Tag: Real Estate Market

Preparing for the Biennial Property Tax Process

Nobody likes taxes, but our Colorado property tax system is, in my opinion, among the fairest in the nation, so as we brace ourselves for the “Notice of Valuation” we’ll receive from our county assessor next month, I thought it useful to describe how it works and why I believe it to be relatively fair.

A 2022 post on the website Investopedia.com ranked Colorado as having the 5th “best” (i.e., lowest) property tax in the nation, behind Hawaii, Alabama, Louisiana and Wyoming. It calculated that the state’s “effective property tax rate” was 0.51% of a home’s valuation. Hawaii was lowest at 0.31% and New Jersey was highest at 2.31%.

However, that statewide average does not include the impact of metropolitan tax districts, which can nearly double the tax rate on a given home.  (This is a huge scandal which is only recently beginning to get the attention of legislators, who could, if they wanted, rein in metro district abuses.)

Putting aside that scandal for a moment, let me describe how property taxes are calculated in Colorado, as mandated by Colorado’s constitution.

The essence of the system is to have the county assessor determine the fair market value — that is, what every property could have sold for based on what comparable homes sold for — on June 30th of every even numbered year. That means that the valuation you receive in the mail next month will be what the county assessor, guided by mass appraisal software, estimates your home might have sold for on June 30, 2022.

That’s an unfortunate date this time around, because June 2022 may well have marked the peak of the Covid-19 era run-up of home prices in Colorado and nationwide.

An important note: Although the valuation date is June 30th of last year, it applies to what your house looked like on January 1st of this tax year. That made a big difference for victims of the Marshall Fire, because their home was worth next to nothing on Jan. 1, 2022, so the tax bill they received this year which covered 2022 should have been based solely on land value, not a repeat of their 2021 tax bill. If the fire had not destroyed their home on Dec. 30, 2021, the valuation of it from June 30, 2020, would have applied to property taxes for both 2021 and 2022.

Getting back to the process, once the valuation on your home is finalized following any appeal you might make, your tax for this year and next will be determined by applying your home’s mill levy to the assessed valuation, which is now 6.765% of your home’s full valuation.

I’ll use an example a home with a full valuation of $1,000,000. First of all, that figure is reduced by $15,000 under a law passed last year, so the assessment rate is applied to $985,000. Applying the above assessment rate, it would have an assessed value of $66,635, so if your mill levy is 100, then your tax bill would be $6,663.50. (It’s called a mill levy from the Latin word for thousand, so the levy is applied to every thousand dollars of assessed value. Thus, 100 x 66.635 = $6,663.50.

Keep in mind when you appeal your valuation that every $10,000 in reduced full valuation is worth only $676.50 in reduced assessed valuation. At a mill levy of 100, a full value reduction of that amount reduces your tax bill by only $67.65. That may not be worth arguing for, but a reduction in full valuation of $100,000 would be worth $676.50. And if you’re in a metropolitan tax district with a high mill levy, it’s worth even more.

Expect more on this topic from me in the coming weeks.

Sellers Are Helping Buyers to Buy Down High Interest Rate Mortgages

With interest rates staying between 6 and 7 percent, it has become a common practice for buyers to demand and sellers to grant a concession by which the seller pays a fee to the buyer’s lender to get a lower interest rate for the first year or two, after which the buyer can hopefully refinance at a lower rate.

To see how pervasive this trend has become, I compared the statistics on Denver metro area closings over the past 90 days versus before interest rates began rising last year.

During the 90 days prior to this Monday, there were 4,512 closings of residential listings on REcolorado.com in which it was reported that the seller had provided a concession related to buyer’s closing costs. During the first 90 days of 2022, that number was only 2,675.

February Statistics Show Some Stabilization of Metro Denver’s Real Estate Statistics

Below is the “Market Overview” for February as published by the Market Trends Committee of the Denver Metro Association of Realtors (DMAR). It is for the 11-county “metro” area, which includes Elbert, Gilpin and Park counties.

One statistic omitted from the DMAR infographic is the median days in MLS, which fell dramatically compared to the average days in MLS. Defining metro Denver as a 23-mile radius of downtown Denver (not how DMAR chooses to define it), I find the average days-in-MLS for February to be 47 (up from 46 days in January) and the median days-in-MLS to be 24 (down from 34 days from January).

(Notably, the days-in-MLS statistics for the first several days of March are 39 and 13 respectively. We’ll check back in April to see how those statistics for March end up.)

That’s an important distinction, because what it tells us is that while there continue to be lots of overpriced homes sitting on the MLS, there are now enough right-priced homes on the MLS which are selling quickly to bring down the median days-on-MLS statistic.

This is a lesson which all sellers should take to heart — that if you price your home at or slightly below the market, you will sell your home quickly, but if you put it on the MLS at a hoped-for price that is above the market, it will sit on the MLS for a long time.

As I write this on Monday evening, these are the numbers of active Denver metro listings on www.REcolorado.com listed by days-on-market:

0-7 Days—610

8-14 Days—306

15-31 Days—478

32-60 Days—442

61-90 Days—193

Over 90 Days—743

We agents refer to listings that have been on the MLS over 30 or 60 days as “stale,” and those are good prospects for getting a low-ball offer accepted. Buyers can certainly be confident that they won’t encounter a bidding war for any listing that has been on the market more than a couple weeks — unless there was a recent price reduction. If you want to avoid bidding wars and get a good deal, ask your agent to send you only listings which have been on the MLS over 10 days.

Meanwhile, sellers need to recognize that if they overprice a home and later reduce the price to make it sell, they typically get less than if they had priced the home correctly.

For Jefferson County residents, here is the above analysis as it relates to Jeffco:

These are the numbers of active Jeffco listings on REcolorado by days-on-market:

0-7 Days—150

8-14 Days—62

15-31 Days—92

32-60 Days—82

61-90 Days—25

Over 90 Days—141

Here are the charts adapting that DMAR graphic to Jefferson County:

The Real Estate Market Is Showing Signs of Revival

Here at Golden Real Estate, we have some anecdotal evidence of a resurgence in the real estate market, which was moribund in December.

On Saturday, Jan. 7th, I held a 2-hour open house at my listing on Bates Avenue. My previous open house at that listing had drawn not a single visitor, so I was quite surprised to have ten sets of visitors that day. All of them were actual buyers, not lookie-loos.

I immediately decided to hold it open the following day, Jan. 8th, and once again it was my most visited open house in recent memory.

I had four prospective buyers from those open houses and this Monday that home went under contract.

A second example of this resurgence came when broker associate David Dlugasch listed a 1960 brick ranch with walkout basement in south Golden/Pleasantview. (It was featured in last week’s ad.) It drew 22 agent showings on the first three days, and it went under contract on Sunday at full price — $798,000, which I frankly thought was a reach.

Although anecdotal, these experiences give me hope for a continued market resurgence in 2023.

Experts Differ on What 2023 Will Bring in Terms of the Real Estate and Mortgage Markets

Real estate and mortgage professionals are coming to grips with how the market changed in 2022, but they’re holding back on predictions for the market in 2023.

On the national level, Lawrence Yun, NAR chief economist, predicts home prices will remain stable and the sales of existing homes will decline by 6.8%. He identified ten markets that will outperform other metro areas, and all ten of them are in the southeast.

“Half of the country may experience small price gains, while the other half may see slight price declines,” Yun said.

Here in the Denver market, the Denver Metro Association of Realtors (DMAR) issues a monthly market trends report. In its latest report, it pointed out that while there is a steady month-over-month decline in the average sold price, the year-over-year sold prices remain higher.

“Without a doubt, the Denver Metro housing market is changing, but the question on everyone’s mind is how long this change will last and what to expect next year,” commented Libby Levinson-Katz, Chair of the DMAR Market Trends Committee and a metro Denver Realtor®. “Most of the answers are tied directly to when we will see relief from increasing mortgage rates that have more than doubled since January… While we expect to see the Denver real estate market continue to change through 2023 due to interest rates and inventory woes, it has continued to show strength and stability.” 

As I highlighted above, a lot depends on the direction of mortgage rates, and predictions of where rates are headed are few and varied, because there are so many factors.

For example, will the Federal Reserve’s increases in the Fed Funds rate continue, and for how long? Will it cause a recession? Will unemployment increase and inflation abate?  What’s the future of the war in Ukraine and its impact on the US and world economy? What will energy cost in 2023?

Personally, I have no predictions to offer. What I know for sure is that people will still want to sell, and there will always be buyers ready to buy. We continue to see new listings come on the market. As always, some listings will be priced wisely and will sell quickly, but most will be overpriced and will sit on the market, slowly reducing their prices until they sell, expire, or are withdrawn from the MLS.

There may even be bidding wars on homes that are priced right. For example, I just sold a home in Applewood which we priced at $895,000 and sold to one of three bidders within a week for over $900,000. But we’re not perfect. Other listings have languished on the market and only sold once we reduced the price sufficiently to attract a buyer.

DMAR’s Metro Area Statistics Cover 11 Counties

What do the rural cities and towns of Kiowa, Agate, Simla, Fairplay, Georgetown, Empire, Black Hawk, Rollinsville, Nederland, Allenspark, Lyons, Longmont, and Bennett have in common?  They’re all included in the Denver metro area statistics compiled monthly by the Denver Metro Association of Realtors for its market trends report. Here is a map of the 11 counties included in that report.

REcolorado, the Denver MLS, allows infinite flexibility in drawing the boundaries when searching for listings or doing statistical analysis, so my preference is always to draw a radius of 20 miles from downtown Denver when compiling metro statistics.

Below is this month’s infographic from DMAR showing the November month-over-month statistics for their 11-county “metro area.”

Under all five elements of the infographic I have inserted the same November statistics for the 20-mile radius of downtown Denver that I prefer to use.

The variations this month are not as great as I have seen in some months.

Here’s How Denver’s Real Estate Market Has Performed Since the Start of the Pandemic and the Recent Surge in Interest Rates

The charts below will not surprise any of us who have been witnessing the Denver real estate market over the past 2½ years. They do, however, document the death rattle of the seller’s market, which was killed by the Federal Reserve’s Open Market Committee, whose dramatic increases in the Federal Funds Rate were reflected in the amazingly quick increases in mortgage interest rates.

NOTE: The MLS charts above were created on REcolorado.com, limiting data to listings within an 18-mile radius of downtown Denver. That covers the entire Denver Metro area roughly within the C470/E470 beltway, but does not reach to the City of Boulder.

Back in January, when the 30-year fixed mortgage rate was just above 3%, it was hard to imagine that before year’s end the rate would be over 7%. The rates started rising in January, but they didn’t break above 4% until about the time that the FOMC started its aggressive rate increases.

(As a layman, I’ve never quite understood how inflating the cost of money is the best strategy for reducing inflation of everything else. And haven’t we noticed that that strategy hasn’t really worked yet? Some food for thought….)

Looking now at the three MLS charts, you can see that the number of sold listings exceeded the number of active listings throughout most the pandemic but sharply diverged starting around the time the FOMC rate increases began in mid-April.

The number of new listings saw no dramatic changes over previous years, but the number of listings that expired without selling was 3.24 times as high in October as it was in April of this year. Many of those new listings have sat on the MLS, as shown in the median days in MLS, which quadrupled from 4 to 16 days from April to October.

What may surprise observers is that the median sold price fell as little as it did from April to October. It is still higher than it was in January of this year when that 30-year fixed interest rate was about 3%.

What lies ahead? Homes are still selling, and buyers still need to buy, leading me to believe that we’ll see a “normal” market soon. Stay tuned!

How Does This October’s Real Estate Market Compare to Last October’s Market?

We all know that the Denver metro real estate market has changed dramatically this year, so I thought it would be interesting to compare the first 16 days of October with the same 16 days of October 2021. Here’s what I found.

I pulled the real estate sold listings on REcolorado, Denver’s MLS, for both years, limited to the area within 18 miles of downtown Denver, which roughly includes the area within the C-470/E-470 beltway, but does not include the city of Boulder.

Yes, the market has slowed, but the median sold price jumped from $450,000 for the first 16 days of October 2021 to $550,000 for the same period this year — a 22.2% increase. However, the number of closings plummeted from 2,411 during that period in 2021 to 1,650 this year, a 31.6% decline.

The ratio of sold price to original listing price dropped from 100.82% last year to 99.94% this year, and the median days before going under contract increased from 5 days last October to 16 days this year.

What effect did this year’s increase in interest rates have? During October 1-16, 2021, 18.1% of the closings were cash. During the same period this year, cash closings rose only to 18.25% — hardly any impact, it seems.

Anecdotally, I have observed that higher priced homes are selling more readily in this slower market, so I checked to see what percent of closings were $1 million or higher. During October 1-16, 2021, 6.51% of closings were over $1 million, but that rose significantly this October to 9.94% — and those million-dollar-plus homes sold quicker, with a median days before going under contract of 12, compared to 17 days for homes under $1 million.

There are many more unsold (that is, active) listings now than there were last October — 5,996 compared to 4,386 last year — and fewer pending listings — 3,310 compared to 4,913 last October. A consistent characteristic of the seller’s market was that there were more homes under contract at any given time than there were for sale, which was frustrating for buyers who would see “for sale” signs in front of homes, more than half of which were not, in fact, available to purchase because they were under contract.

Price reductions continue to be quite common in today’s real estate market. Of those nearly 6,000 listings currently active within that 18-mile radius of downtown Denver, over 1,000 per week are reducing their listing prices. As a result, we’re seeing a surge of low-ball offers for listings in all price ranges, as buyers know that homes are not selling for their asking prices and might go for far less.

Just this week, I know of one listing that was on the market for 100 days, starting at $685,000 (a price that was justified by prior sales of comparable homes), reducing its listing price over time to $589,000. The seller finally threw in the towel and sold it to a quick-closing cash investor for under $500,000. That’s an extreme example, but it’s says a lot about the market we are in now.

That example also provides another lesson about the market, because it was an unrenovated home. It had an unimproved kitchen and unimproved bathrooms and nothing flashy or exciting to catch buyers’ attention. My observation has been that homes which are unimproved or otherwise “plain” are sitting on the market and selling only after serious price reductions, whereas homes that are newer or beautifully updated are selling quickly and even attracting a bidding war.

The reason is simple, as I see it: Buyers are simply not inspired to “pull the trigger” at this time, especially if they need to borrow money. It takes a lot to get an offer from them.

This Might Be a Good Time to Do Some Renovation on Your Home

Normally, I would advise a prospective seller not to renovate their home to make it more appealing to buyers, because statistics have shown that you don’t recover 100% of what you spend on improvements. The only exception to that is cosmetic improvements which eliminate eyesores, such as peeling paint, floor damage, or anything that draws immediate negative attention on the part of visitors. Those repairs are worth it.

My other frequent advice is to make improvements which make you happy, albeit with an eye to what would look good to prospective buyers. Would you like a new kitchen or bathroom? Renovate it now, don’t wait to do it when you are ready to sell and want the home to have greater market appeal.

Since you don’t recover 100% of what you spend, do it now so that you can enjoy it, satisfying yourself that it will also help the home sell when the time comes.

Because the market is cooling and interest rates are so high, it might be a good time for sellers to hold back and make those little or bigger improvements that would make life better. Maybe you will want to sell next year or maybe you won’t, but meanwhile, you’ll enjoy your home more.

My broker associates and I would be happy to visit with you in your home and discuss those little and bigger improvements that suit your needs but would also make your home more attractive when the time comes to sell. We won’t be trying to convince you to sell, so feel free to request such a visit. We can also recommend vendors/contractors to make those improvements you decide on.