I love the food at great deli’s.  Being in Colorado, this isn’t exactly Grand Central Station where you get to eat at the epitomy of New York delis, but we do have a few good ones.  Today my friend, Bev, and I ate lunch at Broadway Deli.  It’s a fun little place with great food and it is in the North Academy corridor - easy to get to for a quick lunch if you work on the north side of town or are visiting the Air Force Academy.  They have daily specials and serve breakfast all day.  We were told a new menu is coming soon.  They have dishes you can’t find everywhere, like hot corned beef and rice pudding.  They’ll even heat the rice pudding for you. :-)  So for a taste of New York in Colorado Springs, try Broadway Deli, 7170 N Academy Blvd.

I’ve read articles by The Mortgage Professor, George Mantor, over the past several years, but his articles have taken a very different direction recently.  I believe his research is probably right, that banks pushed products to keep money flowing which benefitted financial intermediaries and the financial intermediaries found a way to skim off a lot of money from credit default swaps as things went very wrong.  The result is that retirement plans have changed for almost everyone, especially those in retirement or getting close to retiring.  Here’s a link to a recent article on George’s blog.  To be honest, his posts depress me and I prefer to be an eternal optimist, but perhaps this is information that someone can use to improve their situation, so here it is for you to read.  Actually, George’s posts segue right into one of my top pet peeves.  Why is it that we don’t provide financial education in US schools?  This is something that I’ve always felt is missing and plan to be involved in during my retirement years.

Financial Education

We make sure kids can read and write and do minimal math, but we don’t train them to understand finance.  They leave high school and fall into the trap of easy credit and not saving and lack an understanding that they are the ones ultimately responsible for their financial well being.  They become buried in debt at too early an age and don’t know how to dig themselves out.  If we had been educating our children on how our markets work and on how to manage money wisely, do you think more mortgage borrowers would have made a different decision about the loan they signed for?  Maybe they would have had a better understanding of what was really going to happen with their loan.

Affordability

When I first became aware of the increasing use of interest only loans being used for home purchases after I became a Realtor in 2003 , it made my skin crawl, because I knew these products were intended to be used for cash flow management by wealthy investors, not mom and pop homeowner.  Builders in states where prices were unaffordable by the masses worked with banks to provide loans that made their homes “affordable”, at least in the short term.  With the dream of homeownership twinkling in their eyes, many people signed up.  We’ve seen the result in places such as California, Florida, Arizona, and Las Vegas.  Is it any coincidence that these are all areas where new construction was a huge part of the economy?  These were communities where warm temperatures and vibrant lifestyles drew new residents.  They are all areas where home values shot up 30-40% a year and where foreclosure rates now top the list year over year.  The high appreciation rates were unsustainable because they were eventually going to run out of buyers who could afford the homes, even with tricky loan products.  But without a basic understanding of how the financial markets work, the average home buyer didn’t have a clue.

The Solution - Supply and Demand

Since I hate to discuss a problem without trying to find a solution, what is the solution?  It’s not going to be easy.  One in four mortgages is underwater in the country.  The good news is that 3 of every 4 is not.  But without jobs and people having a sense of stability, more home value decreases will come.  Hopefully many of the go-go markets have hit bottom or near it so that they can recover.  Supply and demand is real and it is the solution.  With low real estate prices now in places where homes were unaffordable until 2008, people who want to buy, can.  The tax credits that end April 30, 2010 have provided an extra incentive for those sitting on the fence to buy, and they are.  What happened in the housing market had to happen for anything to change.  Over time those who lost their homes to foreclosure will recover as well and be able to buy again, hopefully with a better understanding of what happened so they can avoid it a second time.  We are already seeing people who qualified for a short sale being able to buy again.  We can all hope that this next wave of home appreciation will be more tempered so that we don’t hit a wall again anytime soon.  With 40% of baby boomers selling and moving somewhere else (somewhere warm, like CA, AZ, FL, and Las Vegas?), there will be a lot of big homes available to the next wave of move-up buyers.  Lots of supply, probably not as much demand, so that prices stay steady.  In Colorado Springs, we usually have steady growth with a few hiccups along the way.  We saw prices decrease in 2008-2009, but most homeowners are okay.  Foreclosure and short sale properties are selling and many other sellers are sitting on the fence waiting for things to improve.

The Future

When I look back in 5 years I expect to see that things settled out, prices started to go up slowly once again, and sellers who really want to sell and move will put their homes on the market increasing supply and keeping prices from becoming overheated.  In areas where supply is limited, prices will go up faster, but without loan products that trip them up, buyers will have to save before buying a home and that will keep demand in check.  During the height of the market, 25% of sales nationwide were for second homes and investment properties.  I wouldn’t expect to see that same ratio going forward because investors will have to bring larger down payments to the table.  But investors are part of the solution too.  While they are saving up a down payment, buyers need to live somewhere and if they aren’t living in mom and dad’s house, they’ll be renting and investors who bought real estate during this perfect storm of low prices and low interest rates, will be able to make a profit renting them out.  Rental income may become a cornerstone for some retirees so that they have enough income to retire.  Property managers will manage those properties, make money, hire people to help manage them, hire people to make repairs and improvements, and a new cycle will start.  Whew, what do you know, I get to be an optimist afterall!  Right now things feel dire to many people and we still have a lot of issues with government debt and the elitist, arrogant thinking in Washington, but this is America and when we know what needs to be done, we do it.  If you are financially able to, go out, buy a house or some land, and get the economy moving.  You’ll be the one who benefits down the road.

I just couldn’t wait until next week to tell you about another great Colorado Springs restaurant - The Margarita at Pine Creek.  I love this place!  It is so unique and the food is wonderful.  Visit in the summer months and eat on the lovely outdoor patio.  But the inside has a great ambience as well.  It feels like you are eating at an old hacienda.  One of my clients said it made her feel like she was back in the German countryside.  Margarita at Pine Creek offers a nice multi-course soup and salad lunch along with specials of the day.  The evening menu always changes.  They are closed on Mondays, but have a nice brunch on Sundays.  This is a great place to take out of town guests or to try if you ARE an out of town visitor.  You will want to come back often.  Patti is the owner.  If she is there, tell her I said hi.  Do not confuse this restaurant with Three Margaritas.  We’ll review them at a later date.

Trying to pick up a quick lunch before going back to work?  In the car between appointments and feeling hungry?  After 14 years in Texas and another 22 in Colorado, I love anything with chilis.  Of course my favorite southwest food is at my favorite restaurants in New Mexico, but I can’t get there every day.  So what’s a girl to do?

When I’m hungry, I pick up a burrito at either Chipotle or Qdoba.  I admit I go to Chipotle more often because I’m a creature of habit and they came to Colorado Springs first, but both have fresh ingredients and lots of options.  Tell me if you think Qdoba’s website is more fun.  Another advantage is that they are both located all over town.  So the next time you feel hungry and want to “fill er up” give one of these local quick food shops a try.  Meet a friend there.  Friends will tell you if you drip salsa on your shirt.  Both restaurants provide napkins.

I like to stay in touch with past clients and one of the most frequently asked questions I get is “How’s the Colorado Springs real estate market doing?”.  In the past week I had the opportunity to hear Alex Charfen, founder of The Distressed Property Institute and the Certified Distressed Property Expert (CDPE) real estate designation, speak to our company and my response to a recent client inquiry reflected what I heard Alex say.  We are not out of the woods yet.

My family built a new home in Colorado in 1988 and it did NOT appreciate for 5 years until MCI opened their headquarters in Colorado Springs in 1993 and did massive hiring.  Many new jobs followed in the technology and service sectors.  Colorado Springs grew.  Our home has appreciated nicely since 1993, even though those first years were not good, but we didn’t build our house intending to rake in appreciation in 12 months, 18 months, or even 3 years.  Many people had that mindset as they bought between 2004 and 2007.  It hasn’t worked out for them as we as a nation have experienced a devastating recession and billions of dollars of wealth has been lost.  What does it take to get positive home appreciation?  Jobs!!!  Until we see the job situation improve, we will not see a robust real estate market.  Does that mean you shouldn’t buy now, or sell and buy a nicer home?  Absolutely not.  Over a lifetime, home ownership has proven to be an amazing vehicle for wealth accumulation compared to renting and paying someone else’s mortgage.  But you do have to pay attention to your personal financial circumstances and lifestyle and decide whether you can afford to not have any appreciation for the next 2-3 years.  That is what we will probably see locally and nationally.  We expect Colorado Springs to improve ahead of many markets, but there is no guarantee when that will happen.

So what did I tell my client?  Here’s my response.  Do you agree with me?  Or do you believe the national press telling you all is good, no worries, things are looking up?  Stayed tuned for more facts in the coming weeks.  Then you decide.

We’re doing better with the number of sales than last year, but last year was the worst year in about 20 years in Colorado Springs.  The $8000 first time homebuyer tax credit is helping increase the number of sales for 2009 and 2010, but prices are not going up.  Rather we expect them to either stay flat or decrease again once the tax credit goes away 4/30/10.  It’s an awesome buyer’s market, but a lousy seller’s market.  My team and I are telling people that if they have to sell or they are looking for a great move-up deal and are willing to take a price hit on their current home to get the $6500 move-up buyer credit and great pricing and low interest rates on a larger or newer home, then go ahead and list their home, but if they just want to “try” to sell, this is not the market for that.  There is another wave of foreclosures coming as ARMs reset in 2011 so we don’t expect prices to improve locally for at least another 2 years.  We’re encouraging people to pay down their mortgages and pay in additional principal to build equity in the coming few years.

Are you considering taking advantage of the $8000 home buyer tax credit or the new $6500 move-up buyer tax credit?  The deadline to do so is April 30, 2010 with a closing by the end of June, 2010.  But what if you want to purchase a brand new home?  That is still possible also.  I have been working with clients who are building new homes in the past 6 months and the builders are eager to get you in a house.  Just recently Hallmark Homes notified me that they will guarantee a closing by the end of June and are offering finished basements in some areas.  I have found Classic Homes in Wolf Ranch to be excellent to work with and my clients feel like VIPs.  Thank you to Tina and Teresa for being exceptionally caring and communicative.  We all appreciate you.

If you want to look into this option yourself, I have a team of experts who can help you come up with a plan so that you can be in your own home in 2010 and hopefully take advantage of the tax credit as well.

On Saturday, Gallery Two-Ten in Colorado Springs had their 2nd anniversary celebration.  Grace Wever has her fiber collages displayed there and I had the chance to meet her at the gallery.  I have to admit I didn’t know this fine art gallery existed in Colorado Springs.  They represent some artists who create stunning pieces - everything from Raku pottery to photography to painting and collage.  It’s close to downtown and you can try out one of our local restaurants after your visit.  There are many in the downtown and Old Colorado City areas.  I happen to like to go to La Baguette for their french onion soup.

Ready for another great place to go out and eat in Colorado Springs?  Do you like Italian?  Do you like the ambiance of Old Colorado City?  Then try Paravicini’s.  They also have a second location in Palmer Lake named La Zingara.  We like the variety of menu items (love the mussels!), the fresh bread and house salad, and think they have the best calamari fritti.  Located at 2802 W Colorado Ave at the west end of Old Colorado City, there is plenty of parking behind the restaurant.  If you like dessert, the cannoli is pretty yummy.  I like to take one home and put it in the freezer until I’m ready for dessert.

First, let me share a little history lesson.  The change in the markets the past few years is now affecting what people are buying when they do buy a home.  During the roaring 90s when the dot com industry rose, people had a lot of extra cash in their pockets and built homes to reflect their desires.  Showy, big, extravagant homes dotted (that is a pun ) the landscape, especially in California.  Then the dot com bubble burst starting in 2000 and the market changed.  Investments in the stock market tied to technology went poof and bank accounts dwindled.  Real estate then became the go-to investment arena and we all know what happened.  Real estate prices escalated until 2006.  In markets like CA, FL, AZ, and Las Vegas, prices were surging 30-40% per year and those who were actually awake during that time realized what goes up must come down.  I personally could not believe that interest only loans were being used by consumers to purchase the home they would be living in.  Interest only loans are a strategic product used by real estate investors to manage cash flow.  I don’t think that description applies to most of our neighbors.  So what does all this have to do with smaller homes?

Just think how different the real estate market and our economy would be today if we had foregone the speculation of the past decade.  Did you know 1 in 4 homes was sold as an investment during the go-go years?  That’s 25%.  Do you think that had an impact on pricing?  Absolutely.  Just like tulip bulbs in Holland centuries ago.  We Americans went around with blinders on because getting money was so easy and we didn’t want to believe it could end.  But just like the dot com bubble, it was an upside down pyramid and collapsed under it’s own weight.  We ran out of buyers who could buy at such frothy prices.  Fortunately, in some markets such as Colorado Springs, we had more steady increases in prices and never saw huge increases, so most homeowners can weather the current market.  But even here prices have dropped about 20% on average over the past 3 years and people who bought at the height of the market are underwater unless they had a large down payment or have been making extra principal payments since they bought their home.  If they can stay put, they’ll be okay.  If they have to sell, they have a problem unless they can bring cash to closing.  For some, hardship will allow them to qualify for a short sale to avoid foreclosure.  Sadly, others will lose their homes.

So back to my question.  What would the market be like if the housing market had been steady instead of the scenario we did have?  First off, not as many people would own homes or if they did, they would own smaller homes than they purchased because they wouldn’t have based their decision on an expectation that their home was going to appreciate in the double digits every year and make them rich.  Home ownership DOES make people rich, but it is a slow steady process that lasts a lifetime.  The other thing we would have seen is smaller homes because they would be more affordable.  In some places, like California and Hawaii, they’ve had to keep home sizes smaller in general because land is so expensive.  If speculators hadn’t driven up prices buying properties with loans that required no verification of income or assets, more people would still be in their homes because they would have been given those loans based on more realistic requirements.  Hind sight is always 20-20, and looking into the past shows us a process that was totally out of control.

Fortunately, our economy provides the answers and we will dig ourselves out of this mess.  Without buyers who can or will pay inflated prices, home sellers have had to reduce prices in order to sell.  Many people who would like to sell have kept their homes off the market for now, reducing inventory, which will help with recovery.  The market is winding down, although in some places, it definitely crashed.  At some point we will reach equilibrium.  We are getting closer, although there are still more foreclosed homes coming to the market that will keep prices down for the next few years.  As prices have come down, people who didn’t want to or couldn’t buy when prices were high, are now finding that homes are affordable.  The rate of affordability has increased.  Builders will build smaller homes to entice first time buyers and seniors who are downsizing.  The other good thing that has happened is that people have started saving again and are being more cautious about buying.  Loans aren’t as easy to get and people have to jump through hoops to prove they can pay their mortgage in order to get a loan.  Many people will wait until they feel more secure in their work or feel they will be in the house long enough for buying to make sense.  But more people who didn’t think they could ever afford to buy, can now find homes within their means.  And ultimately we will help the environment as green technologies become more prevalent in building and remodeling and energy efficiency becomes more important.

If we keep the recent market lesson fresh in our minds, what has happened can prove to be a good thing because it is changing how people view money.  Perhaps individually people will remember and not allow themselves to be drawn into craziness in the future.  New homes built will be smaller so that builders can keep prices where buyers can afford to buy.  Condo owners will ultimately be helped as people discover that is an affordable option in not so affordable markets.  As baby boomers retire they will still want 2nd homes and that will once again help the Florida, Arizona, and condo markets recover.  Some baby boomers will retire to smaller, more affordable communities and will help the economies of those areas where their spending will create more jobs.  First time home buyers have a fantastic opportunity right now to get into a home at lower prices and amazingly low interest rates.  Even when the $8000 tax credit ends, homes will still be affordable.  But that still doesn’t mean everyone should buy.  It still needs to be a careful decision.

For those who can’t buy yet, investors are buying foreclosure and short sale homes and renting them out, so renters will find more choices available to them.  Investors will be part of the solution as well.  So there is light at the end of the tunnel.  Now is the perfect time to put money aside and plan to one day be a homeowner or get that 2nd home or move up to a bigger home.  With planning they are all great choices.  If you are in a position to act now, congratulations!  This will prove to be one of the greatest opportunities of the 21st century.

Did you ever want to be an astronaut?  Do you get feeds from the NASA website regularly?  Are you a space geek?  Then get to the Fine Arts Center soon to see the current exhibit on the history of NASA.  I love looking at Hubble photos and have used them as inspiration for ATCs (artist trading cards).