Q1 Newsletter 2009 by Neil Kearney

Kearney Realty News Market Update

Neil Kearney MBA, CRS®

Kristy Kearney

Quick Facts • Interest Rates at Historical Lows • Prices stable • Inventory down • Strong Rental Market • Number of Sales dropped 16% in 2008

What a year it has been! The credit crunch turned into an all out financial crisis with global implications. Like most industries, real estate has been affected negatively. To begin with, the lending standards have become tougher. In order to get a favorable loan you must have your financial act together. This year has also seen huge losses in the stock markets. Nest eggs have been cracked and would-be buyers of real estate are feeling a bit queasy about the prospects of spending money. The media has been filled with stories of layoffs, company failures, foreclosures and all manner of confidence sapping news. The environment in which we are

January 2009 living is fraught with uncertainty. It is also full of opportunity! The stock market is filled with companies with good sales, millions in the bank and are trading at 30 year lows. Real estate can be purchased for a good price with historically low interest rates. Locally we are doing much better than the national average and very much better than some of the boom and bust areas. Sales have slowed but prices are holding firm. Inventory is down for both new and re-sale homes and the rental market is stronger than it has been in many years. Last winter Conoco-Phillips announced plans to build a global center

for renewable energy in Louisville. This project will bring jobs but more importantly it will bring other businesses who recognize this area as a superior place to start or grow a business. We look forward to being a big part of this vital market for many years to come. We welcome your business and appreciate every opportunity to serve you, our valued clients.

Why Now is a Great Time to Buy According to recent data, the U.S. savings rate of 0.4 percent for 2007, is the lowest in the world. It compares to 2.9 percent in the United Kingdom, 3.1 percent in Japan, 6.8 percent in Italy, 10.9 percent in Germany, 12.7 percent in France, 24 percent in China and 28 percent in India. We are known as a spending nation and up until very recently, it has gotten out of hand. Now we are in a spending hangover

and some have confused spending and investing. I’ve talked with many people lately who are deferring to the future. Cancelling trips, delaying large purchases and putting more away for a rainy day stand in stark contrast to the not so distant days of blatant consumption. Consumer confidence is near historical lows and the malaise of the media has begun to take a toll on families who are still in good

shape. Warren Buffett’s editorial in the New York Times on October 17th said “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful”. I think you would agree that according to this rule, this is a time to be greedy in most things. This, I believe includes real estate and I will tell you why. Our local market was not

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Why Now is a Great Time to Buy - continued

The herd mentality is safe but rarely does it provide large returns.

“Every 1/2 point drop in interest rates is equivalent to roughly a 5% drop in price.”

swept up in the speculation boom that had valuations appreciating double digits per year throughout much of the country. For the past five years, we have been plodding along at roughly 3% per year while Oregon, for example, has recorded annual gains of over 11% per year. We did not boom and I believe we will not bust. The areas being hit hardest right now are still at price levels above 2003. During this time our building has slowed and recently, inventory has decreased. Rents have increased and our area is gaining population not losing it. In short, our area is not in the same position as much of the country. We have much pent up demand, good affordability and we are poised for a quick rebound. So you may ask, why not wait until you are sure the market is on the upswing? My answer to you is that you can never know when it is the best time to buy, you can only ever

know when it was the best time to buy. There are also some other great benefits to buying now rather than waiting. These include: •

Rates are low now and will go up after the recovery.

•

Less competition for homes and good deals to be had.

•

Relaxed pace of search vs. multiple offers.

•

There is no guarantee you are going to save money by waiting, prices locally have been stable to increasing.

•

The best time to buy is when others are fearful.

•

You get to live in and enjoy your new home!

Let me address the first point. At this writing, interest rates are in the low 5’s, at levels that have only been touched a few times. What makes a home affordable? If a homeowner can comfortably make the payments a house is affordable. Every 1/2 point drop in inter-

est rates is equivalent to roughly a 5% drop in price. Here is an example: Buy Now Price Down Pmt. Amt. Borrowed Interest Rate Interest Interest per mo.

$400,000 $40,000 $360,000 5.25% $23,844 $1,987

Buy Later Price Down Pmt. Amt. Borrowed Interest Rate Interest Interest per mo.

$400,000 $40,000 $360,000 6.5% $26,599 $2,216

In fact, to have equal payments you could buy a house now that is 10% more expense rather than wait for better times when the rates increase. Not only do you take advantage of the great rates, you are sure to participate in the appreciation when the cycle turns around.

Case Study: Move-Up Buyer in a Difficult Market Most of the buyer’s right now in the distressed markets across the country are either first time buyers or investors. Both of these categories recognize that this is a perfect opportunity in which to buy. But what about move-up buyer’s? Those who already own a home but are ready to purchase a larger home or a different type of home. Many of these wouldbe buyers are waiting until the

prospects of selling their homes are better. Let me explain why this may not be the best strategy. According to the National Association of Realtors the average move-up buyer purchases a home that is 50% more expensive than the house they are selling. For our example let’s assume that the Smith’s currently own a home that they think should sell for

$400,000. They came up with this price because their neighbor across the street sold their house last year for $390,000 and their house is “much nicer than that house”. They have their eyes on a house in the same school district that has been listed for four months at $600,000. After our initial consultation I inform them that their house would sell within a reasonable

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Case Study - continued time for $380,000. They are obviously disappointed and initially feel that they should delay the move until their house will sell for what they think it is worth. Before I leave, I take them through the following two scenarios. Sell and Buy Now (slow market) Sell House $380,000 Buy New House $570,000 Amount Down $130,000 Payment at 5.25% $2,429 If they decide to sell now they will need to price their home competitively in order to

get it sold in a reasonable amount of time. The good news is that the house they want to buy is in a similar situation. Let’s assume each seller needs to take 5% less than they think it is worth to get the deal done. The Smith’s end up with a great house that they were able to buy for $570,000 with a total monthly payment of $2,429 excluding taxes and insurance. Sell and Buy Next Year (strong market) Sell House $400,000 Buy New House $600,000 Amount Down $150,000

Payment at 6.25% $2,770 If they decide to wait until everyone else is buying and selling they trade certainty and price for overall financial soundness. As the tide moves it takes all boats with it. As they gain $20,000 on their home they end up paying $30,000 more on their new house. More importantly they pay 14% more each month in interest. They also get to enjoy their new home with family and friends for an extra year. I think you would agree that the Smith’s would do well to take advantage of the opportunity that is present-

Featured Properties 1514 Tulip Ct. Longmont, CO 80501 $275,000 Super clean patio home with a full finished basement, new carpet and a private backyard. 4 Bedroom, 3 Bathrooms 3,514 Total Sq. Ft.

Boulder County 2008 Market Statistics: • Median Price - Down 3.62% • # of Sales - Down 16% • Inventory - Down 9% • Avg. Negotiation - 3.46%

3030 O’Neal Pkwy. #M-11 Boulder, CO 80301 $119,900 Conveniently located remodeled condo located near 30th and Iris. Affordable living in Boulder. 1 Bedroom, 1 Bathroom 759 Total Sq. Ft.

2008 Avg. Median Prices Boulder - $538,000 Louisville - $350,300 Lafayette - $311,500 Longmont - $219,900

515 Ridge Ave Longmont, CO 80501 $315,000 Beautiful custom ranch in South Longmont. Stunning open floor plan with high quality finishes.

Superior - $401,300 Plains - $403,000 Mountains - $355,000

Kearney Realty Co.

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Featured Listings 4645 Almond Lane Boulder, CO 80301 $314,900 Lovely, spacious townhome backs to a huge multi-use park. Shows well with designer colors and a finished basement. 2 Bedroom, 4 Bathroom 1,846 Total Sq. Ft.

772 Circle Drive Boulder, CO 80302 $4,000,000 Stunning new construction on an exquisite, private lot just beneath Flagstaff Mtn. 5 Bedroom, 7 Bathroom 6,969 Total Sq. Ft. Buy now and have input on finishes.