Category Archives: Pagosa Real Estate

Summary of Real Estate Data for End of 2012 Pagosa Springs, CO

CHANGES TO THE REAL ESTATE MARKET IN SOUTHWEST COLORADO

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During the last 15 years we at Pagosa Source have always studied the numbers carefully in order to improve our vision of what lies ahead. The Closed Sales data, including an analysis of price reductions leading up to a contract, the number of days on the market, the timing of a property into the Active Listing Inventory and the competing inventory throughout all of the real estate classifications are all reviewed and scrutinized on an on-going basis. We also examine the county recordings to determine where the Buyers are coming from. Though our local MLS system contains an abundance of useful information, we find it necessary to look beyond it and data aggregators such as Trulia and Zillow in order to derive an accurate assessment of the real estate market at any given time.

We will continue to carry on these tasks as an integral part of our business, in order to better serve our clients and customers. The market that lies ahead will certainly bring changes to Southwest Colorado and we have spent some time forecasting what those changes will consist of, and how our clients and customers will likely be affected. A summary of these changes are listed below:

  1. Inventory of single family homes offered for sale during 2013 will decline slightly from 2012 levels. Some of the reduction is the result of a decline in the number of new foreclosures entering the pipeline. Another factor is the slowdown in the number of new distress sales, ahead of foreclosure. This has come about from the low interest rates and some forbearance efforts from local and national lenders.

2. We will see fewer middle income Buyers active in the market. For many in this bracket, confidence in real estate has been shaken during the Housing Crunch and prolonged recession. Tighter credit qualification requirements coupled with reduced equity in their primary residence have impaired this group as they also struggle with the reality of less take home pay with the change in income tax rates and other impacts imposed by Washington’s lawmakers in order to avoid the fiscal cliff. Homes priced in the range of $400,000- $800,000 have been where most of the upper middle-income Buyers had been focused and we expect this price range to continue to be significantly over-supplied in 2013.

3. The percentage of Buyers from the energy belt (Texas, Louisiana, Oklahoma, etc.) will continue to grow as oil prices and employment are expected to remain strong. We expect to see more public company oil industry executives as well as small and medium size oil field service company owners buying real estate in our area. We are recognized as being an area with exceptional real estate values and we are closer to Texas than many of the other destination resort areas such as Vail, Aspen and Steamboat Springs. Historically, many of our Texas second home owners drive to Pagosa and like the fact that we are 2-4 hours closer than other mountain resort areas. We expect Texans will purchase the majority of our upper-end inventory during 2013, homes priced above $800,000.

4. Buyers will begin to return to Southwest Colorado from Arizona, but few Californians will be seen in the area. Arizona’s economy is improving and homes values are rising at a steady rate within the Phoenix Metro area with fair amount of new home construction underway. Arizona State University’s W.P. Carey School of Business year-end report for 2012 showed median home prices were up by almost 34 percent and foreclosures plunged by a staggering 51 percent. California will continue to suffer as there has been little improvement in their housing markets, outside a very limited number of areas such as the San Francisco Bay area and, to the south, the Silicon Valley. We also expect to see more Buyers coming from the Front Range as their residential values have recovered to pre-recession levels and employment remains strong.

5. Buyers will remain very value-focused during 2013, choosing the best combination of location, construction quality, condition and price within each category. We expect more detailed and critical inspections and fewer Buyers willing to purchase homes with deficiencies or deferred maintenance.

Give Mike Heraty a call at 970 264-7000 to discuss how these changes may impact you as a Buyer or Seller during 2013. Mike would be pleased to have a no-obligations discussion of your real estate objectives and the best means of achieving them this year.

UPDATE FROM THE ROAD JANUARY 23, 2013

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I just returned from a meeting of the Rocky Mountain Commercial Brokers (RMCB) in Palisade, Colorado. Our group is comprised of the top independent commercial real estate brokers from the San Luis Valley, Salida, Steamboat Springs, Summit County, Vail, Aspen, Grand Junction, Montrose, Telluride, Durango and Pagosa Springs. We meet every other month to share market data, property and investor opportunities and industry best practices. The meeting is hosted by a different member in a different location, with a presentation by area experts explaining the components and drivers of the particular area.

Our meeting this last week in Palisade included a presentation by the Manager of the Chamber of Commerce and Ron West and Alex West, owners of Varaison Vineyards, a renowned Palisade winery. Thursday night we were treated to a comprehensive tour of the winery and an in-depth presentation on the art and science of wine making, wine tasting and wine paring. The Owner and his son Alex did the presentation followed by a fabulous private dinner. Though I do not drink, I still found the experience very worthwhile. I had been around many of the famous wineries in California while I was working for a construction firm during my college years. Though the Varaison Vineyards Winery in small in comparison to the more well-known wineries in Napa and Sonoma Counties, its owners have created award winning wines and developed quite a following, without the benefit of restaurant and liquor store sales. Their best wine, according to the awards it has earned is their 2007 Merlot. A trip to Varaison is well worth the drive and you can also visit any number of other wineries in the Palisade area while you are there. Link: http://varaisonvineyards.com/#

The presentation by their Chamber of Commerce Director was also interesting. Their community has a lodging tax which is used to market the area. They have been spending their limited funds successfully attracting visitors from the Salt Lake City Area (not a lot of wineries in that state!), the Front Range, and the State of Texas. They have regularly advertised in two magazines, 5280 and Texas Monthly, and they have been using an advertising agency in Denver to help them with their ad design and placement. Though Palisade peaches are well-known, the small wineries in the area are gaining popularity as the wines have become known outside of Colorado. Link: http://www.palisadecoc.com/

Area Year End Results:

During our business portion of the meeting, brokers from each of the mountain areas represented gave their year- end summary of their real estate market and the general economic outlook moving into 2012. Most areas reported improving real estate statistics with Aspen leading the field. In all areas there were a large number of end-of-year transactions driven by the change in the tax rates for 2013 and beyond. There continued to be weakness within the commercial property sectors of each community, especially the Montrose area. All communities have seen a number of new projects being planned, with the majority of the financing coming from Private Equity. The residential components are improving in all the areas with a reduction in the influence of foreclosure activity and some shortages of inventory within the lower price points.

Rocky Mountain Commercial Brokers is expanding its marketing penetration during 2013 as we will reach more of the commercial real estate brokers along the Front Range. As a network we are providing an integrated group of commercial real estate professionals with the necessary local market knowledge and expertise to match the services provided by national firms in Denver and Colorado Springs. More about RMCB: http://www.rockymtncommercial.com/

 

END OF YEAR PAGOSA SPRINGS REAL ESTATE REPORT

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(Part One Published 12.29.12 available in Archives)-

PART TWO:

RESULTS FOR SINGLE FAMILY RESIDENTIAL SALES- ALL PRICES

Winter in Southwest Colorado

 

For all price categories of the single family residential market (SFR), the number of Closed Sales was nearly unchanged 252 this year, 254 last year, with the a median selling price of $216,000 versus $218,750 for the prior year. Total volume in SFR was $69,340,344, down 8.3% from 2011.

Within the SFR market there are a variety of year- end figures for different price categories.

Results for Homes priced above $800,000

There were 10 Closed Sales recorded with the median price moving up from $1.1 million to $1.2 million for 2012. I was the Listing or Selling Broker for 4 of the recorded sales for homes within this price bracket. The average number of days on market, a measure of how long it is taking to sell a property dropped from 328 to 261. This indicates some of the older inventory has sold and that Brokers are convincing Sellers to price their properties more realistically. At year end there were a total of 61 Active Listings priced above $800,000. At the current absorption rate, this represents a nearly 5.5 year supply of homes.

Results for Homes Priced $500,000-$800,000

There were 13 Closed Sales reported, only 1 was a foreclosure property with the Median Selling Price rising to $611,000 from $573,000, an improvement of 6.6% over last year’s figure. Total Closed Volume was $8.2 million as compared to $10.0 million for last year. There were 41 Active Listings in this price range at year end, representing a little over a 3 year supply.

Results for Homes Priced $300,000 – $500,000

There were 45 Closings reported for the year, while 2011 recorded 51 sales. 3 of these were foreclosure properties, representing 5.8% of the total. The Median Selling Price was $399,500 as compared to $375,000 for the prior year. Total Closed Volume declined from $19.5 million to $17.5 million for 2012. At year end there were 78 Active Listings in the $300,000- $500,000 price range representing a 21 month supply.

Results for Homes Priced $200,000 – $300,000

67 Closings were reported for 2012, against 59 Closings for the prior year.  8 of the Closed Sales were foreclosure properties, accounting for 13.5% of the Total Unit Volume. The Median Selling Price for homes in this bracket was $242,500, down 6.7% from 2011. Total Closed Volume increased from $17.5 million to $19.5 million. The Median Number of Days on Market decreased slightly from 157 to 154 days, showing a little quicker turnover rate. 55 Active Listings were offered at year end in the price range of $200,000- $300,000 representing a little over a 9 month supply.

Results for Homes Priced $100,000- $200,000

A total of 86 Closings for 2012 versus 88 for 2011. Of these Closings, 31 were foreclosure sales, or 36% of the Unit Volume. Total Closed Volume was nearly unchanged at $13.01 million as compared to $13.11million for the prior year. The Median Number of Days on Market increased from 89 to 129. This may be due in part to the number of short sales within this price range that closed this year. These sales typically take much longer to close from the time an initial offer is made as compared to conventional transactions. At year end there were 43 Active Listings in this price range representing a 6 month supply.

Condo Market Results

Sales of condos and townhomes increased with 45 Closings reported for 2012 versus 42 for 2011. Only 3 of the Closed Sales were foreclosure properties. Total Closed Volume was up 26%, from $5.0 million in 2011 to $6.3 million for 2012. The Median Selling Price jumped as well, moving up to $125,900 from $95,000 as reported for 2011.  For condo sales above $100,000, there were 29 closed in 2012 as compared to only 19 in 2011. The Median Number of Days on Market increased from 144 to 169. There were 67 Active Listings on the market at year end- an 18 month supply. 

LAND MARKET SLOWLY IMPROVING

For the year there were 166 Closed Sales of land in Archuleta County. This figure is up 36% from the 122 transactions recorded in 2011. Total Closed Volume was up as well, $11.7 million versus $10.1 million. The Median Selling Price declined from $35,500 to $24,500. Active Listings were at 835, representing a 5 year supply. This is a slight improvement over last year. During the period from 2005-2008 development of hundreds of additional building lots were planned for several large area ranches and land parcels. Fortunately, these plans were cancelled as the market retreated and we were spared a flood of additional lot inventory. It is doubtful we will see any of those projects coming forward during the next few years unless there is a very strong increase in demand. With the number of infill homesites available in today’s market at a fraction of the cost of creating a new lot, it would take a good number of years before we would expect to run out of existing buildable lot inventory. As the price of existing homes closely approaches the cost of new construction we would expect to see the land inventory drawn down below the current five year level.

WHERE ARE THE BEST VALUES FOR BUYERS?

The lower price ranges offer fewer choices for Buyers going into next year. I do not expect this to change as there is little if any speculative building going on in the area. The most over-supplied category is the $800,000 + price range and there are also some great buys in the $500,000 – $800,000 range. For Buyers willing to purchase existing homes rather than going through the 1-2 year process of building a luxury custom home, the savings can be considerable. High quality new construction can easily exceed $200 per square foot and there are a number of well-built custom luxury homes on the market that can be purchased for under $150 per square foot. I feel the best value on the market within this price range today is the home at 783 Oren Road in Piedra Estates. This 3 year old custom home has over 5,000 square feet of heated living space and a 2,400 heated and insulated shop building, situated on nearly 7 acres less than 10 minutes from downtown. This property is priced at less than $127 per square foot or $649,000. Replacement cost for a home such as this in today’s market would easily exceed $950,000. There are other great values that I am watching for Buyers looking to take advantage of some of the gaps in the market. 30 year fixed rate mortgage money is available for under 3.5%. This historically low rate cannot last forever. With a number of good properties offered at steep discounts to replacement cost and very cheap mortgage money there should be little downside risk. Now is the time to buy!

WHAT SHOULD SELLERS DO IN THIS MARKET?

If you purchased or built your home in the last five years it may presently be worth less than your cost. The exceptions to this condition are those homes that were purchased below market and those that have extraordinary features such as unblockable mountain peak views or water frontage. There are very few properties that fit these conditions. For all the rest that don’t, this remains a Buyer’s market with buying decisions largely driven by the value proposition. In order to compete in this market, you really need to know what properties you are competing with, how many there are, how many are likely to sell within that price range in the next year and how your home stacks up against those competing homes. You want to price your home so that it will be among the top 10% of those in your price range. If you do not price strategically you will likely spend a long time on the market. If you price high you will end up chasing the market and you run the risk of your listing  becoming “shop-worn”. Selecting your Realtor based on which one gives you the highest suggested listing price is a foolish mistake. Look very carefully at the market data and ask lots of questions. Examine the track records of the brokers you are considering. The market conditions we are in are very different from how things were between 2000- 2007. Feel free to call me for a confidential discussion of your real estate needs, without cost or obligation. You can reach me at MikeHeraty@frontier.net or call me at: 970 264-7000.

Note: Data extracted from CREN MLS Service, Pagosa Source Internal Files and related sources, as of December 26, 2012.  Though sources are deemed reliable, accuracy is not guaranteed. Some figures have been rounded. For complete information contact Mike Heraty at Pagosa Source Real Estate Advisors, email: MikeHeraty@frontier.net or call: 970 264-7000.

 

Q4 RESULTS MIXED FOR PAGOSA SPRINGS REAL ESTATE

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I am grateful to be able to report Mixed Results for Year End, as has not been the case through much of the previous five years. Though there is evidence of continuing weakness in several categories, the data suggests we are beginning to enter a more solid recovery mode. This is good news for all property owners. Since the recession began in 2006 and the local real estate market was hammered hard, beginning in 2007, we have had to report year-end numbers that offered little encouragement. I can say unequivocally the market has begun to take a turn for the better. Median and Average Selling Prices are up as compared to last year in many categories. For the year I am pleased to report I was the Top Producing Realtor within our county. In a relatively tough year, without any large ranch sales, the results were good. I give credit to the good clients I have had the privilege of working with, the great referrals I have received from friends and associates, the exceptional staff that we have at Pagosa Source, and the other Realtors I have had the pleasure to work with with during the last year.

Our slowest component in the recovery remains the land market, which is to be expected as this category has been the weak link in other geographic market recoveries across the Rockies and within many of the regions most impacted by the real estate downturn. It will still take time for the supply and demand components to restore some order to the land market.

While attending a meeting of the Rocky Mountain Commercial Brokers in Glenwood Springs during October, all areas were reporting improving real estate market conditions, except for Montrose, which remains significantly overbuilt and oversupplied with residential and commercial properties. Our market has been somewhere in between the conditions reported for Montrose and those of the other mountain communities, such as Glenwood Springs, Steamboat, Vail, Summit County, Telluride, Durango, Alamosa and Salida. Finally, we are moving in the right direction and the market stats indicate we are establishing a firm foundation, which is needed to support gradually strengthening values for homes and land within the area.

I have prepared some summary figures below and for the next blog entry for our local real estate market for our readers. I have much more detailed information available to clients and customers that need more specifics. This year I have purposely left out any in-depth discussion of the commercial market. This segment is extremely fragmented and difficult to summarize because of the wide range of variables impacting the market and individual transactions. I maintain a sizeable amount of transaction data for the commercial market as I have been involved in a large percentage of the commercial transactions over the last three years. I am often consulted by appraisers from outside our market that are doing commercial property appraisal work here. If you have a need to discuss commercial real estate in our area, please call me at 970 264-7000.

The number of units closed across all real estate categories is up as compared to last year, though the Total Dollar Volume is down 6.7%. $105,630,866 vs. $113,278,117.  Our MLS shows a total of 538 Closed Sales versus 507 for last year, an increase of 6%.  Summary details of various categories and price ranges will be provided on my next blog entry early next week.

Watch for Part Two on New Year’s Day

 

3rd Quarter Real Estate Summary

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I did a quick review of the Pagosa Springs Area MLS Stats through the 3rd Quarter of 2012. The numbers were not too impressive. When compared to the same period of last year, Total Dollar Sales Closed was off by 13%. Looking more closely at the figures and isolating the Single Family Residence data showed more unimpressive numbers. As compared to the prior years’ first three quarters, the Closed Sales Dollar Volume was down by just under 16%. The total number of units sold were also off, 173, versus 197 for the prior year. As expected, the median and average selling prices were down as well. To some degree these figures reflect the continuing negative impact of foreclosure or distress sales. On the positive side, the inflow of foreclosure properties into the Archuleta County pipeline is lessening and we expect to see a greatly reduced impact on prices as we go into next year.

The figures here at Pagosa Source for the first half of the summer were discouraging as fewer people were in the area looking at property, due in part perhaps to the fire in the Upper Piedra as well as the negative publicity surrounding the terrible fire northwest of Colorado Springs. For the second half of the summer, our numbers here at Pagosa Source turned around significantly as we closed the sale of three or our $1 million + listings within a two week period. We worked hard to achieve those sales and are continuing to be as creative as possible to generate more sales. The number one source of new business for Pagosa Source is referrals from past and present clients and customers, for which we are extremely grateful.

A positive factor at work in the market place is the extremely low mortgage interest rates available to qualified borrowers. Currently, lenders are quoting rates at or slightly below 3.5%. By anyone’s measure, that is extremely cheap money. When interest rates were at 5.5% (still cheap by historical standards) the monthly payment required to service a mortgage of $200,000 was $1,135. At 3.5% interest, the monthly payment amount is $898, a savings of $237. For anyone that does not currently own a home, now is the time to buy. There is a good selection of inventory, with very favorable pricing, compared to where the market was in 2005-2007. Additionally for those that qualify, interest rates the lowest they have ever been. If you are looking at buying, carefully consider several important features. Location: buy where you have well-maintained access and good central water and other utilities. Consider owning within an area that has protective covenants. Historically, values do better with land use protections than without. Also, stay within a reasonable distance from town and the conveniences of shopping and medical services. We have seen a continuing trend for a closer-in preference among Buyers over the last five years. Be very careful buying bank-owned properties and don’t go that direction without using the services of a qualified broker with experience dealing in that type of property. It is a totally different experience than buying from a private party. If you have questions or concerns, give me a call without cost or obligation at 970 264-7000.

Pagosa Springs Business Report 1st Half 2012

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Head Count Up- Bag Count Down!

We are well into the summer tourist season, past the Memorial Day and July 4th holidays. The first half of 2012 is now in our rear view mirror. The local economy has produced mixed results thus far, with some improvements in sales tax and lodging tax receipts and a slight increase in reported employment figures. In informal discussions with Main Street merchants, several have commented that the head count is up but the bag count is down, indicating that perhaps we are seeing an increase in the number of visitors, but their spending is restrained. Given the choppy and fragile economy, cautious spending behavior should be expected. This is likely to be the case until real growth in non-government employment improves consumer confidence.

Fortunately, some of our visitors and vacation home owners have decided the present real estate buying opportunities are too good to pass up. With savings accounts paying less than 1%, bond market returns generally disappointing and mixed results from the stock market, some investors have chosen to place a portion of their funds in real estate here in Southwest Colorado. In many cases, buyers are acquiring improved properties far below replacement cost, and commercial land and buildings at a fraction of where prices were just a few years back. Some investors are purchasing lender-owned properties, others are purchasing from private parties exiting the market with a substantial penalty rather than waiting for conditions to improve.

The Risk Takers are the first to recognize and capitalize on opportunities before the greater number of investors and consumers confirm the positive momentum of the market. They scoop up properties early while the crowds are still on the sidelines. They require and are rewarded with greater returns on their investments.  More
cautious investors trade greater returns for lower risk, each party establishing the risk-return ratio they are comfortable with. Both are essential to the market, and each complements the other in a recovering economy.

For those with the necessary level of risk tolerance and some discretionary investment cash, there are substantial opportunities for growth and profit within the present real estate market here in Pagosa Springs as well as Durango, South Fork and Creede. If these opportunities interest you, please give me a call or drop me an email.

Pagosa Real Estate Summary

It is interesting to hear the different opinions and feelings of where things are in the local real estate world. Often opinions are based on the local rumor mill and a few isolated and invalid samples from the total market activity. In this report, the facts are presented. The Total Closed Sales Volume for “All Classes” of real estate for the first half of 2012 increased 4.3% over the first half of last year. Closed Sales for the first half of 2012 totaled $41,970,380 as compared to $40,248,597 for the first six months of 2011, an increase of 4.3%. The total number of properties sold was
228 versus 194, an increase of 17.5%.

The Median and Average prices for “All Classes” of real estate have declined when compared to the figures reported for the first half of 2011. The market reported more units sold, and more total dollar volume, but declining prices. The average and median sales prices were down 11.3% and 3.5% respectively. “All Classes” includes single-family detached, multi-family, manufactured homes, building lots, land, ranches, farms commercial, etc. So, for the broad measurement, sales were up, but prices were down.

The current pattern is somewhat expected as the market is clearing out distress properties and bank-owned real estate ahead of firming up values and returning to a more sustainable rate of appreciation, in line with normal supply and demand components. The speculative home building portion of our local real estate market has effectively evaporated during the last four years. The supply side of the housing equation has not increased during the downturn, and this factor will have a more significant and positive impact on pricing when the market enters a stronger recovery phase.

Home Prices, Sales and Inventory Levels

Sales of Single Family Detached Homes are down for the first six months of 2012 as measured to the first half of 2011. This category of real estate comprises approximately 70% of the total dollar volume of real estate transactions within the county, certainly the most significant benchmark to monitor.

Closed Sales totaled $30,028,674 versus $36,190,345 for the first half of last year, a decline of 17%. The number of single family homes sold during the first half of 2012 was 113, as compared to 115 for the first half of 2011. A closer look at the numbers also shows the Average and Median prices for single family homes have declined as compared to the first six months of 2011. During the first half of last year there was one sale that skewed the figures slightly upward. That was a sale reported at $3,125,000. By removing that sale from the total and also removing the highest reported sale for the first half of 2012, the total Closed Sales Volume is still down over 13%.

Closed Sales 1st Half of 2012 & Supply of Homes by Price

$150,000- $250,000- 37 sales, 117 active listings, a
19 month supply.

$250,000- $500,000- 35 sales, 160 active listings, a
27.4 month supply.

$500,000- $750,000- 8 sales, 58 active listings, a
43.5 month supply.

$750,000- $1,000,000- No sales reported for
the first half of 2012 with 31 active listings.

$1,000,000- $1,250,000- 2 sales, 9 active listings,
a 27 month supply.

$1,250,000- $2,000,000- 1 sale, 29 active listings, a
174 month supply.

$2,000,000+ No sales reported for the first
half of 2012 with 15 active listings.

As the above figures show, some price ranges are significantly more over-supplied than others. For homes priced above $1.25 million there is a huge surplus of inventory. Sales in the upper price range often compete with new construction, where a very affluent client will prefer to have a home built to their specific plans on land of their choosing rather than acquire another owner’s dream home, even when the cost differential is quite substantial. They choose this route because they can.

This is still a strong Buyer’s market as the transaction data conclusively shows. We continue to see an increasing number of Buyers from Texas and fewer Buyers from California. The Arizona housing market is improving, as is the employment picture there, so we may see more folks returning to Southwest Colorado from that state in the months ahead.

If you would like additional details on the local real estate market or have questions about anything presented in this report, drop me an email at MikeHeraty@frontier.net, call me at 970 264-7000, or drop by our office- Pagosa Source Real Estate Advisors at 286 Pagosa Street, Pagosa Springs, Colorado.

Note: Data presented was obtained from CREN MLS and internal real estate database records. Home Sales and Inventory figures exclude manufactured homes, condos, townhomes, duplexes and timeshare units. Contact Pagosa Source Real Estate Advisors for additional information.

 

 

HORMONES TO DRIVE HOUSING RECOVERY!

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Those are not my words, but those of the Oracle of Omaha, Warren Buffett, one of the most successful investors in the world. In his annual Letter to Shareholders released at the end of last month he said he had been “dead wrong” a year earlier when he predicted a rebound in U.S. home prices would begin within a year. Still, this year he is again betting the U.S. housing market recovery will get underway for a different reason: hormones.

 

According to Mr. Buffett, young people have stayed at home, moving in with parents and in-laws rather than setting up their own households.  “Housing will come back – you can be sure of that… Every day, we are creating more households than housing units. People may postpone hitching up during uncertain times, but eventually hormones take over,” Buffett wrote in the letter to shareholders in his investment company Berkshire Hathaway. “And while ‘doubling-up’ may be the initial reaction of some during a recession, living with in-laws can quickly lose its allure.”

In an appearance on CNBC on February 27th he added “houses are another attractive investment at current prices.” He went on to say he might buy a couple hundred thousand homes if only he could figure out a way to manage them effectively. He said he isn’t very handy. “Single-family homes are really cheap now too,” Buffett said.

When you look at the holdings within Berkshire Hathaway you will note among the 80 subsidiaries in the portfolio are several companies that are tied directly to the housing market. Among them are Acme Brick, Clayton Homes and Shaw Carpet. In 2006 those companies contributed $1.8 billion of pretax profits to Berkshire while last year their contribution was only $513 million. Buffett certainly has reason to want the housing recovery to gain strength.

Any other words of wisdom from Mr. Buffett?

Further into the interview-

According to the world’s most successful investor, the reason buying a house and taking a low interest rate mortgage makes perfect sense is simple:  “ it’s a leveraged way of owning a very cheap asset now. That’s as attractive an investment as you can make.” 

So, what holds so many Americans back from taking the advice of Mr. Buffett? The same thing that paralyzes so many investors—fear. Overcoming that fear and moving forward against the cautious masses is one of the characteristics that have made Warren Buffett the world’s most successful investor. We can learn much from his history.

If you would like information on any real estate related matter here in Southwest Colorado, please give me a call at 970 264-7000. You can also drop me a line at:  MikeHeraty@frontier.net.

Also, be sure to visit our website at www.pagosasource.com

 

Alamos, Sonora, Mexico and Pagosa Springs

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This blog entry will not have much to do with real estate. If you want or need specific real estate data or assistance, drop me an email at MikeHeraty@frontier.net, or call me at 970 264-7000.

ALAMOS, SONORA, MEXICO

I recently returned from a trip to northern Mexico at the edge of the Sierra Madres to the town of Alamos within the State of Sonora. Interestingly, the town is about the same size as Pagosa Springs. It is a Spanish Colonial Mining Town founded in 1681 following the discovery of silver in the area. Because of the great wealth created from nearby silver mines, scores of large colonial Spanish mansions were built in the town. Many were destroyed in the early 1900’s before Americans began to rediscover the area in the 1940’s. A number of the families living in Alamos can trace their heritage back to first settlers that came to work the mines.  Presently there are a number of Americans that maintain homes there for the winter months, and a few that live there all year, though I have found the summer heat to be quite intense. Like Pagosa Springs, Alamos has struggled during the recession to continue to attract tourists that are willing to spend money locally. Unlike Pagosa Springs, they have also had to deal with all the negative press relating to the drug wars that continue to plague many parts of the country. Though there has not been any drug violence in Alamos (it is far enough off the cocaine highway) the number of visitors from the U.S. has declined sharply and the town has seen a significant reduction in U.S. tourist dollars flowing into its coffers. Interestingly, those funds have been replaced, by and large by visitors from within Mexico. Alamos has been the location for the filming of a Novella (Mexican Soap Opera) which has been tremendously successful. They have been in town for the summer months, which historically have been the months most hotels see few visitors. In December of last year they filmed a full feature movie in the area. When it is released later this year into the Mexican market, Alamos expects to see more visitors as the movie includes some interesting history of the area.

The residents, business owners and town employees and leaders work hard to keep their city clean, safe and friendly. They do a good job of promoting Alamos with a series of events scheduled throughout the year. While I was there last month the 28th Annual Festival Alfonso Ortiz Tirado was underway. This is a music and art festival named after a famous opera singer and doctor that was born in Alamos in 1893.

This year performers came from Puerto Rico, Brazil, Cuba, Costa Rica and other Central and South American countries. The following link will take you to the Festival Program Guide- get ready to polish up on your Spanish:  Alamos Festival         The event was attended by loads of Mexican nationals, many from within the region, but many from as far away at Mexico City and Oaxaca. About a third of those attending the festival were foreigners, from Central America, Europe, South America and Gringos like myself from the U.S.  Everything was very well organized, events began and ended on schedule and provided everyone with a fabulous variety of musical performances. Thursday evening the group Puerto Rican Power played for the crowd and had everyone on their feet dancing the salsa:  Friday evening the group Opera Prima Rock performed a two hour tribute to the music of Queen. I was amazed how popular their music was and how many members of the audience knew all the lyrics. The group had everyone on their feet for the encore “We Are the Champions”.

 

OPERA PRIMA ROCK 

Saturday evening the Italian Tenor Alessandro Safina performed. In 2007 he recorded a duet with British Soprano Sarah Brightman for her Symphony album and joined her on her Symphony World Tour for 2008 and 2009. His vocals and his orchestra were fabulous. Following his performance,  Callejoneada con la Estudiantina Dr. Alfonso Ortiz Tirado completed the music celebration with all of the musical artists dressed in 17th century Spanish costumes, parading through the streets and alleys of Alamos playing traditional songs and telling stories. This went on until the wee hours of the morning. In all, the experience was wonderful.

Anyway, what I found most interesting is how well attended the Festival was. You had to travel 30 miles west of Alamos to the city of Navajoa to find lodging if you had not made a reservation at least two months earlier. The Festival has been sponsored and coordinated by a group of stakeholders including the Town of Alamos and surrounding communities, the State of Sonora the National Institute of Fine Arts, with commercial financial support from Coca Cola, Corona, and Telmex. This is a festival I would highly recommend to any music and culture lover. The people are warm and friendly, lodging is great within Alamos if you plan ahead. My two favorite lodging facilities in Alamos happen to be owned by Americans: Hacienda de los Santos and Hotel Colonial.

 Hacienda de los Santos, one of three pools.

 Both of these hotels are exceptional. Within HDLS is the Poncho Villa Cantina, where Poncho Villa stood after entering the town. If you are a Tequilla drinker, you will find over 500 different bottles of the spirit within the bar. If you can’t find one you like, you’d better think about changing drinks!

 

 

 Pancho Villa Tequilla Bar at Hacienda de los Santos

Hotel Colonial, Alamos. Janet Anderson, Proprietor.

The restaurants in Alamos are very good and very economical.  I love the food at Hacienda and Las Palmeras is a great spot for lunch or a casual dinner. Terisita’s Panaderia y Bistro is my favorite for a cappuccino and breakfast pastry, a great place to start the day and check email with their WiFi connection.

 Outside Seating at Terisita’s Panaderia Y Bistro

 

You can reach the town of Alamos by driving a little over one hour south from Ciudad Obregon, where you can catch a flight from Phoenix on Aero Mexico with a connection in Hermosillo. Alternatively, if you don’t mind a longer and much more economical journey, you can take a first class luxury bus with on board video sets and Wi-Fi from Phoenix or Tucson. While in town I did check out the local real estate scene. Not much had changed from my previous visit in June of last year. A few properties are moving, but very slowly and at prices well below the peak of 2007. Few Americans are buying and many more are trying to sell. Very few Sellers have shown a willingness to greatly reduce their asking prices. Instead, they seem determined to remain patient, a concept that seems more abundant within Mexico.  The decline in buying interest from Americans has, to some extent been partially offset by a renewed interest from Mexican nationals.  It was also interesting to see the increase in Canadians in Alamos.  Alamos Gold of Toronto, Canada owns a huge gold mining and milling operation just west of Alamos which is targeting production in excess of 150,000 ounces of gold for the year, generating gross revenues of over $200 million. Perhaps this investment in the area will create more visitors to Alamos from our northern neighbor. I initiated a discussion with a resident American of creating a Sister City relationship with Pagosa Springs. The Town of Alamos currently has a Sister City relationship with an Arizona community, but nothing with any Colorado towns. It might be a mutually beneficial relationship, given the similarities of the towns. If you think you would enjoy the wonderfully interesting culture of Old Mexico, I highly recommend you consider a visit to Alamos, and I would suggest visiting during the Festival Alfonso Ortiz Tirado in January. Be sure to book your trip early in order to obtain good local lodging.

Quite Street in Alamos at 6:30 a.m.A Quiet Street Scene in Alamos at 6:30 a.m. the day after the end of The Festival.

 

PAGOSA SPRINGS AND ALBUQUERQUE–”What Up With That?”

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Is the Albuquerque Real Estate Market Important to Pagosa Springs?

Good question. Yes, actually, the Albuquerque economy is important to Pagosa Springs for several reasons. Historically, a large number of second home owners came to our area from Albuquerque. Today we still have a good number from Albuquerque and the Santa Fe area. Albuquerque is our closest neighbor of any real size and it has weathered the current recession relatively well. It continues to benefit from defense spending with several military installations as well as the large number of folks employed at Sandia Labs. Also, on the West Side of Albuquerque, Intel has had a major presence with several expansions and increases in employment.

So, our neighbor to the south is important to us and we benefit when their economy is doing well. I recently received a report on their real estate market from a broker I work with there. The numbers are encouraging. Though the average selling price for single family homes is down slightly, the number of transactions is up and the total dollar volume is up. Closings are up over 13% from the prior year. Also, the amount of inventory on the market in Albuquerque has declined by nearly 22% over last year. The Absorption Rate now indicates that Albuquerque has a 7 month supply, down from a 10 month supply in July of last year. These figures confirm their real estate market is improving and that will be good for Pagosa Springs. If our community, through the Town Tourism Committee, the Chamber of Commerce, the Downtown Merchants Association, Board of Realtors and Builders Association, can come up with a creative and effective marketing campaign, perhaps we can attract more affluent visitors from Albuquerque.

For many years the timeshare operators pulled visitors up from New Mexico with free golf, dinners and balloon rides in exchange for sitting though a sales presentation. Perhaps we can attract more Albuquerque visitors by communicating the unique qualities and experiences Pagosa Springs has to offer. I have confidence in the marketing creativity members of our community can come up with.

For information on real estate in the Pagosa Springs or Durango area, be sure to visit our web site- www.pagosasource.com. Also, if you would like to discuss your real estate concerns or goals, please give me a call at 970 264-7000, or, drop me an email at: MikeHeraty@frontier.net

Thanks,

Mike

First Glimpse at 2012 and Some Insights On Bank-Owned Properties

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Initial results recorded in our local MLS indicate we are ahead of last year in the first three week of the New Year. Total closed sales volume for the first three weeks was $3,570,000 as compared to $1,928,700 for the first three weeks of 2011. There were 13 closings for 2012 compared to 9 closings for the first 21 days of last year. The initial closings for 2012 included one sale at $1,350,000 with the highest dollar sale recorded in early 2011 of $454,500. Even adjusting for the effect of the high dollar closing, the figures clearly indicate we are starting 2012 with better results than the beginning of last year.

As discussed in my earlier article on the Year End Real Estate Results posted January 2nd, challenges remain in our local economy that will continue to impact our ability to experience any sort of sustained economic recovery. Still, the early results would indicate we are off to a start that confirms a slowly improving set of real estate market statistics.

Recently I met with representatives of two of our regional banks to discuss the values and marketing of land inventory they have acquired through foreclosure. During the boom years of 2002-2007, the market absorbed land inventory of all types at a fast pace while prices appreciated beyond all expectations. It seemed back then that an investor or developer could acquire land at the then market price, wait a short period of time and resell it at a substantial profit. For the developer, by getting zoning and entitlements for future development, value could be increased exponentially.  It was within this environment that local and regional banks began to provide financing to both land developers and investors here in SW Colorado. Appraisals confirmed values by the number of Comparable Sales that were closing and by discounting the projected future cash flows that the developers projected within their business plan. Back then it was rare for a lender to require a Feasibility Study to validate the assumptions made by the borrower-developer regarding projected selling prices, market share and absorption rates. In many cases the lenders knew they could package the loans with others into collaterized mortgage ‘ (“CMO’s”) and pass the future risk on to other investors. In some cases the lenders retained a small percentage of the loan as well as the loan servicing. Additionally, they often participated the loan among other banks, and sometimes those sales or participations had buy-back provisions. In other cases the regional banks simply held the debt as portfolio loans and accepted all the risk. So long as all went well- no worries. Of course as we all have the clear vision now provided by looking in the rear view mirror, things began to unravel in the real estate world, and all did not go well.

Land inventory is presently the most over-supplied real estate category within our market. Commercial land is at the top of the list because the demand has dropped so significantly that there are few sales actually closing. This makes valuing commercial land very difficult. My objective in valuing a property for an owner is different than an appraiser. For my Sellers, typically the objective is to move the property at the best possible price, within an acceptable timeframe. In addition to reviewing the historical data, I look more closely at the current and projected future market conditions to estimate the ratio of supply and demand. It is important to know many similar properties have sold in the prior 6-12 months, as well as how many are presently on the market. I further review the properties for sale to determine how many are lender-owned, or likely to become lender-owned. Our local MLS will not provide all the details needed to properly assess current market value. A close look at the data within the County Recorder’s Office, discussions with local lenders and a review of our in-house foreclosure database provides the details which help more clearly define the market forces.

Without a sufficient number of sales closed during the prior 6-12 month period, one has to look further back in time. For our area, this still doesn’t provide much useful data, even going back another 12 months. Ultimately when end-user demand has nearly evaporated from the current market, the value of land drops to that level needed to attract purely speculative investors. These “Bottom Feeders” are the brave souls that will wade back into the swamp before it has been drained and all the alligators have exited. These are the risk takers that analyze the market carefully and decide to step in ahead the point in time the investing public sees a solid real estate recovery trend. In return for bearing a very high level of risk, they require a very high potential rate of return. They will only buy at the price they feel minimizes further downside risk. They typically diversify their investments knowing some will do really well, but some will not. In the technology world, these risk takers are known as Venture Capitalists. The name is probably equally appropriate for the high risk, early phase real estate investors.

For the banks that now own an increasing share of the vacant commercial land within our area, they have some difficult choices. In order to liquidate these assets they will likely be forced to accept considerably below what the property was last appraised at. In some instances they will have to sell below what they have written the value down to. If they choose to hold the asset waiting for the market to improve, they must bear the cost of property taxes and P.O.A. dues and be comfortable with the possibility of more downside risk. Further complicating the decision are the requirements of the bank examiners as well as their auditing firm. Taking a loss further impairs their capital and reduces their lending capacity.

Though in today’s economy a bank’s cost of capital is extremely low (think how low a rate your savings account earns today) banks do not want their lending constrained. They need to be able to make good loans when the demand is present. In order to do so, they have to maintain a certain “capital ratio” or net-worth level that is mandated by the banking regulators. When they sustain loan losses in excess of the reserves they have set aside, their capital is reduced and they must either raise capital by selling stock or other assets they have unrealized gains in, or, reluctantly, they must reduce their lending activities and reduce their total assets.

At times it is difficult to understand the decisions banks make regarding the sale of their real estate. Unlike private investors, they have auditors, banking regulators as well as shareholders to answer to. In today’s challenging economy, with financial regulations changing continuously, they have their work cut out for them. Like all of us, our regional banks want things to improve sooner rather than later.

You will find a number of interesting articles discussing the tough choices facing many of our regional banks within this magazine:

http://www.mortgageservicingnews.com/    If you would like information on any property in Southwest Coloroado, be sure to check our website: http://www.pagosasource.com/