Real Estate Quarterly
Who’s Buying and Where?
The landscape of the housing market has seen some changes following the economic fallout.
Premium content from Denver Business Journal – by Dennis Huspeni
Date: Friday, April 29, 2011, 4:00am MDT
Related:Commercial Real Estate, Residential Real Estate
Kathleen Lavine | Business Journal
Tom Guest, broker/owner at Key Masters Real Estate, is president of Metro Brokers for 2011. He says about 60-80 percent of the business recently has been in the foreclosure market.
You can’t talk about trends in the Denver residential real estate market without acknowledging the proverbial elephant in the room: foreclosures and short sales. But Realtors and analysts are seeing signs of life from other market segments, such as luxury homes.
“At least 60-80 percent of business now has been in the foreclosure market,” said Tom Guest, president of Metro Brokers, with 1,400 agents.
“If you’re a Realtor and not been in the foreclosure market, or some aspect of it, you’re struggling. But a lot of people are looking now. The majority are looking for a primary residence and the first-time homebuyer is back.”
That trend stems, in part, from falling apartment vacancies and rising rents, analysts said.
When rental rates start to equal a mortgage payment, more people start looking to buy. Couple that with still favorable mortgage rates, and a trend starts to emerge.
“People are buying for location and value now,” said Mike Rinner, executive vice president of The Genesis Group, an Englewood-based real estate market research and analysis firm. “When times are good and this is the place they’d like to live, value is not as important. … But in bad times, value and location are both important.”
“There’s been so much negative news, but there are a lot of positive things this year,” said Coldwell Banker’s Zac Nelson, who has worked the Denver market for almost 10 years. “One of them is the luxury market.”
Million-dollar homes start to move
Lon Welsh, founder and managing broker of Your Castle Real Estate, said statistics show the luxury market is heating up.
“The cheapest 10 percent of the market, under $85,000, clearly shows it’s a seller’s market,” Welsh said. “But on the high end, those over $460,000, it’s very much a buyer’s market.”
A statistic called “months of inventory” illustrates that fact. It’s how many months it would take the market to sell out, based on current sales figures and number of homes for sale.
While there are only 4.6 months of inventory for homes under $85,000, there are 9.1 for homes over $450,000.
In addition, the price of luxury homes has dropped as sellers become more realistic about what the market will bear, Nelson said.
“I’ve seen several price adjustments of hundreds of thousands of dollars; some even came down a million,” Nelson said. “Most hit a breaking point, and they’re tired of having their home on the market. They were living in a 2005 market. There’s only so much marketing a Realtor can do. In the end, it comes down to price.”
Nelson pointed to National Association of Realtors statistics for the Denver market that showed 2,849 homes from $500,000 to $1 million sold here in 2010, compared with 2,632 in 2009 — an 8 percent jump. For homes selling for more than $1 million, the growth was even more pronounced: 444 homes at a million-plus sold last year, up 13 percent from 388 in 2009.
“While the luxury market is recovering, we’re starting with a lower base,” Genesis’ Rinner said.
“The tax credit last year depleted small home inventory and ran up prices, while the high end was neglected,” Welsh said in one of the analysis reports Your Castle specializes in. “This year has a much more balanced inventory, and appreciation has been more balanced, too.”
The federal government’s $8,000 first-time homebuyer tax credit and $6,500 credit for existing homeowners expired April 30, 2010.
Where’s the action?
Denver’s core has hot spots regarding number of homes sold and on the market.
“I’m seeing a lot of movement in Washington Park and Capitol Hill,” Guest said. “Those older properties are drawing a lot of interest. People wanted to move in before, but they couldn’t afford it. Now the prices are coming down a little.”
Nelson said the general trend has been for people to buy closer to urban areas, while trying to hang on to suburbia.
“While it’s still around the core, the market still is and will continue to be neighborhoods that are walkable and bikeable, near the light rail and where the future light rail will be,” he said.
That’s why there’s so much activity in the area northeast of downtown, north of City Park.
Another factor for that area, Nelson said, is that a single-family home can be purchased for around $150,000 there, where the same home would cost $250,000 or more farther into suburbs such as Arvada, Highlands Ranch or Lone Tree.
Rinner noted he’s seen a lot of activity in areas that are “pushing the envelope in price.”
“They have nice, new, master plans where the builder has brought a lower price with value engineering,” he said.
Rinner mentioned such developments as Blackstone and Beacon Point, both in Aurora, and Whisper Creek and Taylor Morrison, both in Arvada.
“That’s a value play there,” he said of the Whisper Creek homes. “It’s tough to get into an Arvada home” for those prices.
Judging by statistics from the Colorado Housing and Finance Authority (CHFA), and experts’ anecdotal evidence, the metro area home buyer’s profile has changed since the end of the Great Recession.
While there’s been little change in the number of buyers ages 25 to 44, according to Jaime Gomez, CHFA’s chief operating officer, there are markedly fewer younger buyers and a lot more older buyers.
“There’s been a decrease in the number of 18- to 24-year-old buyers,” he said, noting that CHFA deals with first-time homebuyers in the affordable housing market for homes up to $350,000.
In 2008, 19 percent of CHFA’s loans went to buyers in that age group. By 2010, that number dwindled to 13 percent. Conversely, there were 17 percent of buyers above 44 in 2008, and that jumped to 22 percent in 2010.
CHFA, a state-created lender, works to provide financing to homebuyers, small and medium-sized businesses, and apartment developers.
Number of younger buyers declining
“We think there are a couple of reasons for that,” Gomez said. “Everyone knows the national job market is difficult, especially for people in that age group who are just out of high school or college trying to find a job. They might be staying in school longer or saving enough money to get into a home.”
Lenders also are looking for more credit history, especially since the lending rules have become more stringent after the Great Recession.
That also could explain the spike in the older demographic, whose members have more credit and a longer credit history, he said.
As far as resales, Nelson said there are more among those 30 to 40.
“You just see a younger push, with the buyers using technology and social media to do research and getting recommendations on where to buy,” Nelson said. “It may just be coincidental, because the prices coming down allowed more opportunity for buyers to qualify — along with lower interest rates.”
Gomez also provided a telling statistic about the increase in minority homeowners, which jumped from 23 percent in 2008 to 32 percent in 2010.
“That’s a pretty significant increase in the last two years,” he said.
Gomez attributed that to lenders previously targeting minorities with risky adjusted-rate-mortgage (ARM) loans.
Those have become scarcer since the recession, and those buyers are following the “flight to quality” and using more conventional, 30-year, fixed-rate loans that CHFA offers.
CHFA doesn’t offer ARM loans.
Metro Broker’s Guest said he’s seen more employers bringing in new hires.
During the recession, there were a lot of talented, unemployed workers and less reason to move people. That’s starting to change.
“There definitely is a re-emergence of the relocated buyer,” Guest said. “There was a lot of shopping in the fourth quarter, and the budgets for companies hit in the first and second quarter, so there’s been more activity.”