Are Investors Snapping Up Homes, Squeezing Out Other Buyers?  Yes and No.  

Media reports have created the impression that “Wall Street” interests are dominating the purchase of homes for sale, squeezing out individual buyers and causing the low inventory of homes for sale. That’s not exactly true.

What’s happening is that those purchases are happening through an off-MLS process, with very few on-MLS listings, based on my own observation and experience, being purchased by those large investors.

In fact, I can’t think of even one transaction that involved a large entity purchasing one of Golden Real Estate’s listings. And they certainly did not hire us to buy another brokerage’s listing. All our listings have been purchased either by owner-occupants or by small investors — homeowners themselves, who may have a portfolio of rentable homes or condos.

If you’re a homeowner, you’ve likely received, as Rita and I have, many solicitations to sell your home without putting it on the MLS — a bad idea if you want to get the highest price for your home. Also, brokers like me regularly receive emails and texts asking whether I have a “pre-MLS” listing that they or their client could buy “as is” before it’s put on the MLS. My standard reply to such solicitations is that I would never encourage a seller to sell their home without putting it on the MLS, because that’s a sure way to get less than their home is worth. I consider it my responsibility as their agent to get the highest possible price by exposing their home to the maximum number of buyers. That is not achieved by selling one’s home to an investor without putting it on the MLS.

Media experts and others continue to treat the low active inventory on the MLS as the result of reduced number of homes being entered on the MLS, including by off-MLS sales. In fact, the number of new listings this April was higher than both prior Aprils, but the number of active listings keeps declining because those new listings sell so quickly.

Yes, some of those off-MLS sales might have ended up on the MLS if they had not been solicited, but I think mostly they are homes which the owners had not intended to sell before they got “an offer they couldn’t refuse.”

In researching this topic I found a March 31, 2022, article from The Washington Post which highlighted this very problem of big investors buying up homes and converting them to rentals. Using data from Redfin, it reported on major spikes in such purchases from 2020 to 2021. The Denver market had less such activity than most other major markets, but still the percentage rose from 8.4% in 2020 to 12.4% for 2021.

Above is a chart from The Post’s article, based on the Redfin data. Each of those thin lines represents a different metro area. I inserted a carrot symbol at each end of the line for transactions in the Denver metro area. What’s remarkable is that all but two of the metro areas show a spike in investor purchases in 2021. Those metro areas that didn’t show a spike are New York City and adjoining Nassau & Suffolk Counties.

It’s hard to ignore that the pandemic must have played a role in that abrupt rise in purchases by big investors, defined in that article as entities with 100 or more purchases.

The article confirmed that these transactions typically originated from letters or postcards sent to homeowners offering an off-MLS purchase of their homes “as is.” It also showed that majority non-White suburbs experienced most of this activity, giving the process a racial tinge I didn’t expect to see.

Here’s an excerpt from that March article: “In Charlotte and elsewhere, according to The Post’s analysis, investors have purchased a disproportionate number of homes in neighborhoods where a majority of residents are Black. Last year, 30 percent of home sales in majority Black neighborhoods across the nation were to investors, compared with 12 percent in other ZIP codes.” The article didn’t claim that the letters and postcards targeted such communities, only that most sales occurred there.

Just Listed by Chuck Brown: One-of-a-Kind ‘Prairie Style’ Home in Denver’s Wash Park Neighborhood

The architect designed this home at 801 S. Gilpin Street in the “Prairie Style” made famous by Frank Lloyd Wright, with large roof overhangs, ribbon windows and glass brick. Chuck Brown just listed it for $1,897,000. Built in 1994 with 2×6 exterior walls, it’s located in the heart of the Washington Park neighborhood and has at least two features Wright couldn’t incorporate — Cat5 ethernet wiring and a 5-kW solar PV system which combines with the home’s passive solar design to make it highly energy efficient. The primary bedroom is on the main level with two guest bedrooms, one with wood flooring, and full bath on the second floor. The 1,000-sq.-ft. basement is 2/3 finished, with a large entertainment room and 4th bedroom plus full bath and lots of storage. On the main floor is an office with built-in desk, shelving and wall cabinets plus a private entrance, making this an ideal home for a professional or other work-at-home situation. It could be adapted for a mother-in-law, au pair, or other use, too. There will be no open house, so call your agent or listing agent Chuck Brown at 303-885-7855 to arrange a private showing. Find more pictures and floor plans for all three levels at www.WashParkHome.info.

801 S. Gilpin Street is bottom center in this picture, with Washington Park 1/2 block west.

Lakewood Duplex Near Belmar Park Just Listed by Jim Swanson  

This duplex with detached 2-car garage is located on a corner lot at 365-375 Carr Street in Lakewood’s Foster subdivision. It is listed as “Coming Soon” by Jim Swanson for $575,000. It has a single legal description, so it can only be sold as one. Pictures will be uploaded soon to www.LakewoodDuplex.info. It’s in a quiet location near Belmar Park, shopping, etc. There are 2 one-bedroom units. The larger ranch unit is 1,127 square feet with one bedroom and a full bath. It also has a full basement that is great for extra storage. The cozy smaller one-bedroom unit is 600 square feet and is built above where the original one-car attached garage was. Each unit has its own electric meter and laundry room. The lot measures approximately 1/3 acre. This property has been a solid long-term rental and has good bones, but could use some updating. The tenant in the smaller unit would like to stay. Call Jim Swanson at 303-929-2727 with questions or to arrange a private showing.

‘Community Solar’ Makes Solar Available to Condo Owners and Apartment Dwellers  

Driving around the metro area and elsewhere, you have probably noticed huge installations of solar panels on open land and wondered who built and who benefits from them.

Bigger installations, such as in the Mojave Desert, are utility-scale installations owned by electric utilities to replace fossil-fueled facilities. Smaller installations, such as the one north of 64th Avenue on Highway 93, are owned by community solar companies or non-profits.

The concept of community solar is to rent or sell portions of such installations to individual utility customers. The kilowatt-hours generated by those solar panels are then credited to the usage on subscribers’ electric meters.

It’s a perfect solution for customers like Rita and me, who sold their home and are now living in an apartment or condo building where they can’t install their own solar panels. The really neat thing about community solar is that when you move, your solar generation is merely reassigned to your new electric meter — no need to buy new panels.

Small businesses can also take advantage of community solar. Golden Real Estate, for example, moved last November from its solar-powered office on South Golden Road into a storefront on Washington Avenue in downtown Golden. Community solar is the only way that we can continue to be solar-powered since we can’t install solar panels.

Denver-based SunShare describes itself as the nation’s oldest community solar company with over 10 years’ experience building and maintaining “solar gardens” across the state. Their website says that they have built 116MW of solar panels and have 14,000 subscribers and three utility partners. Learn more at their website, www.MySunShare.com.

Community solar was legalized in Colorado in 2010 with the passage of the Community Solar Gardens Act  (HB 1342). The following year, SunShare opened for business, and in 2015 the Colorado Energy Office partnered with GRID Alternatives to construct a community solar demonstration project to serve low-income Coloradans.

Colorado Springs Utilities was the first utility to create its own solar garden for 278 subscribers in 2011. That 0.5-MW installation has since grown to a 2-MW installation serving 435 customers.

Community solar can be a good deal for rural landowners, providing a predictable revenue stream for otherwise non-producing acreage.

Renting or buying photovoltaic panels in a solar garden costs money, so you’re still paying for electricity, but the rule of thumb is that what you spend on community solar is about 10% cheaper than buying the same amount of electricity from the utility.

Some of us don’t worry about the size of the savings but simply “go solar” because it’s the right thing to do.

To learn more, in addition to visiting SunShare’s website, I suggest Googling “community solar Colorado.” You will find other companies offering community solar, learn the history of it in Colorado, and decide whether it is right for you.

You may find that existing solar gardens are sold out and you’ll be put on a waiting list for a future solar garden.

Whether you are putting solar panels on your own property or subscribing to a solar garden, consider upsizing your investment instead of basing it on your current usage, since the chances are that you’ll be buying an electric vehicle and you’ll want electricity from the sun to power it, too.

If a Slowdown in the Real Estate Market Is Coming, April Statistics Don’t Show It  

Last week I predicted a slowdown in the real estate market because of the abrupt and severe increase in mortgage rates, and I stand by that prediction, but it will not be apparent, I believe, until we see the market statistics for May 2022.

April statistics won’t be available until mid-May, but below is a table showing March statistics over the past 6 years. As you can see, especially in the last two columns, the seller’s market was only accelerating. Despite a surge in new listings and a high number of pending and closing listings resulting in a record low number of active listing, the median days in the MLS was at its lowest — 4 days — and the ratio of closed price to listing price was at its highest.

Although the numbers for April aren’t yet available, I checked the pending and closing listings from April 1 through April 24th on REcolorado, the Denver MLS, and found that DOM was still only four, and the ratio of sold price to listing price had swollen to 105.5%.

Keep in mind, however, that those listings which are pending now or have closed in April probably had interest rates that were locked in back in March before the abrupt increase in mortgage interest rates which I still believe will soften the market in May and beyond.

Here are a couple other statistics as of April 24th that suggest an increased seller’s market: There are only 4,995 active listings in the entire MLS, but there are 10,649 pending listings. Compare that to the above chart.

4-BR Westminster Ranch Just Listed by Jim Swanson

This move-in ready south-facing ranch home with updates at 3865 W. 63rd Ave. is ready for new owners. It was just listed by Jim Swanson for $559,000. The corner lot and low maintenance yard is great for pets. The open floor plan features a large living room with vaulted ceiling, plus a dining area with French doors adjacent to the kitchen. Quality kitchen appliances are included. There are 2 bedrooms and 2 baths on the main level, and 2 bedrooms, a full bath, and a nice family room in the basement. You’ll like the high ceilings in the basement. Built in 1987, the Arlington Meadows neighborhood has great access to Denver and Interstates 25, 76 and 70. The Tennyson light rail station is only 10 blocks away, as well as the large Tennyson Knolls park. View more pictures and take a narrated video tour at www.ArlingtonMeadowsHome.info, then call your agent or Jim Swanson at 303-929-2727 for a private showing.

https://youtu.be/uHPJa1e7uIg

Home Builders Are Not ‘Getting It’ When It Comes to Building Sustainable Homes  

Last week I worked with a buyer looking at new homes. One community we visited was in central Arvada; the other was just north of Golden at the corner of Hwy. 93 and 58th Ave.

Neither builder was even offering upgrades such as solar panels, heat pump HVAC systems, or induction cooktops.

Yes, they were enhancing the insulation of their homes, but little else.

And, speaking of solar panels, neither builder was building into the design of their homes an orientation that would favor solar panels on the roof. One had unnecessary peaks or dormers on their roofs that would seriously inhibit the usefulness of the roof for installing a solar photovoltaic system.

The heating systems in both communities were gas forced air furnaces, which I consider obsolete. Such furnaces require the separate installation of an A/C compressor to provide cooling. I asked if an upgrade to a heat pump system was available, and it wasn’t.

These are silly and unnecessary design flaws in any new construction. A heat pump HVAC system provides both heating and cooling within one unit. It is the preferred choice in Europe and Asia, but our builders seem to know only gas forced air furnaces with a conventional A/C add-on.

New-build homes are typically equipped with conventional gas water heaters, while it would be just as easy and cost little more to install a highly efficient heat pump water heater, as I have done.

Geothermal heat pump systems are the “gold standard” when it comes to energy efficiency and sustainability in new home construction. Retrofitting an existing home with geothermal can be prohibitively expensive, but on a dirt-start build, it would be easy to drill geothermal wells in the middle of the basement or crawl space before installing the foundation and building the house. There’s even more efficiency in a dirt-start subdivision, because the drilling rig could go from one unit to the next, drilling 10, 20 or 100 geothermal wells in one area.

I have written in the past about the Geos Community west of Indiana Street and 68th Avenue in Arvada, where all the detached single-family homes have geothermal heat pump systems, and all the townhomes have air source heat pump systems. They also have heat pump water heaters and induction electric ranges, and all have south-facing roofs with solar panels providing all the electricity to run each of those systems. There is no need for natural gas service to the homes.

Geos was intended to showcase the cost effectiveness of all-electric homes using geothermal and air source heat pump systems and orienting the homes for maximum passive solar as well as active solar efficiency. But it seems that builders are slow learners. The developer who purchased the lots next to the previously built Geos Community felt it necessary to install natural gas service to all its new homes currently under construction “because buyers want gas,” much to the understandable dismay and anger of the Geos Community residents.

There is similar inertia in the HVAC industry itself. It’s hard to find an HVAC company that even understands the advantages of heat pumps for heating and cooling homes. It is so much easier for them to do what they have learned to do, even though it represents an obsolete technology. I have heard countless stories of homeowners whose forced air furnace needed replacing and who were unable to get their HVAC vendor to sell them a heat pump system. Most HVAC vendors just want to keep doing what they already know how to do.

(I can recommend a couple vendors who specialize in heat pump systems and even geothermal drilling. Ask me.)

This is not unlike the problem with car dealerships and electric vehicles. If you go to a Chevy dealer and ask about the Chevy Bolt EV, the salesman will often bad-mouth the Bolt and try to sell you a non-electric model that he loves to sell and requires no learning on his part of new technology.

This guest speaker at the April meeting of the Denver Electric Vehicle Council was a man who, having bought a Chevy Volt in 2012, convinced a Texas Chevy dealership to let him be a salesman of EVs exclusively. Other salesmen started sending him buyers who expressed an interest in EVs, and he quickly became the number one seller of EVs in the state of Texas. It helped that hardly any other Texas car dealership had a salesman who was comfortable selling EVs. Their loss.

Getting back to home construction, we need and the planet needs home builders to be more educated about the wisdom and relative ease of building energy efficient, solar-powered, all-electric homes with a passive solar orientation and design. It’s not that hard to learn, but we need to overcome the inertia built into that industry just as with the automotive and other industries.

Is It Too Easy to Become a Licensed Real Estate Agent?  

   I hear this question asked by fellow brokers and clients who complain about incompetence or ethical lapses among our colleagues.

   Yes, it is easy to get licensed — take 168 class hours, pass the 3-hour state exam, pass a background check (including fingerprinting), and you’re licensed to handle the most significant financial transactions in the average person’s life.

    Loan officers and appraisers have a dauntingly higher barrier to entry than do real estate brokers. It’s fair to ask if that should change.

Amid Today’s Rising Interest Rates, Let’s Revisit the Concept of Buying Down Those Rates  

With mortgage rates rising and many homebuyers believing that now is the time to buy, anything that can reduce the cost of a mortgage is worth looking into. Many savvy homebuyers are asking about discount points, wanting to know what they are and whether it makes sense to buy them.

Mortgage points, often referred to as discount points, let you make a tradeoff between your upfront costs and your monthly payment. By paying points, you are essentially buying down the interest rate. You pay more upfront, but you receive a lower interest rate, decreasing your monthly payments.

The cost of one discount point is equivalent to 1% of the total mortgage. In other words, if you had a $400,000 loan, the cost of purchasing one discount point would be $4,000. Lenders typically allow a borrower to purchase up to three discount points, and they can also be purchased in increments of one-half point.

The specific amount that an interest rate will be reduced with the purchase of points varies from loan to loan but can be thought of as a 0.25% rate reduction for each point purchased. Thus, if you had an initial interest rate of 5% and purchased 3 discount points, your new interest rate would be 4.25%.

How do you know if it makes financial sense to pay for points? The first step is to calculate how long it will take for the decreased monthly payments to pay for the added upfront fee. This is called the “breakeven point.” You can determine when you will break even by dividing the total cost of the discount points by the monthly savings. The answer will be the number of months it will take. Divide this number by 12 to find the number of years it will take.

Here’s an example to show how it would work for you. The cost of buying down the rate from 5% to 4.25% on a $400,000 loan would be $12,000. The difference in the monthly principal and interest (“P&I”) payment between 5% and 4.25% would be $178 per month ($2,138 P&I at 5% versus $1,960 P&I at 4.25%). If you are spending $12,000 to save $178 per month, you will need to own the property for 67 months to break even.

If you were to sell the home or pay off the loan (including by refinancing) in the first 5½ years, you would not be reaping the full benefit of your rate buy-down from buying points.

On the other hand, if you bought down the rate to 4.25% and stayed in your home for thirty years, the difference in monthly payments over the life of your 30-year loan would be $64,080. Subtracting the initial investment of $12,000, you would be left with savings of roughly $52,000. As you can see, whether paying points makes sense for you depends primarily on one major factor — how long you think you will keep your home and/or the mortgage on it. If you don’t plan to keep your home for very long, or plan on refinancing soon, it may not benefit you to purchase points.

Purchasing a home is a major financial step. If you aren’t sure how long you will be in the property, you may decide that the money spent on points would be better spent on furnishing or fixing up the property, or by simply investing it in another financial instrument that will gain value over time.

Jaxzann Riggs of The Mortgage Network helped me with this column. You can reach her at 303-990-2992 for more information about points and to discuss whether they may be right for your personal financial journey.

The Surge in Mortgage Interest Rates Could Trigger a Market Slowdown  

Earlier this year, the conventional wisdom was that mortgage interest rates would rise to the 4% range by the end of the year, so when the rates rose to 5% abruptly in early April, it took us all by surprise.

The agents at Golden Real Estate are noticing a reduction in bidding wars, which might be due to the increased cost of financing a home purchase. It may be too early to draw any conclusions, but the interest rate increase is not looking temporary at this point, so we’ll have to see how the statistics for April and May come out.

Principal and interest (P&I) on a 30-year $500,000 loan at 4% has a monthly payment of $2,387. At 5%, that rises to $2,684.  Earlier this year, you could get that loan for 3%, which would cost $2,108 per month for P&I.

How does this affect affordability?

With a 3% interest rate, a person could get a $637,000 loan for the same P&I as a $500,000 loan at 5%. That is enough of a shock to disrupt many buyers’ purchasing plans.

I’ll be watching and let you know.