Trend is landlord’s friend

Lower vacancies and higher rents appears to be a trend, even if the economy doesn’t perk up.

“A lot of it is just natural population growth,” Von Stroh said. “The state’s (rental-age) population is increasing, no matter what happens. Demand is picking up, but few new units are being added to the marketplace. It would take some pretty significant increases in rental rates to justify the cost of new construction. Given that demand is growing and the supply is not, many would come to the conclusion that we could face a pretty severe shortage of rental units down the road.”

Home ownership not for everyone

Von Stroh added that buying a home has losted some of its luster from the days prior to the housing “depression,” when subprime loans and easy credit helped fueled the first foreclosure wave.

“Everyone was encouraged to be a home-owner, and not everyone should own a home,” Von Stroh said.

Terrance Hunt, a broker with Apartment Realty Advisors, agreed.

“There has been a fundamental shift,” Hunt said. ”In the days of the subprime mortgage, the No. 1 reason people left apartments was to buy a home. Now, the pendulum is swinging back in the direction of rentals. Now, home ownership and renting are much more in balance.”

Springs boasts biggest drop

The largest drop in the vacancy rate was found in Colorado Springs where, year-over-year, the rate fell from 9.8 percent to 5.8 percent. In Grand Junction, vacancies rose year-over-year from 4.5 percent to 8.9 percent, and in Pueblo, they rose from 8.5 percent to 10.4 percent during the same period.

Much of the improvement in Colorado Springs is tied to the military, Von Stroh said. “More people are coming back from Afghanistan than leaving,” Von Stroh. “For Colorado Springs, it is very important to look at what is is happening to the multifamily market on a month-to-month basis. When you do, what happens monthly tracks very closely to troop movements.”

The metro Denver vacancy rate, measured earlier this month in a separate survey, also fell year-over-year from 9.0 percent to 6.1 percent. Vacancy rates in all metropolitan areas were Colorado Springs, 5.8 percent; Ft. Collins/Loveland, 6.8 percent; Grand Junction, 8.9 percent; Greeley, 6.3 percent; Pueblo, 10.4 percent.

Fort Collins has benefitted from a growing trend of more Colorado State University Students staying in the city during the summer, said Carrie Ann Gillis, property manager for New Colony Apartments in Fort Collins.

“They can’t find a job back home, so they decided they might as well stay,” said Gillis, a board member with the Northern Rental Housing Association. Many CSU students are seeking a second degree or are getting an advanced degree, she added, which is boosting demand for rentals.

Indeed, students who have not been thinking ahead, may find it tough to find housing for the new school year, she said. “They had to pay attention to the 7 Ps: prior planning prevent poopy performance,” she said.

Rents rising

Meanwhile, average rents rose across the state as vacancies fell. Among the state’s metropolitan areas, average rents rose in all areas except Greeley. The largest increase was found in the Fort Collins/Loveland region where the average rent increased from $825.03 to $885.29 from the second quarter of last year to the second quarter of this year. In Greeley, the average rent fell from 629.01 to 618.29, year-over-year.

Average rents in all metropolitan areas measured were Colorado Springs, $719.22, Ft. Collins/Loveland, $885.29; Grand Junction, $634.48; Greeley, $618.29; Pueblo, $541.78. The metro Denver average rent, measured in a separate survey, was $899.97 for the second quarter. Still, rents are not near high enough new justify a new wave of construction, Von Stroh said. “We’re talking about some pretty serious dollars in rent increases, before it makes sense to build,” Von Stroh said. And salaries are not rising enough to pay the additional costs, Gillis said.

For more detail, the report is available online at the Division of Housing Web site:http://dola.colorado.gov/cdh.

ntact John Rebchook at JRCHOOK@gmail.com or 303-945-6865

Related Posts:

• UDR buying NY apartment building for $325 million
• Renters to face sticker shock
• Apartment vacancies fall
• Best yet to come for apartment owners
• Apartment vacancy rate falls to 6.1 percent

The report by RealtyTrac, based in Irvine, Calif., for the first time released a report tracking third-party sales by banks. The sales, which occur during any phase of the foreclosure process, typically fall into two broad categories, Rick Sharga, spokesman for RealtyTrac told InsideRealEstateNews. The first category is short sales, in which the bank agrees to accept less than the mortgage amount. The second category is after the bank has acquired the home in what is known as a REO (Real Estate Owned) and subsequently sells it to someone else.

In the fall, RealtyTrac plans to start breaking out short-sale data for each state, Sharga said.

An earlier report by the Colorado Division of Housing, showed 6,686 foreclosed homes being sold at public trustee auctions in Colorado during the first quarter.

Tracking short sales

“Our number for total sales is very close to that number,” Sharga said. “With this report, w were looking at third-party, arms-length sales. We did not count the foreclosure sales when the bank was the highest bidder.” Banks often bid the amount of the outstanding loan, as that does not cost them any money out of pocket. Investors can bid more, if they think the house is worth more. Typically, if a house had equity in it – that is the house had value beyond the loan amount – the homeowner would be better off selling the home on the open market. It’s estimated that nationally, one out of every four mortgages is underwater.

“There 4,535 number does still seem surprisingly low,” said Ryan McMaken, of the Colorado Division of Housing, who researches and authors state-wide foreclosure reports. “RealtyTrac is obviously using a different methodology that we do. I think their data will be valuable for future comparisons, rather than the absolute numbers.”

We’re talking $866 million in home sales

According to RealtyTrac, first-quarter, third-party foreclosure sales are down 30.21 percent from the first quarter of 2009 and down 16.79 percent form the fourth quarter of 2009. That is down slightly from the respective national averages of 33.18 percent in the third quarter 2009 and 14.04 percent in teh fourth quarter. The average sales price of a a home was $191,006, about 11 percent higher than the national average of $171,971. The total value of the 4,535 homes is about $866.2 million. The overall average discount was 24.51 percent. In other words, more than $1 billion of homes would have impacted , if they could have fetched market prices. The average REO discount in Colorado was 30 percent, compared with 34 percent for the nation, while the average pre-foreclosure discount was 17.62 percent in Colorado, compared with 14.77 percent for the nation.

“I think Colorado has settled down quite a bit,” Sharga said. “I don’t think they are out of the woods, yet. I think the worst is over, unless you get hit with another wave of unemployment. Colorado does appear to be in danger of that happening, and Colorado seems to be weathering this economic storm better than most places.

McMaken, of the housing division, noted that foreclosure activity was peaking in 2007 in Colorado, at a time when the rest of the nation was just staring to feel the brunt of record numbers of people losing their homes.

National numbers

Colorado accounted for about 2 percent of the 232,959 U.S. properties in some stage of  foreclosure — default, scheduled for  auction or bank-owned (REO) — sold to third parties in the first quarter, a decrease of 14 percent from the previous quarter and down 33 percent from the peak during the first quarter of 2009, when sales of foreclosure homes accounted for 37 percent of all residential sales.

“First time home buyers and investors continue to buy foreclosure properties in large numbers, and at substantial discounts,” said James J. Saccacio, chief executive officer of RealtyTrac. “As lenders have begun repossessing homes at record levels over the first half of 2010, it will be interesting to watch how they will manage the inventory levels of distressed properties on the market in order to prevent more dramatic price deterioration.”

The average sales prices on properties in some stage of foreclosure decreased 23 percent from 2006 to 2009 while the average discounts on foreclosure purchases steadily increased from 21 percent in 2006 to 27 percent in the first quarter of 2010. Discounts on REOs are larger than discounts on pre-foreclosures. However, discounts on pre-foreclosures appear to be trending higher as short sales become more common.

Foreclosure sales increase 2,500 percent from 2005 to 2009 More than 1.2 million U.S. properties in some stage of foreclosure sold to third parties in 2009, an increase of 25 percent from 2008 and an increase of nearly 327 percent from 2007. Total foreclosure sales in 2009 were up more than 1,100 percent from 2006 and up more than 2,500 percent from 2005. Foreclosure sales accounted for 29 percent of all sales in 2009, up from 23 percent in 2008 and up from 6 percent in 2007.

Foreclosures carry 25 percent discount

The average sales price of properties that sold while in some stage of foreclosure in 2009 was 25 percent below the average sales price of properties not in the foreclosure process. That was up from an average discount of 22 percent in 2008 but down from an average discount of 26 percent in 2007. The average foreclosure discount in 2005 was 35 percent, driven by a nearly 50 percent discount on REOs; however, the discount on pre-foreclosures trended up slightly over the same five-year period, from nearly 12 percent in 2005 to 15 percent in 2008 and 2009.

A total of 144,503 bank-owned properties sold to third parties in the first quarter, down 13 percent from the previous quarter and down 27 percent from the first quarter of 2009. REO sales accounted for 19 percent of all sales in the first quarter, up from nearly 16 percent in the previous quarter but down from 21 percent of all sales in the first quarter of 2009. REOs sold for an average discount of 34 percent, up from an average discount of nearly 32 percent in both the previous quarter and the first quarter of 2009.

A total of 88,456 pre-foreclosure properties — in default or scheduled for auction — sold to third parties in the first quarter, down 15 percent from the previous quarter and down nearly 41 percent from the first quarter of 2009. Pre-foreclosure sales accounted for nearly 12 percent of all sales, up from nearly 10 percent in the previous quarter but down from 16 percent in the first quarter of 2009.  Pre-foreclosures, which are often short sales, sold for an average discount of nearly 15 percent, up from nearly 14 percent in the previous quarter but down from 16 percent in the first quarter of 2009.

Nevada, California, Arizona hit hardest

Nevada, California, Arizona posted highest percentage of foreclosure sales in the first quarter, accounting  for 64 percent of all sales in Nevada in the first quarter, the highest percentage of any state, although Nevada’s percentage was down from 65 percent of all sales in the previous quarter and 75 percent of all sales in the first quarter of 2009.

California posted the second highest percentage, with foreclosure sales accounting for 51 percent of all sales there in the first quarter — up slightly from 50 percent in the previous quarter but down from 70 percent of all sales in the first quarter of 2009. Foreclosure sales as a percentage of all sales were also down in Arizona from the first quarter of 2009, but the state still posted the third highest percentage in the first quarter, with foreclosure sales accounting for 50 percent of all sales.

Other states where foreclosure sales accounted for at least one-third of all sales were Massachusetts, Rhode Island, Florida, Michigan, Georgia, Illinois, Idaho and Oregon. Ohio, Kentucky, Illinois had the highest foreclosure discounts.

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

Related Posts:

• Colorado No. 10 for foreclosures
• RE/MAX fighting foreclosures with short-sale plan
• Colorado ranked 8th for foreclosures
• RealtyTrac: Colorado No. 9 for foreclosures
• Colorado 11th for foreclosures

Only 438 permits for apartments were issued in the first nine months, an 84.8 percent drop from the 2,885 permits issued in the first nine months of 2008, according to the most recent data from the Home Builders Association of Metro Denver.

Indeed, the percentage drop for apartments is almost twice the 44 percent drop for single-family homes.

But unlike housing, this is not a record-low number of permits issued for apartments. That occurred in 1991, when a mere 208 permits were issued for the entire year. And in 2005, only 406 permits were issued for the entire year.

Roger Reinhardt, executive vice president of the HBA of Metro Denver, noted that more than 23,000 permits were issued from 2000 to 2002,.

“Clearly, apartment became over-built during the cycle, so it is not unusual for apartment construction to drop way back after that happens,” Reinhardt said.

One of the reasons developers pulled so many permits during that era was that they feared that voters would approve an anti-growth  Constitutional Amendment that would erect a giant legal roadblock to construction, and they wanted to get their permits pulled in advance. Amendment 24, the anti-growth measure, failed in 2000, leaving too many apartments being built for the demand.

Steven Rahe, an apartment broker who is a senior vice president at Grubb & Ellis,  is thrilled that building permits are at such a low level this year.

“If you had told me at the beginning of the year that we would see 1,000 or fewer permits pulled for apartment units in all of 2009, I would have been impressed and delighted,” Rahe said. “It is a good thing for the market and existing landlords.”

The HBA data shows that permits were pulled for 168 permits in Denver, down from 1,906 during the first nine months of 2008; 166 units in Littleton; 96 units in Lafayette and eight units in Boulder.

Rahe said the numbers are so small they are probably all affordable and tax-credit deals. It’s also almost impossible to get financing for market-rate units in this lending environment.

Ryan McMaken, spokesman for the Colorado Division of Housing, said the low number of permits being pulled is not surprising.

“But I keep thinking about the 35,000 households being created each year,” McMaken said. “At some point, we are going to have a shortage of apartment units, especially affordable units. There clearly is going to be a need for more affordable units going forward.”

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

Related Posts:

• Drop in Denver building activity welcomed
• Denver No. 46 in foreclosures
• Foreclosure sales down
• Denver Ranks No. 45 for Foreclosures
• Vacancies down, rents up