The common wisdom is that the current real estate market is “bad”. But bad for who? The fact is that the market is actually GREAT for quite a few people!
Here’s the “bad” part:
According to a report in the Denver Business Journal http://denver.bizjournals.com/denver/stories/2009/11/23/daily25.html?surround=lfn , about 19% of Colorado homeowners actually owe more than their homes are worth in the current market. Its even worse in the Denver metro area , where the percentage jumps to 22% - almost one quarter! How can this happen?!
Two ways. The worst because we as individuals, can’t really control it, is the decline of home values over the last 2-3 years. High foreclosure rates literally sucked the value out of many neighborhoods. Aurora, was one of the hardest hit, especially in the 80011, 80012, 80013, 80017 and 80018 zip codes.
The other way homeowners become “upside down” is through high “loan to value” mortgages – the ones that were very common in the latter half of the decade. Some lenders were loaning MORE than 100% of the value of a borrowers home! So those people STARTED OUT underwater, and the only way they could ever hope to come out ahead is if property values soared. THAT didn’t happen. Some people also have mortgages that add to, instead of subtract from the amount originally borrowed as the years go on. This is called “negative amortization” and it happened to many homeowners who had “choice” loans, where they had four payment choices each month. If they made the choice to make the lowest available payment, their loan principal actually increased for that month. And, of course, we all know about the effects of ARMs (adjustable rate mortgages). Some people’s loan payments have doubled when their mortgages adjusted!
All of this makes for tough times for current homeowners. Those that can wait out the cycle will see their values return, and even grow. History has shown that real estate in the Denver metro area follows cycle that lasts about 20 years. In some segments of the market (e.g., homes under $250,000, north Aurora, SW Denver) we are actually seeing prices begin to climb again. Investors and first time homebuyers pushed values upward as they bought up low priced homes and took advantage of the $8000 tax credit. Still, homes in many areas of Aurora, are selling well below what they were three years ago. Higher valued homes in SE Denver, Parker, Centennial and Highlands Ranch are seeing values stay flat, or fall slightly. Homes in the $600,000 and up range are sitting on the market for 2 years or more! Many people, who want to sell, but don’t really need to, are (wisely) waiting for prices to come back up again. Yes, for some people, the market is “bad”.
But if you’re looking for a home or investment property to buy, you really couldn’t ask for a BETTER time! Interest rates will likely never be lower and home prices are still down. The upward portion of the real estate cycle is still ahead of us. The first time homebuyer tax credit ($8,000) and repeat homebuyer tax credit ($6,500) add even more incentive. If we get the inflation that many experts are predicting, you’ll be paying back money you borrow today with cheaper dollars in the future.
Your Castle Real Estate (www.yourcastle.org) offers free real estate trends classes around the metro area from time to time. We give you a real world look at what’s really going on at the neighborhood level all around the metro area. Visit my website at www.myrealestateladyonline.com and drop me an e-mail to be included on the e-mail notification list for upcoming classes.
