The Berkshire Group compiles monthly talking points about the Denver Real Estate market and housing statistics.  This month the observations are very interesting.

 

1.        Mortgage rates continue to creep back toward 5%, but the rates are not the story.  The real reasons for the slow recovery in the housing market are continuing employment fears and unreasonable mortgage loan qualification standards. As unreasonably willing as the financial industry was in giving away mortgage money in the middle of the last decade, the same markets have become unreasonably reluctant to lend mortgage money as we begin the second decade of the millennium. There is a great opportunity here for aggressive and well managed regional banks to capture a large slice of the mortgage market for their portfolio.

2.       The single family average price is just barely below March of last year, with the condo average and overall average beating out last March by 3/10ths of a percentage point.  Cautious optimism is the watchword, as the market is moving past the effects of the tax credit, which ended in April of 2010.  Median prices in both categories are still below 2010 levels, which can be blamed in part on those previously mentioned underwriting guidelines, especially in the plus $450K market segment.

3.       Resale inventory is in decline again.  That fact, coupled with the fact that 25% of the market is somewhat less than desirable distressed property, and the new builder community’s necessary caution in limiting new starts, means the average turnkey home buyer has a lot less to choose from, and well priced and well presented properties are selling quickly.

4.      Those distressed properties are selling, but often to all cash or mostly cash buyers to be converted to the rental market.  Those that cannot, or do not wish to buy, will rent.  Investors are everywhere in the market place.

5. Let’s take a look at the RENT vs. BUY equation in the Denver market.  We will use as an example a typical 3 bedroom, 1200 square foot house, considered ideal for the average first time buyer.  According to a quick look at Craig’s list, such a home in the Metro Denver market will rent for approximately $1,400, a little less in some areas, a little more in others.  The average sale price in the month of March for such a house was $155,000.  With a 5% down payment, and closing costs paid by the buyer of 3%, such a buyer brought approximately $12,000 to the closing table, with an average total monthly payment including taxes, hazard and mortgage insurance of approximately $1,100. That is $300 a month in favor of buying rather than renting.  BUT, you say, what about the $12,000 in down payment and closing costs?  At $300 monthly, the $12,000 is recovered in less than 3 ½ years.  And none of this discussion considers the appreciation and income tax benefits of owning vs. renting.  Everyone thinking about establishing their first home should consider the implications of buying vs. renting.  Is buying for everyone?  Of course not, and it never has been.  BUT, it is right for many people who think they cannot afford to buy today, believing incorrectly that they cannot afford to buy and need to rent.

As a disclaimer, the above discussion is based on apparent averages, and will be different for every potential homebuyer.