sales,” Yun added.
Contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from low appraisals, or other problems including home inspections and employment losses. “Other recent factors include disruption in the National Flood Insurance Program and lower loan limits for conventional mortgages, which force some of the most creditworthy consumers to pay higher interest rates,” Yun said.
Investors should take such words to heart, especially in Denver. All of these factors are making our market a very attractive place to invest. Investors in other parts of the country have noticed that leading indicators are lining up for a good market to emerge in Denver.
“I’m working with investors from California, Arizona, Nevada and Florida right now,” Mackessy says. “Investors in these areas and others have made some good investments in the last several years, and as their markets failed, they were looking for promising areas in which to invest. Right now all signs point to Denver. For the lucky few investors who live here in Denver, opportunity awaits.”