Jim Smith, Broker

Cash Sales Are Up Less Here Than Nationally

By JIM SMITH

Like you, I’ve read reports from Zillow, Redfin, the National Association of Realtors, and others about the surge in investor purchases and the percentage of transactions that are all cash, but I can rarely confirm those reports when I do statistical searches on REcolorado, Denver’s MLS.

For example, Inman, the leading real estate news service, reported the following last Saturday: “All-cash home purchases in the U.S. hit 31.4 percent of all transactions in July 2022, up from 27.5 percent the year before, and just shy of an eight-year high reached in February, according to data released Friday by Redfin. Since the beginning of 2021, all-cash purchases have surged thanks to a pandemic-housing rush, reaching an apex in February when 32.1 percent of all transactions were made without financing, according to Redfin.”

Compare those numbers with the chart below, created from REcolorado, based on closings within 25 miles of the State Capitol.

The pandemic took root in April 2020, but there is only a modest increase in the percentage of cash transactions well into year two of the pandemic. A more significant increase can be noted in 2022, but the peak was well before the increase in mortgage interest rates which only showed up in April, and the percentage of cash sales actually dropped a little as those rates increased.

Regardless of those fluctuations, the percentages are well below the national percentages reported by Inman.

Looked at Correctly, It Costs No More to Build (or Buy) a Sustainable Home

“Conventional wisdom” says that it costs more to build a solar powered, highly sustainable or net zero energy home, but that’s not really true if you look at the issue a little differently.

As you surely know, such improvements reduce the operating cost of a home. Solar panels, for example, can virtually eliminate your electrical bill, if your system is sized correctly. They can even provide free fuel for your cars — if they are powered by electricity.

Super insulating your home can reduce the cost of heating it, whether by natural gas or electricity (using a heat pump system). Ditto for installing triple-pane Alpen windows and doors.

If you go all-electric, you not only save on the natural gas or propane you consume, you can have your gas meter removed, saving on the base cost of being connected to the gas distribution network. As a commercial customer, Golden Real Estate, saves over $600 per year from having removed our gas meter, since that’s what Xcel Energy charges before a business uses a single cubic foot of natural gas. The savings is lower for residential customers.

So, yes, it may cost more to go all-electric, but the return on investment is substantial over a pretty short period of time.

But consider the following. Whether you build or buy a home with these cost saving features, and whether or not you pay a premium for them, you will likely be financing your home with a mortgage.

Let’s say, conservatively, that you pay an extra $50,000 or even $100,000 for those features, and it adds that amount to the principal of your mortgage. Your monthly savings from those solar panels or that heat pump system or those Alpen windows and extra insulation will be far in excess of the increased monthly payment for your mortgage.

And if you make those improvements in a home you already own, you can take out a Home Equity Line of Credit (or HELOC) to pay for them, and the monthly payments will again be less than your monthly savings.

Looked at it this way, does it make any sense at all to build a home powered by fossil fuels, that is not solar powered or that has “normal” insulation and have higher monthly cost of ownership, starting from day one? Of course not.

You can apply the same reasoning to the purchase of an electric car. You could go with the conventional wisdom that electric cars are more expensive and you should wait until the price comes down, but that thinking substantially misrepresents the cost of ownership.

I haven’t purchased gasoline for my electric cars since 2014, during which time I have saved tens of thousands of dollars on gasoline as well as on repairs on components that don’t exist on an EV, such as transmission, engine, fuel pumps, water pumps, timing belts and so much more.

And I have never had a catalytic converter stolen — or lost any sleep after reading about the epidemic of such thefts in my city.

Forgetting for the moment that there are indeed EVs which cost no more than their gasoline-powered equivalents, even if you paid $10,000 more for an EV than you might for a gas powered car, the cost of financing that difference is far less than what you’ll save on fuel and repairs.

If I have changed your thinking about making your home (or transportation) more sustainable, here’s what you can do. First, attend this year’s Metro Denver Green Homes Tour on October 1st. You’ll be able to visit a dozen or so homes whose owners have taken steps to make their homes more energy efficient or even net zero energy. You’ll also visit a home builder who is building net zero energy homes. If you can’t visit some of these homes in person, you can view the narrated video tours which I have created for most of them.

(You can also — right now — take video tours of 16 homes that were on this tour in previous years!)

You can register for the tour — and see those videos — at www. NewEnergyColorado.com.

And if I have changed your thinking about the cost of buying or owning an electric vehicle, plan on coming to the Electric Vehicle Roundup (mentioned below) which occurs the same day, October 1st, as the Metro Denver Green Homes Tour. If that date doesn’t work for you, there are many other EV roundups in October around Colorado. Find those other events online at www.DriveElectricWeek.org.

Here’s More Info on Incentives in the Inflation Reduction Act

John Horst of the National Renewable Energy Lab read last week’s blog post about the Inflation Reduction Act’s impact on the building sector and provided some valuable additional information.

For starters, he made me aware of the White House website, which has a listing of tax credits and grants under the IRA which pertain specifically to each state. Click here to view the IRA tax credits and grants that apply to Colorado. It’s a two-page PDF with paragraphs about those financial incentives plus job creation, manufacturing, cleaner air, rural opportunities and “resilient communities.”

One new incentive that hasn’t gotten a lot of coverage is the $4,000 upfront discount on the purchase of used electric cars and trucks. In the past, there was no incentive for purchasing a used EV, and the $7,500 incentive for a new EV came only as a tax credit on the following year’s tax return.

Making both incentives an “upfront discount” will make both incentives much more attractive and useful to car buyers and will accelerate the adoption of electric vehicles.

John also provided a link to a list of 59 state and federal tax credits (both personal and corporate), loan programs, grant programs, rebate programs, sales tax incentives, regulatory policies, energy standards and more — each with its own link for further information. (The above link gives the information for Zip Code 80401, but you can select a different ZIP Code anywhere in the country on that website.)

Interestingly, ‘Seller Concessions’ Can Benefit Both Buyers & Sellers

If you’ve been following my “Real Estate Today” column, you know that homes are taking longer to sell, and in some areas sales prices have decreased slightly.

Jaxzann Riggs, owner of The Mortgage Network, has been serving Colorado borrowers for 37+ years and she has witnessed more market fluctuations than I have in my 20 years. I asked her what “old and new” marketing and financing strategies she suggests for both buyers and sellers in this dynamic market.

Her response: “First, buyers need to understand their highest priorities. Is investing the smallest amount of cash their priority, or are they more interested in minimizing the monthly housing expense in the early years of the loan? If they expect to own the property for many years, having the lowest possible 30-year fixed rate may be the highest priority. Buyers who are fortunate enough to be paying cash for a home are normally looking for the lowest possible purchase price, in which case seller concessions won’t matter to them.”

Let’s analyze each goal and how a seller concession built into a purchase contract can help you.

Goal #1: Lowest Cash to Close

If your income is good and you are not concerned about your monthly housing expense, but you don’t have much cash to work with, a popular seller concession is one that covers your closing costs. That way, you only need cash for the down payment.

Goal #2: Lowest Payment in the Early Years of Your Mortgage

If your income is likely to increase in the near future, and you want to minimize your monthly housing expenses until your pay increases or you receive an expected bonus, a temporary interest rate buydown funded by a seller concession might make sense. The simplest explanation of this strategy is that the buydown subsidizes a reduced monthly mortgage for the first one or two years of the mortgage.

Goal #3: Lowest Interest Rate for the Term of the Mortgage

If this is a property that you expect to own for many years, it makes sense to ask for a seller concession that is utilized to buy the interest rate down on your mortgage for its full term.

So, the next question is, what is a reasonable dollar amount for a borrower to request from the seller as a concession? Each borrower and seller circumstance will vary, so there is no set rule, although Fannie Mae and Freddie Mac underwriting guidelines limit the seller to a contribution of 6% of the sales price (or 3% if the borrower is making a minimum down payment).

Seller concessions may only be utilized to offset closing costs, reduce the interest rate on a temporary or permanent basis, or to prepay mortgage insurance on behalf of the borrower. Seller concessions may NOT be used to reduce the down payment made by the borrower.

It might surprise a prospective buyer to understand the different impacts that a seller concession versus a price reduction can have on the monthly cost of their mortgage. And it might surprise sellers to learn that offering a concession in the form of an interest rate buydown can increase the pool of prospective buyers.

I am happy to explore buyer and seller wants, needs, and goals. Structuring a seller concession so that both buyer and seller benefit is possible once all parties agree upon the anticipated appraised value of a property. Of course, this is best done with the assistance of an experienced Realtor like me who knows how to evaluate the market trends in a particular community.

If you are buying or selling and have questions about the different possible concessions, call Jaxzann at 303-990-2992.

Report Details How the Inflation Reduction Act Will Transform the Building Sector

One of the best analyses of the impact of the IRA on sustainability and the mitigation of climate change was released on Aug. 31st by the Rocky Mountain Institute. Below is a graphic from that report summarizing the IRA’s biggest direct impacts. Click here to view the full report.

As reported by Fast Company, the report “finds that the IRA’s main rebates and tax credits could bring electrification and energy-efficiency upgrades to millions of homes. In total, the bill’s new rebates and expansions of existing tax credits will create more than $23 billion in funding to electrify homes, upgrade heating, cooling, and ventilation equipment, and develop entirely new buildings that meet the highest federal standards for efficient energy use.” The IRA provides funds or rebates for:

Electric heat pumps that can both heat and cool your home, which the Department of Energy estimates will save families $500 to $1,000 every year. There’s a rebate of up to $14,000 for installing them.

Induction cooktops, which replace dangerous and health-harming gas stoves that contribute to asthma and other respiratory diseases.

Insulation, windows, doors, and sealing ductwork, which will ensure a home’s heating and cooling systems don’t have to work as hard to keep families comfortable.

Upgraded electrical panels and wiring for homes that have older electrical service.

The tax credits provided for in the IRA are available immediately, but the rebate program will take some time to be implemented, since it requires the creation of rules and forms.

Big Brokerages’ Stocks Plummet Due to Slowing Market

The publicly traded brokerages are taking a beating, trading near their 2022 lows, as the following stock prices quoted last Wednesday by Inman News Service show:

Compass (COMP) $3.28 +.07 (year range: $3.20-17.70)

eXp World Holdings (EXPI) $14.23 -.06 (year range: $11.06-55.43)

Redfin (RDFN) $9.40 -.08 (year range: $7.13-55.87)

Zillow (Z) $34.39 +.96 (year range: $28.61-104.05)

Offerpad (OPAD) $1.61 -.02 (year range $1.60-20.97)

Opendoor (OPEN) $4.62 -.03 (year range $4.30-25.32)

Anywhere Real Estate (HOUS) $11.18 +.14 (year range: $9.06-21.03)

(Anywhere Real Estate is the new name for Realogy, which owns and franchises Century 21, Coldwell Banker. Corcoran, Better Homes & Gardens Real Estate, and ERA Real Estate.)

Golden Real Estate was founded in July 2007, just before the market crash of 2008, but we prospered through that downturn, and we will prosper through this one.

MLS Statistics Confirm a Rapidly Slowing Real Estate Market in Metro Area

As I write this on Sunday evening, I can’t know what the statistics will be at the end of August, so I ran some numbers for the first 28 days of the month to see how they compare to the previous 12 months. The result of that number crunching is in the chart below, and it confirms what we have all been feeling — that the real estate market in the metro area is indeed slowly abruptly.

The chart, limited to REcolorado listings within an 18-mile radius of the state Capitol, shows four metrics which I consult regularly to read the temperature of the market: the average and median days that a listing is active before going under contract, the ratio of sold price to listing price, and the average sold price. As you can see on the bottom four lines of the chart, the market started coming off its peak in May, slipping seriously by July.

During the seller’s market triggered by low mortgage interest rates and the pandemic, we saw the median days on the MLS in the mid single digits, as shown in column two. The average days on the MLS was higher, but not as high as in pre-pandemic times when it was in the 30s and 40s. Amazingly, that metric slipped into the single digits this April and May.

The last time the ratio of sold price to listing price was below 100% was in January 2020. In April of this year, before the impact of rising mortgage interest rates, it peaked at 106.1%, but it fell to 100% in July for the first time in 18 months, and during the first 28 days of August, it slipped to 99.57%.

The average sold price, which fell almost $30,000 in July, fell an unprecedented $58,136 during Aug. 1-28, a 9.2% drop in just one month. When the full month is tabulated, it could well be worse.

For buyers who have cash or are not scared away by 5% interest rates, this represents an opportunity, and I have had my busiest open houses in a long time over the past three weekends, so I think buyers are ready to capitalize on that opportunity.

This is not to say there will be a market rebound anytime soon. There is a lot of uncertainty in the air in terms of politics, economics, and other matters, which will continue to keep many buyers on the sidelines.

Crested Butte Bans Natural Gas in New Construction — A New Statewide Trend?

Given our commitment to addressing climate change, one of my favorite email newsletters is “Big Pivots,” written by Allen Best of Arvada, The mission of his non-profit is to document, understand and educate about the changes made necessary by climate change.

Among those changes is the transition from fossil-fuel heating of homes and water using natural gas and propane now that electric heat pump units are practical and affordable.

The latest Big Pivots email newsletter (which you can subscribe to at bigpivots.com) was about Crested Butte’s recent decision to outlaw natural gas in new construction. Rather than rewrite what Allen wrote, here is his article with some minor edits:

By ALLEN BEST

Crested Butte, a one-time coal mining town, has now turned its back on natural gas. Town councilors unanimously agreed that any new building erected on the 60 vacant lots cannot be served by gas. Major remodels must be electric-ready. It’s Colorado’s first natural gas ban, although 80 other jurisdictions around the country have taken similar measures.

“There was a lot of talk at council about it being a bold decision, but I don’t see it that way,” said Crested Butte Mayor Ian Billick. “Not only is it what we need to do, but we have all the tools to do it cost effectively.”

Billick arrived at Crested Butte several decades ago as a biologist at the nearby Rocky Mountain Biological Laboratory. Many experiments there have focused on the effects of warming temperatures on existing plants. One experiment involving year-round heat lamps specifically foretells a shift from the showy wildflowers for which Crested Butte is famous to an ecosystem dominated by sagebrush.

Temperatures continue to creep higher, but at more than 8,900 feet in elevation, Crested Butte still has chilly winters. The overnight temperature during January averages 6 below.

The takeaway here is that if Crested Butte is comfortable with the replacement technologies for natural gas, most other places in Colorado should be, too. Instead, builders are still tethering tens of thousands of homes and other new buildings each year to natural gas pipelines.

Denver and Boulder have taken steps to push alternatives. Here and there individual action has occurred. In Westminster, John Avenson in 2017 ordered his natural gas meter removed after maximizing the passive solar potential of his house. (YouTube video tour of John’s home.) In Arvada, Norbert Klebl developed 30 homes without natural gas in a project called GEOS. In Basalt, two affordable housing complexes have been built without natural gas. An all-electric hotel is under construction in Snowmass. North Vista Highlands is slowly taking shape in Pueblo. In Fort Collins, plans have been drawn up for Montava, a 500-unit project.

We have been pivoting slowly, but the transition is accelerating.

Granted, the generation of electricity still causes atmospheric pollution. Emissions will dramatically drop by 2030, however, as Colorado’s utilities close nine of today’s 10 coal-burning units.

Colorado legislators in 2021 passed several laws that collectively seek to squeeze emissions from our buildings. The laws reflect the state’s political makeup. Colorado may be dominated by Democrats, but it’s still a purplish state. In other words, don’t expect a wave of Crested Butte-type mandates such as occurred in California beginning in 2019. We walk on a different balancing beam.

Most important among Colorado’s legislative squeezes is Senate Bill 21-264, which requires Colorado’s four regulated natural gas utilities to incrementally reduce emissions.

The law identifies several pathways. They can, for example, help customers improve efficiency of buildings, so buildings need less gas to provide comfort. They can augment the methane obtained by drilling with methane diverted from sewage plants, feedlots and other sources. The first of their plans will be filed with state regulators in 2023. The bottom line is that the gas companies will have to adjust their business models.

The Colorado Public Utilities Commission has now set about creating rules for evaluating clean-heat plans. In filings beginning last December, real estate agents, home builders and even some municipalities have argued that converting from natural gas will add costs. That was the same message at recent meetings in Montrose and Grand Junction. Their message was simple: Don’t change.

In metro Denver’s more affluent northwest suburbs, Christine Brinker of the Southwest Energy Efficiency Project reports a draft policy would give builders a choice between either all-electric or natural gas with extra energy efficiency.

Unless a way can be found to cost-effectively sequester carbon emissions, natural gas will slowly be phased out in coming decades. Ironically, the arrival of natural gas was one reason that coal mining ended in Crested Butte in 1952 after a seven-decade run.

More Than Just a ‘School of Mines,’ CSM Is a Major Player in Climate Research

The Colorado School of Mines, with its historic connection to fossil fuel and mineral extraction, would seem an unlikely place for a high-level pursuit of the transition from a world powered by fossil fuels to a world of clean energy, but that’s exactly what I have observed.

Even the Petroleum Engineering Department downplays petroleum extraction in its web page with the following opening lines: “As human standards of living rise, so does energy and resource consumption. Hydrocarbon energy will continue to dominate energy usage, and other non-hydrocarbon resource development, such as geothermal and subsurface resource acquisition and development, will continue to grow in importance.”

The spring 2022 edition of Mines Magazine had a major article with the headline, “Oil and gas engineers are the key to the energy transition.”

Back in February 2017, the Faculty Senate adopted a Climate Change Statement. Central to CSM’s commitment to addressing climate change is its Global Energy Future Initiative (GEFI) related to the university’s tagline, “Earth, Energy, Environment,” with a focus on Low Carbon and Renewable Energy, Carbon Capture Utilization and Storage, and Clean Water Innovations, in addition to Minerals & Metals, Supply Chain Transparency, and Oil & Gas. Under “Oil & Gas,” the GEFI web page talks about “Designing interdisciplinary research focused on the science, engineering and policy of oil and gas in the net-zero energy future” (emphasis added)

While there is a commitment to continued extraction of oil and gas, including hydraulic fracturing, I’m impressed by the recognition that saving our planet depends on transitioning from oil and gas to other forms of energy that reduce or eliminate greenhouse gas emissions.

I have received the email newsletter of CSM’s Payne Institute for Public Policy for several years and have been impressed at the variety and depth of the research which it is working on with regards to climate change.

To give a sense of the depth and breadth of its research, the August 2022 email newsletter from the Payne Institute has the following headlines about different research projects, each with a detailed paragraph and a link to further information on the CSM website:

> New Winners, New Losers – Toward a New Energy Security

> Declaring a Climate Emergency Won’t Save the Planet — Energy Security Could

> Carbon Capture Utilization and Storage in the New Inflation Reduction Act

> Scrap, Sell, Auction or Repurpose? What’s the Best Business Model for Coal Plant Closure?

> How Energy Subsidy Reform Can Drive the Iranian Power Sector Towards a Low-Carbon Future

> Making Carbon Offset Disclosure Align with Climate Value

> Clearing the Non-Technical Hurdles for Carbon Capture & Sequestration

> Interest Group Power and the Passage of Nigeria’s Petroleum Industry Act (PIA) – A Multiple Streams Approach

> Tackling Ripple Effects of Renewable Energy on Mineral Supply Chain

> The Net-Zero Industry Tracker

I suggest that you Google “Colorado Schools of Mines Climate Change,” as I did, to see the many elements of CSM’s commitment to net zero energy research, climate change, and even on-campus sustainability. You’ll be impressed.

My fellow MIT alumni would never forgive me if I concluded this article without pointing out that our alma mater is equally committed to these issues and topics of research. For example, under its Climate Grand Challenges initiative, the Institute selected 27 teams as finalists from a field of nearly 100 initial proposals, representing 90 percent of MIT departments and involving almost 400 MIT faculty, senior researchers, and external collaborators. On April 11, five teams with the most promising concepts were announced as multi-year flagship projects that will receive additional funding and support to develop, implement, and scale their solutions rapidly.

We Reduce the Cost of Moving for Homebuyers

We have offered buyers and sellers free use of our box truck since 2004, saving each of them thousands of dollars in moving costs. We also provide moving boxes and packing materials. The truck comes with blankets and dollies, too. For new clients who sign with us in the month of September, we are offering Totally Free Moving. That means we not only give you free use of the truck, we also pay for the labor and gas for any move within the Denver metro area. Call any of us (see list below) for the full details of this special one-time offer!

Jim Smith, Broker/Owner, 303-525-1851

Broker Associates:

Jim Swanson, 303-929-2727

Chuck Brown, 303-885-7855

David Dlugasch, 303-908-4835

Ty Scrable, 720-281-6783

Greg Kraft, 720-353-1922