Denver, CO · Member since 2016 · 16 posts · 7 votes
Hello,
So one thing to get out of the way from the start: the purpose of this post is NOT to debate whether or not there will be a softening in the Denver market. There are plenty of other posts on whether Denver is in a bubble that have been posted the last year or so. I'm happy to post separately on my thoughts there.
What I am curious on, is for those of you that are in the same place I am, which is firmly believing that the Denver housing market is overpriced, and is due for a flattening out after next year, and in some areas, like small multi-family is actually heading for a price retreat over in the next few years, what are your next moves? I've had a few offers on a duplex in Jefferson Park that I own, that are just ridiculous. Purchased at those prices, these "investors" would be just barely covering expenses, and definitely in the red if they were properly allocating for cap ex.
So what are you all doing? Selling? Just not buying? Buying out of state? What are your 1-2 year plans.
@Mike Stephens I too own in Jefferson Park but don't agree with your assessment of the market. Here is what I am doing. I am not selling. From what I have seen over the years, real wealth is built through the long term ownership of real estate. Getting in and out of the market is expensive. Taxes and real estate commissions take a bite. If I sell and do a 1031 I am either trading out here in Denver or going somewhere else. I've not sold and here is why. Relatively speaking the trend in real estate is in the same direction. Sure you can get more cashflow in some markets but compared to what cash flow was in 2010 coupled with the prospects of growth in the future I don't see a compelling argument to move unless I shift my investing priorities. The question I ask myself, "Would I rather own my property in Jefferson Park in 40 years or somewhere else?" I can't think a better place to own. Now I'm sure smarter people will do better than me by trading up and making sure their equity is generating proper returns etc. I'm a pretty simple guy and base my investing on my grandfather's advise. Are you making money? Yes, then it's good, don't get greedy.
Am I buying. Yes and at full market price but with 100% owner financing (low out of pocket expenses). Personally I have stepped away from the BRRRR because I don't have the time to undertake the work of a typical BRRRR that I have bought in the past. I have plenty of cash flow to cover a correction and I think that any possible correction in the SFR market here is at least a year or two away. I limit it to 1-2 yrs because projecting beyond that is guessing in IMO.
People have been calling for bubble or correction in Denver for the past 3 years at least. Sooner or later we will at least get a correction but we don't know when nor how much. Had I stopped doing deals 3 years ago, I would have missed out on 30% appreciation in value and about 15% in rent growth. Not to mention the historically low interest rates. My 1-2 year plan is to continue buying property here. If I found a good deal (my definition) in Jefferson park, I would buy in a heart beat. Shoot I'll buy your place at your price if you do a wrap mortgage and the payment will be covered by current rents. Not trying to make a deal, just trying to make a point.
I read an in-depth report by some local analyst who have been spot on about a number of real estate trends. They predict that in late 2018 early 2019 a healthy and normal decline will begin totaling 10-percent. For how many months that takes, IDK. Their model did factor in the current 3% unemployment rate and housing supply.
Do you happen to remember where you read that? I'd be interested to take a look.
Let me dig around some. I think it was either in the DenverPost or a Multifamily Real Estate Journal. As we all know, markets don't always follow technical analysis & price charts. They'll trend above or below medians and averages. I am not in the camp of a dire recession as one report predicts but I would have never predicted 2007-2009 either. If it does happen, it may be another opportunity to pick up property at an attractive price.
I can sympathize with some of what the article is saying regarding loss of value in northern front range (Foco, Greeley, Thornton, N. Denver, and GVR particularly) and the pendulum swinging back to more sustainable housing pricing. However, I am struggling to see Boulder as being especially susceptible to home value decline. The article states,
"Boulder, whose home prices have historically been fairly resilient, would be the northern Colorado metro area most at risk of price declines, facing a drop of 17 percent from this year through 2022. In Boulder, neighborhood home values would fall by anywhere from roughly a tenth to a third from current levels."
Crunching metadata can certainly increase the accuracy of your proforma, but there is inevitably events that will change the trajectory of the data. Does this data take into consideration new decisions made by tech companies such as Google and Amazon to come to the Front Range?
I would agree with @Patrick Hart I find it hard to believe Boulder would take a major hit. The reason I say that is because there has been little purchasable development within city limits, but there has been and still will be a growing demand for housing with all the new companies and jobs moving in. I could maybe see the high end market taking a hit since the prices are starting to get over valued but from my experiences growing up in Boulder the housing market within the city doesn't get affected too much by outside trends.
@Will Cook I have seen a lot of people (especially those in the mortgage industry) that hold the thinking that we are over priced and from what I can tell, it's all based on affordability. I think that supply and demand trump that. Lack of affordability does not create supply. Certainly it decreases demand but to go to a historically balanced market with our current supply would mean that we would hit record low sales. Perhaps the lack of affordable housing will keep people way (less demand) but right now our market has way too few sellers. If more sellers come to market it should balance the market not cause it to dip. The question to me is why would sellers decide to sell? We certainly aren't building enough homes to balance the supply and those that are being built are mostly above the average price for the area. The new supply is also located, for the most part, away from the areas of high demand (in and around the urban core).
I see affordability decreasing demand and balancing the market but can't really see it causing a dip in price. One thing about models, they always predict the past perfectly but don't do so good about the future. If they accurately predicted the future, those that followed them would be over the top rich.
@Patrick - I recall back in 2005 about the news of Google and Intel expanding their footprint into Chandler, AZ and that it would be a boon.
@BillS - I couldn't agree more. But if economic growth really takes off, the Fed is poised to raise rates next year 3x. We will hit 3% on the 10 year Treasury for sure at that time ( see chart ) and mortgage rates will follow.
I have a buyer who is having trouble selling his home in Centennial. They are looking at $700k properties in Monument and Parker, CO where the seller has lowered their asking price already by 10%. Sure, it could be seasonal and since local home values is not my specialty I won't speculate what the cause is. It is not in my best interest to see a market decline. However, something has to give at some point.
The stock market and housing market are both at all-time highs without a true correction for quite a while. Then we have crypto-currencies with bubblesque chart patterns.
It's seasonal mixed with over pricing. I've had 4 listings in the last few weeks, and all went UC in the first weekend at or above list. That price point is a bit slower obviously and condition/updates, etc matter. I don't think there will be a decline, but a slowing perhaps.
If some kind of tax reform, etc happens, then we might just keep climbing at a high rate. If amazon comes here, then get ready for some insanity.
@ Bill S. - Bill, I’d love to know more about how you negotiate the 100% seller financing. Haven’t heard much about that option. Any suggestions for learning more about that?
@ Bill S. - Bill, I’d love to know more about how you negotiate the 100% seller financing. Haven’t heard much about that option. Any suggestions for learning more about that?
Your tag didn't work. It has to turn blue. Right, @Bill S.?
Edit: It's blue when I edit, but not on the forum...
Mike Stephens I'm curious if you're getting crazy offers because you're zoned for multi family or rowhomes? If so, be aware some zoning amendments are coming that will affect the amount of units developers can build on some of these multi family lots - which will affect the max price they are willing to pay for the land value...which could result in a correction in pricing in some of these developer driven transactions.
For example if your neighbor for $800k because a developer could build 8 units but with the new code changes slot homes aren't allowed anymore and the max you can build is 5, you're not getting $800k, maybe more like $500k. Just a thought..
Just put a house UC with a buyer in Littleton. Multiple people at all the homes we went to. Lots of activity that reminded me of Spring. The home he is buying had 7 offers. This is in the $350 price range.
I work with some large property management companies on the front range and I asked them about this recently. They all say most of the smart money is staying on the sidelines waiting for a correction. One large PM company in Denver hired a VP of acquisitions and he hasn't bought anything in 2 years. These companies serve some of the largest individual investors in the front range so I'm inclined to agree. I bought a property in the Springs this year and I'd love to own in Denver but I'm personally waiting for a correction. A lot of signs are pointing that way including flattening rents and increasing vacancies.
@Jerry Shen Thanks for that reply I've heard from a lot of people that are feeling the same way.
Do you have any recommendations on how to hold my liquid assets? Currently I am holding mutual funds and EFTs but I was under the impression that, when expecting a downturn, or correction, something less volatile might be more appropriate. Thoughts?
Nathan Poole I too am expecting a huge correction. We are in this cycle where real estate is way over valued and way over priced, and gold/silver is way undervalued and way under priced. I would and DO buy gold and silver. I mostly buy silver as it is way out of tune with the gold/silver ratio so it will see a bigger correction going up. When real estate starts to tank, lots of big investors put money in gold/silver as they start to move up. Then all that money being pulled from real estate causes the market to fall out, and when everyone sees gold/silver start to move, it pushes more investors in there and the price skyrockets. Then eventually the gold/silver will be way overpriced and way over valued, and real estate is at its lowest. So the smart money changes in the gold/silver for way more houses then they had before, and ride the wave back up. If you look at history, you will see this same scenario play out over and over.
@Jerry Shen Thanks for that reply I've heard from a lot of people that are feeling the same way.
Do you have any recommendations on how to hold my liquid assets? Currently I am holding mutual funds and EFTs but I was under the impression that, when expecting a downturn, or correction, something less volatile might be more appropriate. Thoughts?
TLDR on that post: If you don't want to hold cash (I don't blame you) you want something that is disconnected from the real estate markets. Right now cryptocurrency is the only asset that has this property. But of course, it's very volatile.
Robert is correct that gold/silver does to a certain extent as well but it's facing a lot of pressure from bitcoin as a primary store of value right now.
I'll give you my unique perspective. I know @Scott Trench disagrees with me and we've argued about it before, but larger companies are moving their headquarters out of Denver. I experienced it when CenturyLink bought out Qwest and moved everything to Louisiana, I've seen it with companies merging (CH2MHill), I've seen it with smaller companies moving (Pason Industries). HP is no longer here, PeopleSoft moved to California, Sun Microsystems is gone/no longer exists, Corporate Express is gone/no longer exists, etc., etc. I am experiencing it again - I was informed on September 22nd that my company is moving it's complete Tax and Treasury function, as well as most others in my office to Jersey City, NJ and my last day will be March 31. This is a large company that was once owned by American Express, Spun off Western Union, and recently re-went public a couple years ago after KKR took it private quite a while ago.
I work in a function that is only performed in larger Tax Departments. Smaller companies can't afford to keep folks like myself on the payroll in that what I do is pretty specialized. I have almost 25 years of experience doing what I do.
I've submitted 106 applications since September 22nd - many of those applications went to Finance related functions that I am certainly qualified for. There are very few job openings in my field - the last interview I had in my field was at Croc's in Niwot...It would have been an incredible opportunity, but I felt a little uneasy about it - I mean seriously, this is a company in the fashion industry based in NiWot. They should be based in Boston, San Francisco, or New York where most other fashion companies are based (Reebok, Nike, etc.). What's to say they aren't bought out by Reebok (where their current executives are from) and they move out to Boston?
In the meantime, I've also been applying to various Government positions - at a significantly reduced rate of pay in that unless I move, the likelihood of my finding another job in my field is very slim...and I have about another 20 years of working before reaching retirement age.
I interviewed for a residential real estate appraiser position at Jefferson County. They had four openings. This was an entry level position where they will help you obtain your appraiser's license. I viewed this as a huge opportunity in that appraisers are constantly busy. I received a call back from the hiring manager and his comments were sobering. He indicated that I interviewed well, I had a terrific education and background and that he thought I would be successful in the position. He had to hire four other people because THEY WERE ALREADY LICENSED and experience appraisers. He indicated he had not had that happen before and that people are running to the safety of local government for the health insurance and retirement benefits in that the private market is slowing.
I have an interview with the City of Longmont tomorrow, and City of Boulder the following Friday. There are no current open positions in my field.
My boss - a VP will be retiring because he knows there's nothing in this market. He was contacted by a recruiter for a similar position at Home Depot - in Atlanta.
My boss' boss - he is retiring because he doesn't want to move (back) to Jersey City. He's a very bright man and a GE Alumn (prior position in Florida).
The replacement for my boss' boss - we met him a couple of days ago. He is moving from North Carolina to Jersey City. He is from Utah and owns a home in Park City. His comment was he's been looking for a job at his level either in Park City or Denver for over 15 years and hasn't found one...if he did, he'd move here in a heartbeat.
My Co-Workers - one moved to a different tax field. One was elected as a mayor for a local city - very small monthly stipend but she is looking. Two others are looking and have not found anything.
Sadly, the country is polarized and is polarizing a bit more with relation to big business. San Francisco, Los Angeles, New York, Atlanta are your best bets. The Denver Business journal indicated BP opened an office in Denver - these are Finance and operations folks. It wasn't a major investment. Amazon has been in a fight with Colorado for years over Sales Tax - don't expect them to open a second headquarters in Denver. They are headquartered in Seattle. DaVita has a big office downtown - they are headquartered outside of Seattle.
The folks that are driving the market up aren't operations folks that work in larger corporate headquarters. Many are sales folks or IT/Consultant type folks that work out of their homes, travel quite a bit, and live here because Denver is a good hub to fly out of. Our biggest employers in the region are DIA, Jefferson County, CU, etc. All government type jobs. Big private industry/large corporate jobs are gone. That's not positive for a sustainable economy here. Think about what happened in Detroit with relation to GM and Ford. I don't foresee anything that drastic happening, but unless the Governor and local Mayors start attracting larger businesses, the market is going to keep softening and corporate investment is going to keep dwindling given the high cost of property, high cost of labor, high regulation, unfriendly business tax structure, etc., etc.
These are always fun discussions. As @Account Closed says, he and I have differing views on this. While there are definitely comings and goings of certain industries, the fact of the matter is that we have extremely low unemployment here, a low that has been going down for years. In spite of all the population growth, there is a huge demand for more labor. This is with a median household income of $57,886 for the metro area. We continue to see net immigration.
And, from an anecodotal perspective, I see the exact opposite of Ed. I see new companies coming to town, and new development in a boom constantly. My peers are moving here and getting high paying jobs.
These are always fun discussions. As @Account Closed says, he and I have differing views on this. While there are definitely comings and goings of certain industries, the fact of the matter is that we have extremely low unemployment here, a low that has been going down for years. In spite of all the population growth, there is a huge demand for more labor. This is with a median household income of $57,886 for the metro area. We continue to see net immigration.
And, from an anecodotal perspective, I see the exact opposite of Ed. I see new companies coming to town, and new development in a boom constantly. My peers are moving here and getting high paying jobs.
...speaking of friends....here's a recent article from the Denver Post addressing what I've been talking about. Mark Conner who is interviewed in the article is a friend of mine. I worked with him at Suncor Energy before he was laid off. He moved to Guyman, OK because he couldn't find a position here in Denver as a Finance Manager....
I work with some large property management companies on the front range and I asked them about this recently. They all say most of the smart money is staying on the sidelines waiting for a correction. One large PM company in Denver hired a VP of acquisitions and he hasn't bought anything in 2 years. These companies serve some of the largest individual investors in the front range so I'm inclined to agree. I bought a property in the Springs this year and I'd love to own in Denver but I'm personally waiting for a correction. A lot of signs are pointing that way including flattening rents and increasing vacancies.
How has the property in the Springs worked out for you so far?
I work with some large property management companies on the front range and I asked them about this recently. They all say most of the smart money is staying on the sidelines waiting for a correction. One large PM company in Denver hired a VP of acquisitions and he hasn't bought anything in 2 years. These companies serve some of the largest individual investors in the front range so I'm inclined to agree. I bought a property in the Springs this year and I'd love to own in Denver but I'm personally waiting for a correction. A lot of signs are pointing that way including flattening rents and increasing vacancies.
How has the property in the Springs worked out for you so far?
I've only had it for a few months so too early to tell. I think Springs is definitely not as hot as Denver but I think there is definitely spillover effect. If there is a correction I think Springs will be hit worse. I bought for cashflow so I'm not that concerned if a correction hits, but definitely still worrisome.
@Scott Trench @Account Closed Anecdotes are limited in usefulness, I like to look at numbers.
I think case-schiller index has been very useful in predicting residential real estate cycles in the past. The Denver numbers don't look too great historically.
The 18 year boom/bust cycle in our economy also works like clockwork back to the 1800s so if I were a betting man I would definitely bet on history repeating itself shortly. https://www.cato.org/publications/commentary/great...
@Jerry Shen I'll start off by saying that I have no idea what is going to happen nor do I try to predict it.
Inventory levels are interesting to follow as it's a good reflection for supply and demand. Take a look at the graph below to see inventory levels now vs the crash. I don't see inventory changing anytime soon!
@Chris Lopez yeah I'm not trying to predict the future either didn't mean it that way. But boom/bust cycle of RE closely follows boom/bust business cycle. It's an inevitable consequence of a credit based inflationary economy. This is by design and you can look back to 1800 to see it. Some crashes are worse than others (1929 and 2007) but the cycle is there nonetheless. Impossible to predict timing, but it's a matter of when not if based on data.
@Jerry Shen I'll start off by saying that I have no idea what is going to happen nor do I try to predict it.
Inventory levels are interesting to follow as it's a good reflection for supply and demand. Take a look at the graph below to see inventory levels now vs the crash. I don't see inventory changing anytime soon!
An interesting anecdote. Westword did an article earlier this year... I don't remember the specifics, but I believe the article referenced that in May or June of this year there were 1,800 houses available for sale in the Denver metro area...and there were 22,000 active real estate agents in the same area (and another 20,000 registered inactive). Think about that...1,800 sellers...so that's 1,800 sellers agents engaged and MAYBE 1,800 buyer's agents engaged. What are the other 18,400 agents in the Denver metro area doing for a living??? Pretty sobering...
