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The Investors are coming, The Investors are coming...

Years ago in a different market, I lamented to an REO manager, "When is the market going to turn around? Will we ever get rid of these foreclosures?"

At the time, his encouraging words fell on very desperate ears. He said to me, "Prices will continue to drop to a point, when it will become so attractive, the investors will come. When they come, they will buy. When others seeing them buy, more will buy. Next thing you know you will work yourself out of selling REO's."

He was right.

In Denver our prices haven't dropped very much, if at all. We have a record number of foreclosures, but they are in specific markets, not consistent throughout the metro area. There are very few foreclosures in the higher end, but not many. It's the low end of the market that is dragging.

At the same time we have a HOT market.

Yes, hot. Investors have been buying up apartment buildings. The pendulum has swung. A few short years ago, we had a surplus of apartments. Property managers were handing out free rent and other goodies like Halloween candy. These days, instead of free benny's apartment renters are getting notices of increasing rents.

Suppy and Demand

The homeowners going into foreclosure are now moving into affordable apartments. They have soaked up the vacancy rate. (See Steve Hewson's blog ) Now first time home buyers are looking to buy foreclosures, because it makes financial sense for them to do so. The high rents they are paying are comparable to what they could do it they purchased a home.

While the first-time home buyers and foreclosure people are changing places, the investors are arriving.

Investors are seeing opportunity in purchasing foreclosures, apartment buildings, 4-plexes and other properties that have been sitting dormant on the market. To people in other markets, like California and the east coast, Metro Denver is under-valued.

We are starting on the upswing. It's not to late to get in on the bottom. Spread the word, the investors are coming...

Posted by Kristal Kraft ~Denver Real Estate~303-589-2022 on 11/13/2006 06:15 PM

Comments (25)

denver real estate, investors, buy, sell, foreclosure

Originally posted at: Denver Real Estate & Relocation: The Investors are coming, The Investors are coming...

This post has been included in Colorado Information

25 Comments on The Investors are coming, The Investors are coming...

NOV

2006

Just in time.

I got a call yesterday from an investor buyer looking for 4 unit buildings in Baltimore. That was the third contact from an investor buyer looking for property to buy and rent this week.

It's in the air. But, I believe our market has another 10-20 downside to go before anything will be a good buy. Investors, they are looking for the long term income producing property and it IS a good time.

To bad we don't work with investor buyers. But, thank goodness I have good referral resources.

Kristal,

What an excellent blog about the Denver market. I have a blog that I have been assembling that basically gives the same market direction, albeit without the good detail you have given to it. Thanks for additng clarity to markets.

Steve

Working forclosures is very labor intensive. You have the BPO's to start with, the REO companies think that they are gods. They are slow in returning phone calls, you have all these reports to fill out, sometimes you have to evict families, unexperienced buyers think that because it is a foreclosure that the bank will give it away so you have all these low ball offers to deal with and many of the reo companies charge the listing agent a 25% referral fee. If you don't sell it yourself you have done a lot of work for less pay than the selling agent.

Lenn ~ it is in the air. But they are here and more are coming. Referring out is a good thing if you haven't got the time.

Steve ~ keep on bloggin' man, we need to get the word out!

Vicky ~ I quit doing REO's this past year, for the very reasons and more you stated. The problem is, we have to deal with a rookie crop of reo managers...who are still clueless.

NOV

2006

Interesting information Kristal how much are apartment buildings out there going for on the average?

Sounds like the sun is shining in Denver. I hope it continues! REO's are a nasty piece of business. I still have a hard time showing multis to be good value here though. What kind of return are these investors getting on their dollar?

Thanks for sharing your view on what is going on there -Hooray for investors! Bring them on!!

NOV

2006

u guys don't know an invester from a turkey gobble...

There are no investers coming, Denver is in a major...major real estate bubble, and people can't afford the overpriced houses on the market, that is why Colorado is #1 in foreclosures in the nation.

SAS

NOV

2006

I am real estate investor for the past 5 years during the boom . I have stopped all the business and changed to different profession. I would never invest in denver market.

We absolutely agree. The Denver market will continue to get stronger with a lot of the migration coming from Texas and California.

With the new addition of the lightrail, we have seen land and property values increase. We will continue to buy close to the lightrail in areas like centennial, denver and littleton. Once lightrail is complete on 6th, we will buy there as well.

"a lot of the migration coming from Texas and California"

thats just a cliche, used over and over again...

ok, if you count all the mexicans coming, then you are correct, but sadly, most of those workers can't afford a house nor do they have good jobs.

SAS

SAS ~ you need to familiarize yourself with the definition of "real estate bubble". Once you better understand the term, perhaps we can have a real conversation.

Anonymous ~ Sorry you didn't do well in the investment business. Hopefully you will have better luck in your next profession.

Lisa ~ So true, values are strong along the Light Rail trail and other segments of our market. People WANT to live here!

SAS ~ Cliche' I think not...I have the closings from those relos to prove it.

NOV

2006

"SAS ~ Cliche' I think not...I have the closings "

and if you look at them year/year, you will see price declines and building inventories.

Buyers: Cross off 07 and beware the false bottom

SAS

SAS ~ you are misinformed.

Yes, investors are coming, but they aren't coming anytime soon and they aren't coming for market priced houses, but foreclosures. I don't want to be too much of a downer here, but the numbers aren't on RE's side. The median income in Denver is about $42K, the medium price of a house is about $230K, or more than 5 times median income. The math doesn't work, a family with the median income can afford a home with a price no more than $150K, and that's if they have 20 percent to put down.

There's nothing wrong with thinking positive, but there is something wrong with being delusional.

Lindsey,

Not delusional, but informed. If you are talking straight math you need to figure differently. Looking at averages across the board means very little when you take into account the large number of very low wage earners.

You may want to read my desperation sales blog of yesterday. It explains the segments of the market much better.

The point of this blog is the pendulum swinging. It's on a swing back and that is a good thing. Sorry you can't see that.

Kristal,

Those aren't averages, they are medians, i.e. 50% above and 50% below. It's a standard statistical measure used in economics to get to the middle of any sample. Averages, as you plainly understand, can be swung wildly by the presence of a particularly large number at the top, medians can't.

The use of questionable loans and a lack of due diligence by lenders played a big role in the rise in housing prices; simply put, lenders gave out mortgages that did not fit within the working capital budget of many borrowers.

Now some of those people will be able to pull off the payments, but as you can see by the situation in your state, many people cannot.

As for investors, the question is quite simple, if the rent for the property provides a reasonable return on the investment (i.e. 10-20% above the financing costs) then I think you can indeed expect investors, but if the property cannot provide such a positive cash flow, why would someone choose to buy RE over another asset?

Please understand, I hope your market has turned a corner and there are plenty of buyers for you to work with, but I just don't see how that could be the case right now.

Kristal,

In your "Desperation Sellers" post you noted that, "The Denver metro market currently has 29,722 units on the market..."

The Census Bureau's American Community Survey, the place I got the median income and home value numbers, says there are roughly 270,000 homes in Denver.

By any measure, the inventory of homes for sale in Denver is enormous, and not consistent with appreciating prices. It is, in fact, the only major market I know of with more than 10 percent of existing inventory for sale. Even San Diego and Las Vegas, two markets of far greater size that are considered to be among the leading bubble markets in the country have not only a much lower percentage of homes on the market, but an an actual lower number of homes for sale.

Even if your inventory were to be cut in half, you would still have far too many homes on the market to reasonably believe that purchasing a home in Denver at the current market prices is a good investment.

Lindsey, the reference to averages is not about home prices but incomes.

The investors are here, they are buying the multi family units. It's a recorded fact. The cycle of sales goes something like this. The foreclosed homeowners are moving into apartments, the first time buyers, who are currently renting are now discovering the rent increasing they can afford a home. They are buying many of the entry level foreclosures.

With first time buyers coming into the market, the sales work themselves upstream.

The vacancy rate in Denver is very low, the lowest it's been in years. That coupled with increasing rents is making this segment of the market very attractive to investors. Many aren't coming, they are already here.

I am fully aware of the many homes on the market due to 100% financing. I don't look at all the lenders as evil. They are delivering a product the consumer wants. When did lenders "lack of due diligence" include foreseeing the future?

I believe the consumer needs to take responsibility for their actions. Many purchased homes beyond their means, because they were playing CRAPS with their future. Betting on the appreciation that didn't come.

Nobody broke buyer's arms to purchase homes. They bought and they have the responsibility to live up to their obligations.

I agree with your statement regarding "questionable loans". The product is there and has good application, but not for everyone. 100% loans are really best applied to people who have tons of money and don't really need a loan.

The problem with the 100% product going to the general public is the lack of responsibility that has been bred into our society. The lack of commitment with no money down in a society that refuses to claim ownership in their actions.

Thanks for stopping by...

If you are going to look at Metro Denver, please look at METRO DENVER. Do not confuse it with Denver in itself.

It would be nice if you would identify yourself...guess I'll go check out your IP. I'm not fond of talking to shadows.

NOV

2006

Kristal,

First off, I'm out there in lots of ways if you would care to find me go right ahead. I live in New Jersey and work in the affordable housing industry.

While I have only followed the Denver market from afar, the news I've come across and the fundamentals I see are not positive.

For the record, the ACS treats the city of Denver and Denver County as a single entity, I generally rely on the Census Bureau for raw data.

I realize that people acted irresponsibly in taking loans they couldn't pay back and that lenders acted irresponsibly in making them, but that's water under the bridge. The current market has those issues as factors, it is reasonable to assume that to the degree homes were purchased by people who can't pay for them, the market will have to adjust.

The income and median value figures are what they are, unless wages rise or prices fall, the majority of Denver residents will continue to be priced out of the Denver real estate market.

Lindsey ~ FYI for following the Fundamentals...The Metro Denver area includes the following counties; Arapahoe, Douglas, Broomfield, Jefferson, Adams, Elbert and of course Denver.

According to the estimates of US Bureau of Census there are 600,600 homes in these combined Counties. When relating the Metro Denver available inventory of 29,722 (Nov '06) these are the numbers to use for a ratio.

AS per Denver residents being priced out of the market the average income vs. home price has been out of whack for a long time. The only explanation I can offer is there are many more low income people living in Denver then there are affluent. You are right in your assessment based on those numbers.

With that said I can also show you very strong segments in the market where the sales defy what is being published in the media. We have a strong market in many areas. We also have a lot to choose from. The nice properties are selling (4133 last month alone.)

We have seen gentrification of neighborhoods all over the city. Home values have been increasing in those areas, thanks to investors who rehab and home owners willing to do the work. There are still areas that need work, so it's not too late for homebuyers to find a grubstake.

We also have suburbs where the average list/sale price is 99%! Our market is not crashing. It is saturated but steady.

<The income and median value figures are what they are, unless wages rise or prices fall, the majority of Denver residents will continue to be priced out of the Denver real estate market.
> One thing I have found, there will always be people at the bottom of the pay grade. There are always people moving up. Most people who really want to purchase a home can find a way. They may have to move to the burbs, but they find a way.

You may wish to call me "delusional" but consider the fact that I actually live and work here and know my market. I am deaing with investors who see opportunity here. That should count for something, don't you think?

NOV

2006

Kristal,

That ratio (29K to 600K) certainly makes more sense, and according to the most recent NAHB report affordability in Denver is not as bad as I thought. They put the percentage of buyers who could purchase the median priced home at 57%, far better than in many other areas of the country, FYI, the worst is LA where something like 2% can buy the median priced home. Try working that market.

Sadly, I think the opportunities for people to move up the pay grade are not what they once where in this country. It would be good to see that change, but I don't know what is going to make it happen.

Just curious, how far (time wise) are people in those outlying counties from the the center of Denver? I'm about an hour from NYC, but I don't consider the area I live in to be part of Metro NY. Maybe I'm wrong about that.

Lindsey ~ Our outlining counties are very close in. An hour driving here is not like an hour driving in Jersey. It takes less than an hour to drive across the Denver metro area. At rush time it would take that long.

Home prices in LA and many parts of California are out of sight. I don't know how normal wage earners can live there. Well actually I do, they work to buy a very modest home. The young people take out 50 year mortgages, or interest only. Once again betting on the future. It's nuts.

I get to relocate many of these people coming from high priced areas. They love the VALUE that get here and the easy lifestyle.

LOL, most people who live in Jersey don't consider them to be part of NYC. I grew up on the Jersey Shore in Monmouth County. New Yorkers were our natural enemies.... ;:)

AUG

2007

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