Author Topic: Real Estate Frenzy  (Read 3973 times)

pennypincher76

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Real Estate Frenzy
« on: January 02, 2018, 08:41:47 PM »
Hello fellow mustachians,

I recently relocated from SoCal to Denver to cut cost and improve my quality of life. I was able to keep the same job, cut my commute substantially (from 96 miles round trip to 18) and cut my insurance cost in half while upgrading my plan. Part of the reason we left California was the absurd housing cost and while Colorado is cheaper the idea of re-entering the real estate market is nerve racking. I am considering just continuing to rent but with kids and the desire to settle in, longterm renting can be challenging.

There seems to be a complete Real Estate frenzy here, where any properties under $600k are on the market only a few days  before they go pending. The inventory is EXTREMELY low and bidding wars above the list price are the new norm. Several people I respect have stated the market is only going to continue climb. However, my mustachian logic says don't buy when you are in a tremendously disadvantaged position.

I understand there is no crystal ball, but what are everyones thoughts on the absurdly hot housing market? I keep thinking of even purchasing a rental property (as long as it cash flows) but there is nothing available. We have even thought about purchasing land, but the irony is there is a labor shortage in skilled trades (construction, etc) which would make that extremely challenging as well. Am I missing some possible options here? I am just trying to weigh my options and make a smart decision. I appreciate the insight and advice.

Thanks everyone,

Pennypincher76
« Last Edit: January 02, 2018, 08:44:28 PM by pennypincher76 »

tralfamadorian

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Re: Real Estate Frenzy
« Reply #1 on: January 03, 2018, 05:58:53 PM »
I understand there is no crystal ball, but what are everyones thoughts on the absurdly hot housing market? I keep thinking of even purchasing a rental property (as long as it cash flows) but there is nothing available. We have even thought about purchasing land, but the irony is there is a labor shortage in skilled trades (construction, etc) which would make that extremely challenging as well. Am I missing some possible options here? I am just trying to weigh my options and make a smart decision. I appreciate the insight and advice.

Markets are cyclical. Denver and all the other hot markets will eventually cool. The prices could either flatten or decrease to some extent. Could it continue to rise for a little while or a long while first? Sure. However, it is a certainty that at some point the bidding wars will abate.

A very respected source for the current phase of the real estate market cycle (residential most closely mirrors apartment):
https://blackcreekgroup.com/insights/market-cycle-reports/

Decide what you're willing to pay for a home. Crunch your rent vs. buy numbers. Then make offers dependent on what you want to pay- not what the sellers want or if there are other buyers. Will you lose a lot? Sure, but it's not a batting average.

« Last Edit: January 03, 2018, 06:04:03 PM by tralfamadorian »

Michael in ABQ

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Re: Real Estate Frenzy
« Reply #2 on: January 04, 2018, 12:07:49 PM »
Denver seems to have a pretty good economy so when the market does finally cool off I don't expect prices will drop a significant amount. Certainly nothing like Phoenix or Las Vegas did a decade ago. Same with LA and the Bay Area. You could wait a year or two and hope things cool off but those houses selling for $500k today might be going for $530k by then, plus interest rates will probably have gone up another 50 basis points or so.

Don't give into the frenzy. Determine what you're willing to pay and if you get outbid then move on to the next property. The thing about houses is there is literally one on every corner. You might find "the perfect house" but just remember there are probably hundreds more like it within a few miles. Don't overextend yourself borrowing too much just so you can be the winning bidder. Just because someone is willing to pay $600k doesn't mean you should. Maybe their work is a half-mile away and they're willing to pay above-market to get that one available house in the area.

mountainfamily

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Re: Real Estate Frenzy
« Reply #3 on: January 05, 2018, 12:37:01 AM »

Don't give into the frenzy. Determine what you're willing to pay and if you get outbid then move on to the next property.

We just bought in Seattle, a competitive market that only got hotter as we searched. It was a long and often painful process. I felt disgusted by the market many times. We did remain patient and stubborn throughout, which paid off. We have a long-term plan, have very location-specific jobs, and renting was no longer a viable option for many reasons, so we feel comfortable riding out market cycles.

Unfortunately, in my experience, you have to "give into the frenzy" somewhat if you actually want to get something. Many sellers' expectations are geared toward getting the quickest, highest, most solid offer possible, and desirable/solid houses in good locations will likely have multiple offers to choose from...

I agree with setting a firm price limit that's within your means, and DO have lots of cash left over for renovations. But if you offer half-heartedly, you'll likely lose a few bidding wars. Then, you'll find out more about yourself and how you're willing to adjust your timeline, expectations, size of house, etc. It stings extra if you are paying for pre-inspections each time you do an offer ($400 or more a pop!). Pre-inspections let you know the issues of the house ahead of time so you can waive the inspection contingency, making your offer more attractive to the seller. Pretty sickening, but it was the norm in Seattle.

Ultimately, we chose not to compromise on location, and would only consider properties that were very structurally sound. In return, we ended up with only 1 bathroom, dated everything, more shade than I'd like, and less charm/curb appeal than I wanted. We can make it cosmetically nicer over time, but it will always be pretty modest.

Just sharing some of the thoughts, struggles, etc. we went through in a hot market. Once you start searching you'll likely find out more about your comfort level and what you're willing to compromise on. Or maybe you'll find a great rental/landlord situation and be able to go that route. Good luck!
« Last Edit: January 05, 2018, 09:42:52 AM by mountainfamily »

narrative

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Re: Real Estate Frenzy
« Reply #4 on: January 05, 2018, 10:54:39 AM »
Just throwing my hat in the ring to commiserate. We are in a similar boat, but coming from a much lower cost of living area (rural IL).

We have been watching the market since August, mostly in Longmont as that seems to be the location with the best value relative to my husband's work location (Boulder).

Houses that sell in the mid 400's where we are looking would be sub-100K houses in our previous location. Taxes are much lower here, but that doesn't seem to be enough to outweigh the emotional toll of the cost difference.

Taking on a mortgage for a house that has aging mechanicals, outdated appliances and is need of serious cosmetic upgrades is a hard pill to swallow. We don't mind DIY work but figuring that cost in adds to already expensive prices.

On the plus side, jobs are great here. My husband really enjoys his new position and part of the job includes a free RTD pass that gets him to Boulder and back for free with a great mountain view. The town and the front range in general is beautiful. We can bike to the most amazing parks we have ever been to and the schools seem good (we are homeschooling this year). The time it used to take me to drive to the grocery store (40 min) can put me in Denver or Rocky Mountain National Park, or on an almost unlimited number of awesome hiking/biking/scenic trails. Oh, and $50/mo gigabit internet is *outrageously awesome*. We are coming from an area that didn't even offer DSL and we had to use a very expensive LTE hotspot. My tech-geek heart flutters at 800Mb download speed.

Renting has had it upsides (pool! hot tub! workout facility! prompt appliance repair included! great location!), but I seriously disdain the high rent. We pay $1850-ish for a two bed, two bath unit with a detached 1 car garage. I feel like we are anti-mustachianly throwing cash into the wind. I can stomach that while we take the time to find the right place to live but I'm not sold on it as a long term situation.

Very few houses even list for near what we want to spend and we have had endless conversations about what the market will do in the near future. Of course we disagree. My husband thinks things are going to break soon. He is worried we will buy and then the bottom will drop out and we will be stuck with something worth far less than we paid. I disagree.

My non-professional opinion and research points to things stagnating. Prices may not grow like they have in the past few years, but I don't think the prices will drop a significant amount unless something catastrophic happens in the economy/job market that produces a glut of supply.

So we keep looking. It feels like every decently priced home goes pending before we can even agree on whether or not it is a good value.  We struggle because we really want to find the right house in the right location for the right price. In this market that seems like a blue bearded unicorn riding shotgun in a DeLorean.

Sorry. I guess I was feeling long-winded this morning. :)  Cheers to finding your own blue bearded unicorn. If he is riding shotgun I can't wait to see who/what's driving.

Dicey

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Re: Real Estate Frenzy
« Reply #5 on: January 06, 2018, 10:10:01 AM »
Back in the late 80's, Denver experienced a huge slump when the oil industry hit the skids. My friend bought a small condo in a great area for $25k! She charged it on her Amex for the points, then paid it off.

A lot has changed since then, but this has not: All markets are cyclical. The real estate market is one where timing the market can work to your advantage. Personally, I'd rent for a year and save as much as i could while studying the market.

Just a hunch: Once sunnier places start legalizing pot, CO RE prices could stabilize.

Cwadda

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Re: Real Estate Frenzy
« Reply #6 on: January 06, 2018, 10:54:25 PM »
Quote
where any properties under $600k are on the market only a few days  before they go pending. The inventory is EXTREMELY low and bidding wars above the list price are the new norm.
What about off the market then?

Quote
Several people I respect have stated the market is only going to continue climb. However, my mustachian logic says don't buy when you are in a tremendously disadvantaged position.
Quote
I understand there is no crystal ball, but what are everyones thoughts on the absurdly hot housing market?
You're accepting that there is no way to time the market, but asking if you should time the market?

Quote
I keep thinking of even purchasing a rental property (as long as it cash flows) but there is nothing available.
The devil's advocate response: there is nothing where you have looked, so you are not looking in the right places.

Have you gone door-to-door asking to buy someone's house or seeing if they know anyone selling a house? 
Have you looked up a list of absentee landlords and called them or sent them a letter?
Have you connected with investor-friendly agents who specialize in finding properties?
Have you talked to all your neighbors about buying a place?
Have you called 10 property management companies to communicate with the owners and offering to buy their house without a realtor?
The list goes on and on.

Sorry if this post comes across as harsh, but if have spent hours looking on the MLS only to watch every property be snapped up in front of your very eyes, you are with the multitudes of others doing the same exact thing. And that won't change anytime in the near future.

clarkfan1979

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Re: Real Estate Frenzy
« Reply #7 on: January 15, 2018, 06:49:23 PM »
While the typical response is to not give into the frenzy and rent, renting is not easy. There is an overall housing shortage and rent is very high as well. This is part of the logical that is driving the frenzy.

Denver is building like crazy. In the next 1-2 years more apartments and homes will be available which will lighten the frenzy. Because Denver has a large supply of buildable land, it's not the same as So Cal. It should stabilize soon, but that doesn't mean prices will go down.

The housing prices in Boulder or near Boulder are based on very high paying jobs and a very high quality of life. When the correction hits, I would expect that area to take the smallest hair cut.

ColoradoTribe

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Re: Real Estate Frenzy
« Reply #8 on: January 16, 2018, 09:49:16 PM »
I've lived in Colorado for 17 years and have owned a house in Boulder County since 2007. I actually bought our first rental townhome in Boulder County a few months back. I will say that housing in Boulder county held its value better than most places during the 2008 housing crash. No market is bullet proof, but I think the Denver market is very resilient and likely to continue its climb, although at a slower pace going forward. Folks like yourself will continue to be the driving force. Denver continues to have lower relative housing costs, better quality of life, and a better work environment than your major coastal cities. Hard to see a housing price collapse as long as people continue to move here in droves. I'd also point to Denver's diversified and high paying employment sectors. Denver is not over reliant on any one sector of the economy, so there's is resilience to a housing value crash built in there as well.

I agree with other posters that suggest some patience and not making a panicked buy or abandoning your own objective svaluation or budget. I looked for several months before buying our rental. On the other hand, I don't think holding out for a large correction or crash is likely to succeed either. The chances of prices being significantly cheaper in five years are slim I'd say, barring unforeseen nationwide events (war, economic collapse, etc.).  If someone moved to Denver in 2009 and decided to wait for things to cool off, they would have sat on the sidelines as prices have nearly doubled in 8 years time. Even if a small correction occurs, I seriously doubt we see 2009 prices ever again.

If you are looking in Denver, I'd suggest trying to get one step of the curve. The boom is generally moving out from downtown, one neighborhood at a time. Relative deals with greater upside can be had if you can get a step ahead of the transition.

Good Luck!

lhamo

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Re: Real Estate Frenzy
« Reply #9 on: January 16, 2018, 10:08:40 PM »

Don't give into the frenzy. Determine what you're willing to pay and if you get outbid then move on to the next property.

We just bought in Seattle, a competitive market that only got hotter as we searched. It was a long and often painful process. I felt disgusted by the market many times. We did remain patient and stubborn throughout, which paid off. We have a long-term plan, have very location-specific jobs, and renting was no longer a viable option for many reasons, so we feel comfortable riding out market cycles.

Unfortunately, in my experience, you have to "give into the frenzy" somewhat if you actually want to get something. Many sellers' expectations are geared toward getting the quickest, highest, most solid offer possible, and desirable/solid houses in good locations will likely have multiple offers to choose from...

I agree with setting a firm price limit that's within your means, and DO have lots of cash left over for renovations. But if you offer half-heartedly, you'll likely lose a few bidding wars. Then, you'll find out more about yourself and how you're willing to adjust your timeline, expectations, size of house, etc. It stings extra if you are paying for pre-inspections each time you do an offer ($400 or more a pop!). Pre-inspections let you know the issues of the house ahead of time so you can waive the inspection contingency, making your offer more attractive to the seller. Pretty sickening, but it was the norm in Seattle.

Ultimately, we chose not to compromise on location, and would only consider properties that were very structurally sound. In return, we ended up with only 1 bathroom, dated everything, more shade than I'd like, and less charm/curb appeal than I wanted. We can make it cosmetically nicer over time, but it will always be pretty modest.

Just sharing some of the thoughts, struggles, etc. we went through in a hot market. Once you start searching you'll likely find out more about your comfort level and what you're willing to compromise on. Or maybe you'll find a great rental/landlord situation and be able to go that route. Good luck!

Congrats on landing something!  If you are anywhere near the BG Trail and want to meet up for a walk sometime, let me know.   

nawhite

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Re: Real Estate Frenzy
« Reply #10 on: January 17, 2018, 05:01:30 PM »
I'm looking to sell in Denver. We have a rental which doesn't quite cash flow anymore after increases in insurance and taxes. And it only returned about 5% this year even if you include the appreciation. It's in the University Hills neighborhood. We're going to hit the "primary residence" exclusion cutoff this year which gives us a giant $30k tax incentive to sell this year as opposed to next and the comparable sales in the neighborhood have absolutely plateaued in the past 12 months.

The numbers I'm looking at say that the boom is petering out in our neighborhood. Comparable sales flat over 12 months, down over 6 months even when seasonally adjusted. Rental prices are flat year over year. Vacancy rates are increasing across the city. As said up thread, there is tons of new construction scheduled to come on the market in the next 12 months, etc.

Prices might not go down as jobs are still showing up, and all bets are off if Amazon decides to move here, but I'm not expecting the same increases I've seen since we bought in 2013. It would take us years of appreciation at the new normal to outstrip the tax incentive of selling this year so we're getting out. That all said, every neighborhood is different.
« Last Edit: January 17, 2018, 05:05:11 PM by nawhite »

GU

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Re: Real Estate Frenzy
« Reply #11 on: January 27, 2018, 09:41:08 AM »
I just don't see how Denver's economy supports the housing prices in the area. 

greaper007

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Re: Real Estate Frenzy
« Reply #12 on: January 27, 2018, 10:40:47 PM »
About to put my house for sale by owner in the next few weeks.   Broomfield, BVSD schools, 2700 sq ft, across from a park.    Let me know if you're interested.   I could give you a deal if we go without a realtor.

narrative

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Re: Real Estate Frenzy
« Reply #13 on: January 31, 2018, 07:55:07 PM »
About to put my house for sale by owner in the next few weeks.   Broomfield, BVSD schools, 2700 sq ft, across from a park.    Let me know if you're interested.   I could give you a deal if we go without a realtor.

Wish we were looking in Broomfield. Quick question for you. Do folks in this area have a particular FSBO site they list with or is it mostly craigslist? Where we came from there was a FSBO site many people used but I haven't found a similar one here.

Blindsquirrel

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Re: Real Estate Frenzy
« Reply #14 on: February 04, 2018, 09:24:16 AM »
    When we sell we list on Zillow and Craigslist for awhile and then call a realtor if it does not sell, 4-5% commision goes a long way and I think it is too much even on a 125k house. Would try like all hell to FSBO if we were dealing in 600k properties.

Evildunk99

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Re: Real Estate Frenzy
« Reply #15 on: February 07, 2018, 02:37:06 PM »
There is an inventory problem in many areas of the country now.  Part of the problem was that builders completely stopped new construction in the years following the housing crisis.  When they resumed building, they essentially only built condos, apartments, or luxury homes.  In pricey markets you are either forced to pay a premium for a move-in ready house, move to a seedy area of town, get extremely creative (ie tiny houses), or find an old fixer upper.

IMO I think housing prices will continue to steadily rise, despite the current environment.  The two largest reasons why are demographics and mortgage rates.  While the Fed is raising short term interest rates, longer-term rates aren't budging much.  This means that it is cheaper to finance a house purchase than in the past (extremely cheap vs. 20-30 years ago).  Second, Millenials are reaching the average age of 1st time home buyers, boomers are trying to retire and downsize, and the home ownership rate is at historic lows (62%).  Pre-crisis home ownership rates were ~69%, indicating pent-up demand. 

Ryan

Dicey

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Re: Real Estate Frenzy
« Reply #16 on: February 08, 2018, 08:53:55 AM »
I agree with this^^. Another factor is the number of housing units being converted to other uses. Specifically, airbnb and board and care facilities. Where there was one in my neighborhood, there are now three. Removing properties from the pool of available housing has a ripple effect and creates upward pressure on prices.

greaper007

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Re: Real Estate Frenzy
« Reply #17 on: February 09, 2018, 11:09:16 PM »
About to put my house for sale by owner in the next few weeks.   Broomfield, BVSD schools, 2700 sq ft, across from a park.    Let me know if you're interested.   I could give you a deal if we go without a realtor.

Wish we were looking in Broomfield. Quick question for you. Do folks in this area have a particular FSBO site they list with or is it mostly craigslist? Where we came from there was a FSBO site many people used but I haven't found a similar one here.

Sorry, I haven't logged on for awhile.    I'm planning on using zillow, that's what our real estate attorney suggested.    What was the FSBO site that you're looking at?    Also, where do you plan on moving?

narrative

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Re: Real Estate Frenzy
« Reply #18 on: February 12, 2018, 08:09:07 PM »
We are looking in Longmont.

We moved from Central IL. The commonly used sites there were http://www.fsbolocal.com or the usual like Zillow.

I personally like Redfin for the most part for my day-to-day watching and updates. It seems to be the easiest to navigate and sift through data.
« Last Edit: February 13, 2018, 10:51:30 AM by narrative »

privatefarmer

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Re: Real Estate Frenzy
« Reply #19 on: February 13, 2018, 05:23:34 AM »
While the typical response is to not give into the frenzy and rent, renting is not easy. There is an overall housing shortage and rent is very high as well. This is part of the logical that is driving the frenzy.

yeah but those who buy rentals will tell you that monthly rent should ideally be at least 1% of the property value. In seattle, we are nowhere close to that. a 600k property in seattle area may rent for 2k... so while rent may seem "high" it is relatively cheap compared to housing prices. I ended up buying anyhow just north of Seattle but it sucked, I did it for lifestyle change and to please the wife more than anything.

frenchsquared

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Re: Real Estate Frenzy
« Reply #20 on: February 20, 2018, 09:11:15 AM »
I live in Colorado.... I have 11 properties in Colorado... I wont touch Denver area. I feel it is inflated and will crash. The prices literally doubled the week weed was legalized and its not likely to stay there in my book.