Money supply & real estate

Countrywide is being taken over by Bank of America. What a huge company, taken down due to sub prime lending. Additionally, the FBI has just launched an investigation into its lending practices, according to CNN. Beyond just the mortgage crisis, there appears to be a global money and credit crisis. The Fed is expected to lower overnight rates to below the reported rate of inflation. The Fed has now offered $400 billion in short-term loans to help rescue the mortgage market, including $200 billion announced Tuesday, the $100 billion from the term auction facility loans to banks, and $100 billion announced Friday in loans to primary dealers in the bond market.

The credit frenzy stopped short in July 2007. In newsletters to my clients, I railed for years about “fogged mirror” underwriting that put unqualified buyers into homes with nothing down. National lending practices allowed anyone to buy, but in Denver, prices were stagnant. People in over their heads could not sell into such a market, and the natural result was Denver metro’s leadership in the foreclosure stats. 

These continue to be interesting times. Sales are declining. Owners are calling us first, now, when they need to move. Many listing agents have reinvented themselves into short sale or REO specialists. Many buyers’ agents are working with investors or getting out of the business. I’m getting calls from licensees who would like to start property management businesses. The last three employees that I’ve hired were licensees.  

Most people think I was brilliant to have started my company. I don’t disabuse them of the notion, naturally. The funny reason I opened shop, in 2001, was because my 3 little rentals were a piece of cake to manage. The more serious one was that I wanted a build a business that was “real”, no longer working for someone else, where I needed to look for a new job every 3 or 4 years. 

Now the nation is heading into a recession. What will that most likely mean for Denver? More tenants doubling up to pay the rent. More owners will be moving out of town to find new work. If our local economists are still on track, however, we will continue to have net in-migration and job growth. These newcomers are more than happy to rent, being wary of real estate (and, perhaps, their own job stability). The increasing rents we’ve been enjoying over the past year… may be coming to an end.

It appears to be a perfect time to buy rentals: declining prices, increasing rents, improving tenant quality, and we still have cheap credit! On the other hand, the money crisis may affect us profoundly, so caution is recommended.

How will the recession affect the rental market?

A global recession will affect every locality. The “credit crunch” that started in July was just a reversion to normal lending standards. When banks don’t want to lend, it is worse.

Typical recessions do the following:

For our tenants/applicant pool:

They lose their jobs
They move back in w/ parents, or join up and share rent
Vacancies increase as demand decreases
College attendence increases
Evictions & skips
They tend not to buy their first homes, remaining as renters

For our clients:

Rents decline/vacancies increase
Vendor rates are relatively soft, as their other work dries up
They lose their jobs
If they are personally affected, they want to sell their non-cash-
flow properties, or allow foreclosure

Your 2 cents?

Rentals are hot

This past week we have approved or rented 1/2 of our inventory. Inquiries come in fits & starts, so the public was making up for a quiet 1st week of December, and we anticipate a quiet last week, too. You can see our beautiful rentals on our website:

 http://www.bluesagerealtyinc.com/

 We are getting a lot of homeowner inquiries, this week, too. The pipeline is filling up for a great 2008.

Renting to people that lost their home to foreclosure

For years, we have declined virtually every prospect that was going into foreclosure. It takes quite a bit of effort, as sometimes it seems that up to 50% of our calls are coming from them. Our rental criterion include landlord history and credit. So, they just don’t rate.

Here’s a thought: IF their credit and mortgage payments were good up until recently AND their payments are beyond their means according to our rental criterion AND their homes are in good condition (requiring an in-home visit). THEN we can accept them with 2x rent deposit.

The ARM moratorium on interest rate adjustments is apparently only for sub-prime loans. “A” paper ARM folks are dealing with the same, awful loans. They can’t refinance here in the Denver metro area, because prices have declined.

Introduction

Hello out there!

I am a managing broker of a small real estate company in the suburbs of Denver. We practice residential property management and sales.

2007 has been a great year for owner-investors. Vacancies are down, rents are up.

It has been a terrible year for owner-sellers. Sales are stagnant. Our stats show that the number of listings is down, yet the days to sell is up. What that means is that sellers are giving up and taking their homes off the market. They either aren’t moving, or are putting their homes up for rent.