Topics discussed in this month’s roundup:
- Charles Roberts and Justin Cooper discuss Justin’s most recent rental property acquisition – and all the curveballs! It ended up being a great deal. View the property sheet and spreadsheet at http://old.denverinvestmentrealestate.com/deals
- Condo conversions – Is it going to start happening? An analytical approach to seeing if the numbers make sense. Here are Charles’ notes from the presentation:
- Savings rate down to 3.5% Average is 5.5% over the years. It’s gone down during the recovery in the economy.
- Dow has skyrocketed. Disposable income at the highest level ever.
- Supply is at record lows around the country.
- Consumer debt is going up every year.
- Took 10 years to get ave. prices and home sales back to where they were in ’17 in the U.S. Denver is way ahead of the curve.
- 9 resales to every new home sale nationally. In CA it’s 20:1. Builders main competition is resales, not other new home builders.
- Nat’l sales pace is 2.11 sales by MSA. Used to be closer to 4. Simply means fewer homes are being sold nationally.
- 10,890 housing permits pulled in Denver in ’17.
- Very low supply around the country. Denver has 1.1 months of supply for unsold resale product. SF = .92. Houston=3.28. Vegas=2.88
- New home market is priced 29% above existing homes. Used to be 10-15%, it’s getting larger.
- Millenials are driving up home prices. Bottom third of home prices have gone up fastest nationally. Cheapest markets have seen highest price increases. ’17, bottom tier went up 9% in price nationally.
- Denver has had a huge YOY Home Price vs. Wage. Prices have gone way up, 9%. Wages have only gone up 3%. Potential danger zone for Denver. DC for example has been about the same for each. The price of homes have way outpaced the wages in Denver. This will cause the next downturn. Not over supply, student loans, he thinks prices will outpace wages sooner or later.
- Home price vs. income is U.S. about 4.5:1. In Denver it’s about 6.3:1.
- Affordability. 32% of Denver can afford the medium priced homes. About 50% is healthy. We’re potentially over priced.
- It’s getting more expensive to own than rent in Denver. It’s creeping that way.
- FHA limits have gone up nationally, this has helped our markets a lot. Denver’s a big winner from this.
- What to watch: Tax reform, financial health of consumer, housing demand, demographic trends. He thinks we have at least 2 more years before we see a slow down in the housing market.
- Very low unemployment, good job growth.
- We’ve had good increases in high paying jobs in Denver the past several years.
- SF Permits are 41% below the peak in ’04. 48% of Denver permits are DSF.
- Employment to permit ratio is very low in Denver indicates we are seeing enough housing is being built. The problem is 48% of permits are mulit family. 1.16 is about the equilibrium.
- Denver metro has 377 active subdivisions.
- There’s about 1 year of remaining detached buildout. This is very low. Typical is 24 months. There is room for new building.
- Total units added up 47% compared to ’16. In NoCo is 93%. Still ver yhelathy. SoCo, just 15%.
- Boulder most expensive new home market. JeffCo and Douglas more expensive than Denver for new homes.
- 7.1:1 existing sales vs. new sales.
- Share of new homes sales is much lower than it was the previous 20 years.
- Richmond = 14% market share in Denver.
- Lots more attached new sales than detached the last year.
- Condo construction got crushed since 2007. Almost no for sale condos have been built the past 10 years. 26 year average = 1,196. Last 10 year average = 500 builds. Most has been high end product. The condo recovery is starting. ’17 had 1,200 condos, definitely moree condos being built. Most attached is has been rental apartments. Condo conversions?
- In ’17 there were a bunch of apt. sales to look at. $244/ft. average for apartment complexes sold. $314/ft. for similar complexes sold as individual condos. Interesting way of looking at it. The difference is $70/ft. for profit potential. That’s the arbitrage that is required to incent apartments to be condo-ized. But there are lots of costs: carrying costs, fixup, downtime, return on capital for conversion, and many more. He thinks cost of apartment has to be 2/3 of final price to make it worthwhile to condo-ize. You have to buy an apartment complex for $50M to sell at $65m at a minimum to make a profit. HE THINKS THE MARKET IS NOT READY FOR CONDO CONVERSIONS. APARTMENTS ARE TOO EXPENSIVE. WE’LL NEED THE MULTIFAMILY MARKET TO WEAKEN FIRST SO APT SELLERS ARE INCENTED TO SELL TO CONDO CONVERSION INVESTORS BECAUSE THERE’S NO ONE ELSE TO SELL TO. NO ONE HAS ANY IDEA WHEN THE MULTIFAMILY MARKET WILL WEAKEN.
Webinar Recording
Note: You can listen to the recording on our podcast channel at DenverInvestmentRealEstate.com/podcast23
