How long will our fierce, low-inventory, deep seller’s market last? Will it slowly ramp down or will it crash overnight? Are we keeping up with new construction? These are the questions that keep real estate professionals and home buyers up at night!
How is inventory looking?
Every day I look over new homes that hit the market for our clients, a task that used to take up the length of a nice cup of coffee. Now, I can’t even finish my coffee before I run out of properties to view! Over the last seven days, there have only been 204 new listings in Denver and 411 have gone pending. Typically, we measure inventory in months, but we are just shy of 40 days of inventory — days! Denver had 318,445 households as of 2019. An average of 29 homes hit the market each day, which means that only .002% of Denver households are hitting the market each month. Things are certainly tightening up.
How are rising interest rates affecting the market?
As interest rates go up, buyers in the lowest price ranges find themselves forced out of the market. As more of a monthly payment goes toward higher interest rates and not towards purchase power, everyone is shuffled down the totem pole. This reshuffling will reduce buyer demand, but not enough to reshape inventory and get us to a balanced housing market. To significantly increase inventory levels to quell increasing prices, work must be done on the supply side of the equation.
(P.S. We’ll be keeping an eye on the 10-year treasury rate, which mortgage rates have historically been tied to. Glen Weinberg at Fairview Commercial Lending recently published a great write up on the recent inflation jump reported on this month’s CPI Index report and what that means for real estate.)
Can we turn to new construction?
This is where Denver has a severe disadvantage to other cities where “urban sprawl” is an option. Denver is locked in by other municipalities and unable to develop large tracts of land. We aren’t the only city with this problem; as a nation, home building has dropped significantly over the last decade, from an average of 26.3 million homes built per decade from 1970-2010, to only 5.8 million new homes built from 2010-2019. That’s a 77.8% change in the wrong direction! Denver needs new homes to add to the inventory to supplement existing home sales. The city can’t build out, so we have to build up. Increasing density via high- to medium-rise condominium development and finding a compromise to construction defect laws must happen.
Will the market crash?
Lending practices have been corrected since the great housing crash of 2008 and those buying homes are now generally well-qualified. As interest rates increase, I do believe things will start to slow down, but not crash. I mean, we are living through a pandemic that has rocked the world and our housing market is still going straight up! Now, we just need homes to build upwards as well.
Feel stuck in your current home? If you are under the impression that you need to sell and move out of it before you buy a new one, think again! You’re not alone in that impression, but the reality is that selling and moving out before you buy is not always necessary. Looking for an alternative route? Read on for three options to consider that may help you succeed with your next home purchase.
1. Sell after you buy your new home
This isn’t your average uber-expensive bridge loan that only wealthy folks can afford. There are several new home loan products out there that specialize in this niche home lending area. We’ve partnered up with one of the best new out-of-the-box-thinking lenders to help our clients buy before they sell. The “elevator pitch” for the Knock Home Swap? It allows you to buy a new home before you even list your current one for sale. Knock will provide up to a 20% down payment on your new home, six months of mortgage payments on your old home, and up to $25,000 to get your old home looking its best before it hits the market! Take a minute (86 seconds to be exact) and watch our quick video explaining the program. Have additional questions? Any of our brokers can help! We’re all Knock certified.
2. Don’t sell, and convert your current home into an investment property
Curious about investing? Why not buy a new home and own an investment property! The good news is that you’ve already got the latter. Most lenders will allow you to convert your current residence into an investment/rental property, provided the following criteria can be met:
- A lease signed by the future tenant who will occupy the home shortly after your new home is purchased.
- A security deposit from your new tenant, safely deposited into your bank account.
- A small cash reserve in an account owned by you. This amount varies between lenders, from 2 to 6 months of the investment property’s mortgage payment.
- Cash for your new home’s down payment.
Once these criteria are met, the debt magically disappears from your debt to income ratio and you qualify for the new purchase! The best part? Your new investment property keeps the same principal and interest payment you had when you lived there, you don’t have to refinance! This is a great way to diversify your retirement portfolio, generate passive income, and increase your net worth.
3. Sell before you buy, but continue living there while you search
If options one and two aren’t going to work for you, then number three has got you covered! Almost everyone who owns a home in Denver knows that it is a very competitive seller’s market right now.We all know if you submit an offer with a contingency to sell your current home, it immediately goes to the bottom of the offer pile. As part of your negotiation strategy, you should definitely employ a Post-Closing Occupancy Agreement, aka seller’s rent back. This agreement means that after you sell your current home, you become a tenant in it and you should have 60 days (or longer, depending on skillful your broker is) to find your replacement home, hopefully at no cost. If you go this route, you’ll need some tips for successfully finding and purchasing a new home in under 60 days:
- Be aggressive. See homes as soon as they hit the market and make sure you are getting your new listings from the most reliable and up to date source.
- Commit to one lender who will provide you a competitive rate (not the lowest) and who will be available during your search. I can’t say this enough: if the lender doesn’t give you their cell phone, don’t use them!
- Get pre-approved! And submit all requested documentation to your lender. And yes, there is a difference between pre-approval and pre-qualification.
- Review all of the purchase contracts and ask your questions before starting your search.
- Research and discuss the hot market strategies with your broker before starting your search.
Listing brokers who pitch their services have one goal: for you to sign that listing agreement. Remember, that isn’t always the best option for you! The current housing market can be a stressful realm for buyers, and careful consideration should be made before making a plan. Have conversations with your tax advisor, financial planner, lender, and real estate professional so that you make the best decision for you, not for a listing agent.
If you are buying a home in Denver right now, you already know how tough the competition is. In fact, most buyers have to submit several offers before they finally get one accepted. We’ve been talking (a lot) about our ridiculously low inventory, the increasing home prices, and the speed at which homes sell. It can be discouraging to say the least, but what’s really happening out there? We dove into February’s closings and here’s what we found out.
Median Original List vs. Close Price
We broke down several price brackets to look at the median close price versus the original list price for single family homes (the original list price is the price a home is first listed at on the market before any price adjustments; the close price is what the home actually sells for). It’s not a surprise, in our current market, that every price group sold above its original list price. If you are one of the lucky ones who’s come out on top this year with a signed contract, you’re probably wishing that these median differences were all that you paid over list price! Again, I want to point out this is the median for all sales within a given price range in Denver. This means that the ridiculously overpriced home that sat on the market for eight months because the sellers didn’t want to admit reality is included in that number. If we could pull this statistic for only homes that went under contract in 7 days or less, there would likely be a huge shift upward in these numbers. Sadly, we’ve reached a limitation on the data the multiple listing service will let us pull or we’d show you!
We wanted to dial out our numbers to show what the last six years have looked like. We’ve been in a deep seller’s market the entire time (a.k.a. a market with less than five months of inventory) and the close-to-original-price ratio remained between 92% and 98% the entire time. Right around the start of the pandemic, the chart shows a drastic change. The most surprising takeaway is that homes priced over $1M, which typically offer buyers the most negotiating power, now happen to have the least!
How to Succeed
Like most savvy buyers, you’re probably already aware of the hot market strategies you can employ to help you successfully buy a home. They will work if you give yourself margin. This means you’ll need to leave room to escalate your offer price upward to beat out other buyers. Unfortunately, this also means you’ll need to consider looking at homes in a lower price range than your maximum budget. Developing the right “secret sauce” for your home purchase game plan is crucial to success. While the ratios we shared above reflect Denver as a whole, you’ll want to have your broker share more stats specific to the neighborhood you’re searching in. Or, you could wave the white flag of surrender and have your broker send this text to the listing agent of the house you’re trying to buy:
The choice is yours! 😂
I’ve been saying it since the first week of January… “It’s like someone flipped a switch and turbo charged this market!” If you aren’t on the hunt for a new home, let me be the first to tell you it’s a crazy, crazy, crazy market with the sellers in complete control. I took a quick peek at the multiple listing service statistics today, and here’s what I found:
There’s nothing to buy.
In Denver County as of February 11th, 2021, there are 895 active listings for sale and 1,831 listings that are pending (under contract). In January, there were 889 property sales. That leaves us with one month of available inventory, one month! I’m concerned for February’s stats after seeing that massive pending number. For buyers looking for properties under $1 million, it’s a very frustrating time. There isn’t much to look at. 895 homes is 0.003% of the 338,341 total homes in Denver, per the US Census as of July 1, 2019.
The competition is stiff.
Buyers are showing their resolve to succeed in this market. I was recently involved in two separate negotiations that came in over list price; one ended up $50k over list price, the other $130k. Each negotiation had over 15 offers, and not one was at or under list price. In fact, January’s single-family close-to-list price ratio was 101.3%, so my experiences were not the exception, but the rule these days. While the reality of the market may seem disheartening, let’s take a turn and break down how you can succeed in it.
Competing requires strategy.
I’ve seen some very aggressive offers in the last 30 days. Below are some of the popular tools used to get your offer accepted, though it’s by no means a comprehensive list.
- An aggressive initial offer.
- An escalation clause.
- Purchasing the home “as is” and limiting inspection asks to a low dollar amount ($1-5k).
- Appraisal protection (gap) clauses that waive the buyer’s right to object if the appraisal doesn’t come in at the above list contract price.
- Buyer paying seller’s closing costs.
- Higher earnest money deposits with a portion of or all of it non-refundable.
- Shorter close periods (2-3 weeks for financed purchases).
- Free seller lease backs after closing to allow the seller to find a replacement home (good luck).
Buyers need a Plan B.
If you find yourself on the losing end of things, don’t give up! Backup offers are becoming competitive — I just experienced my first multiple offer backup negotiation (no joke). It used to be a slam dunk to get a backup offer accepted after the home is pending, but not anymore! Have your backup prepared and submitted as soon as you receive the bad news. Being quick to the punch when everyone else is sulking could make the difference.
Backup contracts are free insurance policies that don’t prevent you from submitting other offers on new homes that you find. In the event that the primary contract terminates (which they do), you automatically become the first contract with zero negotiations. If you find another home you like while you’re in the backup position (and can get it under contract), a simple email terminates the backup contract, and voila! The best part? No earnest money is required for backup contracts!
It’s easy to get discouraged in this market, and I understand the urge to just take the “blue pill” and sign a lease to ease the endless anxiety and disappointment. But I would encourage you to take the “red pill” and work the plan that you and your real estate broker created. The end result will be worth it. Stay the course!
Along with every other real estate professional in Denver, for years we’ve been saying, “it’s a seller’s market,” “homes are going quickly,” so on and so on. But what does that really mean for a buyer? How do you navigate the current market, let alone the roller coaster of emotions throughout the buying process? Let’s walk through it.
It’s important to understand the current market you’re about to throw yourself into. You’ve probably heard home buying stories from co-workers, family, or friends advising on how difficult it is to purchase a home these days. While there’s certainly truth to their experiences, there also tends to be exaggeration (we all want to tell a good story, right?). The best place to start for an unbiased opinion of the market is with statistics. It may not be one of the most exciting parts of buying a home, but it’s one of the most important. It will help you understand the reality of what’s happening in the market, and more importantly, what’s driving it. You don’t need to spend hours doing research, you just need the 30,000 foot view so that you can begin to formulate accurate expectations for your upcoming journey. Luckily, we’ve made that easy for you. Skip the endless Google searches and read our 2020 real estate recap. Before you know it, you’ll be up to speed with the current market. It will be painless, I promise!
It’s important to have an organized plan before you start your search (yes, even your online search). Once you’ve educated yourself on the market, the next step is to make a game plan. Start putting together your advisory team, which consists of a knowledgeable real estate broker and lending partner. These professionals will help to facilitate your planning in each of their prospective areas. A few things to consider while planning:
- Time frame for purchasing
- When to start the search
- Type of financing that is best for you
- Down payment source and amount
- Type of home (condo, townhome, single family, etc.)
- Neighborhood statistics (zoom in from the 30,000 foot view!)
This list is just a starting point. Everyone’s planning will look somewhat different based on their home buying goals. The great thing about hiring a team? You don’t need to reinvent the wheel. They’ll coach you through the process to make sure you’re making the best possible decision for you and your family.
This is the fun part. Once your plan is complete, it’s time to work your plan. In our current market, time is of the essence for touring homes. Traditional pre-pandemic home touring consisted of clustering several homes and viewing them back-to-back in a short time period. Usually, there are other overlapping groups touring the same home you’re looking at. Today, overlapping showings are a no-no, and bookings to view hot listings in desirable neighborhoods fill up fast. It can occasionally take one or two days for a tour slot to become available (picture anxious buyers hitting refresh over and over again). The moral of the story: When a home catches your eye, schedule a tour with your broker. Whether that’s in-person, via FaceTime, a recorded video, or on Zoom, it doesn’t matter. Just get your eyeballs on it so you have the opportunity to compete.
Submitting an Offer (or two, or three)
Now the planning pays off (hopefully). With Denver’s low inventory, you’ll likely be in competition with other buyers for a home. Emotions get high, and anxiety can creep in. Don’t worry. This is normal. The greatest advice I can give you is to trust your broker regarding the value of the home you’re interested in and listen to their negotiating strategy. Remember that they’re on your team, and together, you’ve already outlined the desired outcome in your planning session. I like to call the plan a “guard rail.” It’s outlined before all the craziness begins, and it’s there to keep a buyer from making an emotionally-based, often poor decision. Don’t let the plan fly out the window when things get stressful!
We are in a deep seller’s market, consisting of multiple offers. There can only be one winner per home, and while hopefully that winner is you, be mentally be prepared to walk away when things go awry. Stick to your plan. Listen to your broker’s advice on a recommended maximum price for the homes you are offering on, and you’ll be fine. Your solace in losing will be knowing that someone else overpaid!
Buying a home can be an emotional roller coaster.The process is filled with hope, anxiety, stress, disappointment, frustration, and eventually joy. To help manage these emotions, set expectations, plan properly, and seek counsel from your real estate broker. These guard rails should soften the blows. Remember that your broker has their head in the game every day, and their years of knowledge can be trusted. Their council, along with your perseverance, will get those keys into your hands in no time.
Everyone knows that buying a home costs money. But how much exactly? While the purchase price of the home makes up the largest component, here are other costs homebuyers should be prepared to pay:
This is essentially a down payment or deposit on your new home! It shows the seller that you are a serious buyer by putting some skin in the game, so to speak. Should you terminate your contract in good faith, you will get that money back. And should you make it to the closing table, the money will go towards your down payment. Earnest Money will typically be between 1%-3% of your purchase price, so make sure you have the funds readily available once you start writing offers!
This is the time to have a home’s nooks, crannies, roof, sewer, and so on inspected by a qualified home inspector. Home inspection pricing can vary from company to company, but you can typically plan for $300- $1,000 depending on the types of inspections you order (sewer, radon test, general inspection, etc.).
If you’re like 87% of buyers that are financing their home purchase with a mortgage, your lender will need an appraisal (Property Valuation) done on the home. This ensures that they are not loaning you more money than the house is worth. Price can vary depending on the company, but you can typically plan for $500-$750 for the appraisal report.
The amount of a down payment typically starts around 3% of the purchase price and goes as high as you are comfortable spending or can afford. Twenty percent down is the sweet spot, where you’re no longer required to pay Private Mortgage Insurance (at less than 20% down, you’ll pay for this). You’ll want to discuss your down payment options with your lender!
Closing Costs and Prepaids
The majority of your closing costs are charged by your lender for the financing of your new home. Every lender packages their fees differently, so be sure to have them explain every charge in detail to ensure you are comfortable with them. There will be prepaid items that will be required to set up your escrow account (three months of insurance and taxes), so that the account will be solvent to pay the first bills when they arrive to the escrow servicing company.
And Of Course, Commission
Your real estate broker should disclose their commission amount and how it is paid before you submit any offers. In Colorado, it’s pretty common for the listing broker to negotiate a commission with the seller, and then advertise a co-op fee to pay the buyer’s broker’s commission. In those instances, the amount you go under contract for is the amount you pay at the closing table. Your broker’s hard work will be rewarded from the closing proceeds and reduce the amount paid to the seller.
Budgeting for closing costs is an important part of your home purchasing game plan. Unanticipated expenses right before closing is never a fun problem to deal with!
By LYH broker Rhyan Diller
I’m often asked when the best time to buy is. There are always pros and cons to buying at any time of year, and while there is no exact answer, the best time is NOW.
Picture this. Leslie decides she’s ready to buy a home in the summer of 2019. She looks and looks and finds the perfect single-family home for $485,450 (the median sale price in Denver for August 2019). She puts down 5% and gets the average interest rate of 3.62%, and ends up with a monthly payment of around $2,730 per month.
Meanwhile, Ron is also thinking of buying a home in August of 2019, but he decides he wants to wait so that he can save up a bigger down payment for the ideal 20% down (which by the way, is not needed to buy!). Via his friend Leslie, Ron knows that most houses in August of 2019 are around $485,450, so he needs to save up $97,090 for his down payment. Easy! Right?
One year later, Leslie decides she wants to buy the identical house next door to her. She talks to her trusted realtor and learns that this identical house is for sale at $525,000 (the median sale price in Denver for August 2020). Confused, she asks why an identical house to hers is so much more now than when she bought one year ago.
Her realtor explains how the average home price has increased 8% since just last year! And then congratulates her, because the first house she owns already has almost $40,000 in equity — just for owning it for one year. She then learns that rates are now wildly low and refinances on her first house, taking advantage of the current 2.9% interest rates.
Meanwhile, Ron is still working on saving up $97,090, only to realize that to put 20% down, he now needs to save $105,000 (even though that’s not necessary), since the house he wanted last year is now $525,000. He paid upwards of $2,000 per month in rent in Denver, essentially helping to pay down someone else’s mortgage with no equity to be had.
We know buying a house in Denver is not easy. Most well-priced homes will sell in a matter of days, and you’ll likely be competing against multiple buyers for the “perfect” home. But if you’re waiting for the stars to align — for rates to drop even lower, for more inventory, to save for a higher down payment, or (our personal favorite) for the “bubble to burst,” you will continue missing out on earning an average of 8% year over year in appreciation for simply buying a home. No full remodel, no sweat equity, just ownership.
By LYH broker Rhyan Diller
Being a homeowner, whether new or seasoned, comes with its responsibilities! These are some of our recommendations to make sure your home and investment stays in tip-top shape.
Service Your HVAC
It is typically recommended to have an HVAC (heating, ventilation, and air conditioning) contractor clean and service both systems annually. This will help ensure the longevity and efficiency of your HVAC system. Scheduling this in the fall before you find your heat isn’t working (or in the spring before you find the a/c isn’t kicking in) will save some discomfort (and possibly some cash).
Winterize Your Sprinklers
If you own a home in Colorado and have a sprinkler system, you need to get it winterized! If your sprinkler system does not get winterized, you run the risk that water will freeze in the irrigation valves, pipes, and sprinkler heads, which could lead to a hefty repair bill. In Colorado, it’s best to winterize your system a few weeks before the first freeze/snow is expected. It is typically easiest to hire a professional landscaper to winterize your system if you are not familiar with how to do so.
Clean Your Gutters
If your gutters are clogged, water will not be able to properly divert from your home, which can lead to a number of issues. It is typically recommended to clean your gutters twice per year, once in the late spring and once in the early fall. However, if you have lots of trees and foliage, you may need to clean them more often. Gutter guards can be installed to prevent gutters from clogging in the first place, which will reduce your maintenance costs and clean-up time.
Check Your Downspouts
While you’re cleaning your gutters, check in on your downspouts. They play an important role in protecting your foundation by diverting water from your home. Make sure that your downspouts are diverting the water at least three feet away from the home. If your downspouts are pouring out directly on the side of your home, purchase some downspout extensions from your local hardware store.
Change Your Furnace Filter
A good rule of thumb is to change the filter in your furnace at least every three months or whenever the filter is visibly dirty. If you have household pets who shed a lot or have had poor air quality due to wildfires, you may need to do this more often!
Check Your Smoke Alarm and Carbon Monoxide Detectors
Test to make sure all smoke alarms and carbon monoxide detectors are in good working order, with fresh batteries, at least quarterly! Colorado law states that homes must have a carbon monoxide detector on each level of a home and within 15 feet of an entrance to each bedroom. Smoke detectors are required in every bedroom, outside each sleeping area, and on every level of the home including the basement.
Over 4 million Americans have put their loans into forbearance.
Up until recently, there has been a lot of uncertainty about what it means when a borrower’s loan goes into forbearance. Will there be a huge lump sum owed at the end of the forbearance period? Will it have an impact on credit? Will people be able to purchase or refinance in the future if a loan has gone into forbearance? Initially, the CARES Act did not provide clear guidelines or statements regarding any of those questions, resulting in many borrowers unable to take advantage of record low rates and uncertain if the forbearance policies in place would cause more harm than good.
Now for the good news. On Tuesday, May 19th, the Federal Housing Agency (Fannie Mae and Freddie Mac) provided clarity regarding what forbearance means to borrowers, and gave guidance on how Fannie Mae and Freddie Mac loans will handle repayment, as well as how it will affect a borrower in the future.
Here’s what it means for you.
Let us start by saying, if you’ve not been impacted financially by COVID-19 and can keep paying your payments on time and in full, you should. Forbearance or deferment is not forgiveness, and that money does not go away. So, if you can still pay, that is your best option.
Can you purchase or refinance in the future? Yes! Fannie Mae and Freddie Mac borrowers will be allowed to purchase a new home or refinance their current mortgage even if a loan has gone into forbearance. The borrower must show three consecutive months of payments after the forbearance period has ended. Additionally, if your loan has gone into forbearance accidentally (many Fannie Mae and Freddie Mac loans were being placed into forbearance, if a borrower even breathed the word), you can purchase or refinance immediately if your payments are up to date, without having to wait the three-month period.
Will you have to owe a lump sum at the end of your forbearance period? Not unless you want to. Here are a few ways borrowers can exit a forbearance plan:
- A borrower can pay the sum of the missed payments in full when their forbearance period ends.
- A borrower can defer the payments to the end of the loan. For example, if you were in forbearance for six months, you could tack those six months onto the end of your loan, adding an additional six months of payments before maturity. You can do this for up to 12 months, per the Federal Housing Finance Agency.
- A borrower can use a repayment plan. They can pay the amount due or missed payments, over the course of 36 months or until they are up to date on their payments.
At Love Your Hood, we’re committed to being a resource for you and all of your housing needs. Please don’t hesitate to reach out to one of our trusted realtors if you have any questions regarding forbearance, or buying and selling in the current climate.
Source: the Colorado Real Estate Journal
The age old question, revisited: should I rent or should I buy? Here, the author presents statistics that illustrate Denver’s current preference of renting over buying. In the last 10 years, home prices have exceeded rental increases by 24%, requiring far less cash to execute a lease than to transfer a deed. But one thing to note: you don’t need to wait until you have 20% saved up to purchase a home — conventional home loans start with as little as 5% down! In fact, there are other loan products that can bring the down payment even lower.