Looking forward, there will be micro areas where we will see higher appreciation than others. Foreclosure belts in Arapahoe, Denver and Adams counties will continue to offer investors ample opportunity for fix and flips and fix and hold strategies. As always, investors need to buy right and buy smart. - Jay
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courtesy of Michael Perrault Denver Business Journal

“Real estate foreclosures jumped 17 percent across seven metro Denver counties, plus Elbert and Weld counties, in 2005. That’s prompted more strapped homeowners to turn to consumer credit specialists, savvy lenders and housing agencies for help.

At least 16,047 real estate foreclosures were filed last year in the nine Front Range counties, up from 13,685 in 2004. Some counties, such as Adams, reported more than a 30 percent increase. The foreclosures covered homes, lots and commercial buildings.

Statewide, Colorado registered 2,687 foreclosures in November, placing it second in the nation behind only Georgia, which had 4,416 foreclosures during the month, according to RealtyTrac’s monthly U.S. foreclosure report.

The foreclosure tally for 2005 is the second-highest in Colorado’s history, behind only 1988, when 17,122 foreclosures were filed, according to county public trustees.

Local economists, lenders and housing experts attribute the influx of foreclosures to a confluence of factors — especially job losses.

“A lot of times it’s a single event that leads to foreclosure — a job loss, an illness, a divorce,” said Kim McGrigg, a spokeswoman for the Denver office of the Consumer Credit Counseling Service, which is approved by the U.S. Department of Housing and Urban Development to provide free housing counseling.

Increasingly, however, other factors are squeezing homeowners, from rising mortgage interest rates to higher energy prices, health care costs and credit card payments.

“There is a percentage of people who come in with overwhelming credit card debt who simply say they overspent,” McGrigg said.

Job losses often correlate with high foreclosure rates, economists say.

From October to November, the overall metro Denver unemployment rate increased from 4.7 to 4.9 percent, slightly higher than the 4.8 percent rate reported for both Colorado and the nation in November, according to Metro Denver Economic Development Corp.’s economic survey.

Denver and Adams counties reported the highest unemployment rates in the metro region at 5.6 percent and 5.5 percent, respectively. Denver County’s foreclosures jumped to 3,699 from 3,351 last year, and Adams County’s jumped to 3,281 from 2,499.

Some county public trustees say the foreclosure tally could have been higher.

Arapahoe County could have added another 200 foreclosures to its 3,600 year-end tally, but clerks simply weren’t able to process all the files that poured in last month.

“Those left on the shelf roll over into 2006,” said Mary Wenke, Arapahoe County public trustee. “It’s not going down, that’s for sure. We’ve been told by attorneys representing the major lenders that they don’t see a dip in sight at all.”

Some home buyers hoping to get into their dream homes have stretched themselves too thin by taking on adjustable-rate home-equity loans and adjustable-rate mortgages that simply aren’t the right fit, lenders say.

Tim Smith, senior loan officer for Oxford Mortgage Corp. in Greenwood Village, has watched a seemingly endless parade of new mortgage options during the 19 years he’s been helping home buyers. Unless mortgage lenders care enough to take the time to explain the upside and downside of various options, Smith says, borrowers can make the wrong move and eventually end up in foreclosure. That’s especially true with the youngest and most vulnerable homeowners.

“I may tell a client that if they’re going to do an interest-only product, I want them to make doggone sure they put an extra $50 or $100 every month toward the principal,” Smith said. “If they’re not schooled and told what to do down the road, they’re not going to know.”

Home buyers are often lured by loan solicitations that promise cheap money — “easy-money loans” that cause financial problems later on. A buyer may jump at an interest-only, adjustable-rate mortgage only to see monthly payments jump dramatically. When homeowners try to refinance, they may realize there’s a nearly $5,000 pre-payment penalty.

Other area homeowners have found themselves in a bind as monthly payments have climbed as the Federal Reserve has ratcheted up short-term interest rates 13 times. That $30,000 adjustable home-equity loan may go from 4.25 percent to 6.5 percent and add another $30 of interest per month, or an adjustable-rate mortgage may jump from 5.75 to 6.3 percent and add $100 to a $263,000 loan.

Freddie Mac, the Federal Home Loan Mortgage Corp., said that three of four homeowners who refinanced in 2005 took out money to pay off other bills or make improvements. In the third quarter of 2005, homeowners garnered more than $60 billion of equity.

McGrigg urges homeowners to act quickly to head off foreclosures and realize there are many options to help them avoid a court date. Also, she said, it’s important to prevent even more financial problems, such as having to pay off a delinquency balance.

“Oftentimes, I believe they’re fearful to call attention to the problem,” McGrigg said. “But if they don’t take action, they could lose their home.”

There were some bright spots in this year’s foreclosure statistics, and Broomfield was an example, according to the Metro Denver Economic Development Corp.

This year, Broomfield posted 123 foreclosures, down from 131 last year. And Boulder had 618, the same number as 2004.

At least part of the reason for more foreclosures is that there are more homeowners, so a direct comparison of foreclosure numbers with 1988 isn’t all that telling, economists say. In past years, for example, the percentage increases in foreclosures have been dramatically higher.

From 2003 to 2004, there was a 31 percent increase in foreclosures, and the two previous years were higher than that, at 44 percent and 55 percent, public trustees said.

The bottom line for many first-time home buyers and others in the metro area is that they should work with a lender who cares enough to perform due diligence, carefully analyze financial wherewithal and hash out loan details and expectations, Smith said.

Homeowners need to sit down with a lender who has their long-term best interests at heart and find out what mortgage product fits best, he said.”

This article comes courtesy of the Colorado Association of Realtors

By Jeff Romine Regional Economist, New West Economics

As most people were preparing for the holiday season and the start of a new year, analysts and economists were churning numbers and thinking about the economy ahead. Already, a number of my colleagues have suggested the number of new jobs, the level of retail activity, and how many housing units will be constructed in the coming year.

In almost every forecast, the job growth of over 50,000 new jobs next year will be higher than we experienced in 2005 and housing starts are generally expected to fall slightly from this year’s amazing 45,000 plus new housing units. Retail spending is expected to remain strong in the coming year, growing at a rate of 5.5% or more. Equally important, most state and local economists believe that wage and salary growth, and thus personal and household income, will grow strongly in the coming year. All in all, the analysts and economists are a pretty optimistic group this year in Colorado.

Given the rough consensus on next year’s economy, the real story is underneath the forecasted numbers. Like an iceberg, the important part is often unseen. This past year, we economists have discussed some of these differences in perspective by focusing on the question of whether a housing bubble exists in Colorado.

The answer to this question really depends on where you stand. If you are looking at it from the perspective of the nation or the Rocky Mountain region, you will have one answer. If you are thinking in terms of Colorado or one of the local sub-markets in our state, you will have yet another answer.

My short answer is, yes, we did face a housing price bubble throughout 2000 and 2001. This bubble never burst, however; instead, it has slowly deflated over the past several years. Local and state housing prices grew at twice the rate of the nation on average, from 1995 to 2000. This was a period of strong growth throughout the United States. From 2000 to today, the nation saw even stronger growth with housing prices on average growing slightly more than 10% a year. During the same period, our state average housing price has only grown slightly more than 5%. The Denver market is the prime example of this price appreciation change, lowering from a 10.3% annual increase in the late nineties to just over 5% a year for the past five years.

The major sub-market of Colorado Springs saw the reverse occur, much like the nation as a whole. Colorado Springs experienced a growth in appreciation from 5.7% a year in the late nineties to a stronger average 6.5% increase during each of the first five years of this decade.

However, price appreciation does not tell us the whole story. Another factor to consider is the relationship between Median Household Income and Median Housing Price. This index of Housing Opportunity (conducted by the NAHB and Wells Fargo Bank) shows that all the major metro sub-markets in Colorado are more affordable than the national median comparison. Surprisingly Boulder, which is often considered our most expensive metro sub-market, has a higher opportunity index rating than the nation on average. In this case, higher means more affordable.

A third way to think about this question is to ask how many years of the household median income are required to purchase the median house in an area. In Boulder, it would take 3.4 years, in Fort Collins 3.1 years, and in Pueblo (our most affordable metro area), it would only take 2.6 years. The national median levels would require a full 4.4 years of income. Now obviously, we don’t put all of our income strictly into our housing purchase or rent, but it gives you some sense of the comparative affordability of housing within Colorado.

This quick review of the data provides you a good sense of why I, for one, believe that the housing bubble existed and has deflated, but never burst, generally in Colorado. Most of our communities are quite affordable places to live in the country. Even recent statistical evidence points to a reasonable appreciation and return in our local markets. If employment growth levels are around 50 - 60,000 new jobs a year (resulting in corresponding levels of population growth), these normal market conditions should continue into the coming year or years.

Jeff Romine can be contacted at Jeff.Romine@newwestecon.com.

Part 5 of 6 Steps to Becoming a Successful Real Estate Investor by Robert Kiyosaki and Dolf De Roos of Rich Dad / Poor Dad fame.

Part 4 of 6 Steps to Becoming a Successful Real Estate Investor by Robert Kiyosaki and Dolf De Roos of Rich Dad / Poor Dad fame.