In an effort to make home ownership more obtainable for lower-income families, Elevations Community Land Trust has put a low income housing project in the works. In five years, the goal of 700 new and current homes will be transformed to allow homeowners to profit on the home's value, while the trust maintains profit on the land. Read more below:
700 homes in 5 years: Metro Denver homeownership initiative has raised $24 million to help low-income families
Seven foundations and nonprofits announce start of Elevation Community Land Trust and five-year goalBy JON MURRAY | firstname.lastname@example.org | The Denver PostPUBLISHED: December 7, 2017 at 4:54 pm | UPDATED: December 8, 2017 at 1:26 am
Several private foundations and nonprofits on Thursday gave a more than $24 million boost to an idea that has gained attention from Denver affordable-housing advocates as a promising way to put homeownership within reach for lower-income families in the metro area.
By forming the Elevation Community Land Trust and committing that money, its backers aim to create the largest community land trust in Colorado. Within five years, the new organization could assemble a collection of 700 homes scattered across the city and its suburbs — split between existing houses and new townhomes and condos — using a model that reduces the cost for buyers who fall below income limits.
It would do so by holding ownership of the land under each home in a nonprofit trust in perpetuity, leasing the land to the home’s owner for regular payments. Upon reselling the house, owners would pocket a portion, but not all, of any increase in the home’s value. Future buyers would face similar income qualifications.
Community land trusts “support low-income families in safely bridging the gap between rental housing and homeownership, allowing them to increase their savings and assets, improve their financial literacy and ultimately become more economically self-sufficient,” said Dave Younggren, the president and CEO of Denver-based Gary Community Investments, which has committed $5 million to the effort through the Piton Foundation.
Unlike most income-restricted housing that is made available for homeownership, the restrictions in a land trust model don’t expire within a few decades, which converts homes to market-priced. Instead, the land trust provides permanent affordability.
Many details of the Elevation program, including financial restrictions, remain to be worked out. But its targets for help are families making 55 percent to 80 percent of the metro area’s annual median income, or AMI.
That range spans $36,960 to $53,760 for a two-person household and $46,145 to $67,120 for a family of four.
Early calculations for the program included a model scenario in which Elevation would buy a home that’s for sale for about $260,000, then invest $25,000 in rehabilitation, Gary officials said.
By holding onto the land ownership, the organization would subtract roughly $80,000 in value from the market selling price charged to the qualified buyer.
“This is a proposed financial model that we came up with to make sure that the numbers could actually work,” said Tracey Stewart, the family and economic security investment director for Gary. “But that’s not necessarily what will happen, because there are a number of variables — including, and most important, the variable of what the community is going to decide. Each neighborhood is going to have a say in how homes are purchased (and) how land is donated.”
If successful, Elevation could set its sights statewide.
Seeking public subsidies and other helpThe fundraising announced Thursday will kick off a plan that is estimated to cost about $58 million during the next five years.
The backers plan to seek an estimated $23 million in contributions from local governments. An additional $11 million could come from new private partners as well as donations of public and private property.
They are starting by seeking a commitment from Denver’s new $15 million-a-year local housing fund.
Informal conversations with metro-area government officials have been encouraging, Younggren said.
“There’s a need and a desire to create some permanent affordability, and that’s really missing,” he said.
The other initial financial backers of Elevation are the Colorado Health Foundation, the Gates Family Foundation, the Bohemian Foundation, the Denver Foundation, the Mile High United Way and Chicago-based Northern Trust.
The Urban Land Conservancy is also lending an organizing hand, and a president and CEO for Elevation should be in place within a few months as the land trust launches. It could begin snatching up for-sale homes later in 2018, but Gary officials say those plans will depend on the new Elevation leader’s direction.
At the end of five years, Gary officials say, their financial modeling shows Elevation operating self-sufficiently from revenue that includes land-lease payments and its shares of resale profits.
On Thursday, Younggren spoke to Denver’s Housing Advisory Committee to get discussions rolling with its first potential city partner about subsidies or other contributions for the project.
City officials have made no firm commitments yet, and the request comes amid increasing interest by Denver neighborhood-based groups in forming local land trusts. There’s also heavy competition from various programs for Denver’s limited housing fund.
“How we stitch this all together with the advice and the expertise around this room is going to be the next challenge,” said Erik Soliván, the director of Denver’s housing policy coordination office.
Activists from the northern Globeville and Elyria-Swansea neighborhoods have lined up research and partners and early plans for a community land trust to help keep renters and homeowners in the neighborhood. They again asked for city support at Thursday’s housing meeting but so far have had no success.
Some expressed surprise and disappointment with the Elevation plan, since they had met earlier with some of those same foundations and nonprofits to discuss their plans. They perceived that the Elevation plan’s strong backing and money would push it to the front of the line.
“It’s very confusing to me why the city would invest in funders, versus community, and why the funders wouldn’t invest alongside the city in a community,” said Candi CdeBaca, a community organizer in Elyria-Swansea. “Or why they wouldn’t pilot this to see if it works first, before they go with a 700-unit model.”
A mix of new projects and existing homesBackers of the Elevation plan say they support smaller efforts like the one pursued for those north neighborhoods but want to start a broader program that benefits more areas.
Of the 700 or so homes that could be folded into Elevation’s land trust, Gary officials say, about half would be existing homes scattered in neighborhoods that are considered “cost-burdened” — meaning home prices and rents are rising to the point that many current residents now spend more than 30 percent of their monthly income on housing.
In Denver, think of Westwood, Elyria-Swansea and parts of the city’s southeast, where home prices are fast increasing. It’s unlikely that Elevation would go for homes in more affluent neighborhoods such as Highland, Cherry Creek or Washington Park.
For the remaining half of the homes, supporters envision Elevation acquiring land and then leasing development rights for new townhouse or condo projects. Owners of those new homes also would pay land leases to Elevation and split resale gains.
Community land trusts have been successful in some cities across the country, but their complexity sometimes makes them more difficult to pull off with existing homes than with new-build projects, experts say.
Gary officials anticipate the plan will evolve along with market changes and neighborhood conditions.
“I don’t know, personally, of another initiative of funder collaboratives that has come together in Colorado around affordable housing in this big of a way,” said Meghan Sivakoff, an investment project manager for Gary Community Investments, during an interview.
“Oh, definitely not around affordable housing,” Stewart chimed in.
A half-dozen or so housing land trusts are operating in the state, including the Colorado Community Land Trust, which began in Lowry; Thistle in Boulder County; Rocky Mountain Community Land Trust in El Paso County; and the Chaffee Housing Trust in Buena Vista. The Urban Land Conservancy holds a land lease for an affordable apartment complex near the Sheridan West Line station and plans to lease out development rights for an upcoming project on land it owns near the 38th and Blake transit station.
Hot 2018 Decor Trends are Here and HouseBeautiful has 16 decorating tips that will make your home trending in the New Year!!
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16 Décor Trends That Are Going to Be Hot in 2018
The Denver Post published this article showcasing how Denver is in the top 10 cities that have seen the largest income gains since the recession, most notably because of its increase in tech jobs across the area. Learn more below:
Denver among the 10 U.S. metro areas with largest income gains since the recession
Thriving cities are leaving others behindBy CHRISTOPHER S. RUGABER | The Associated PressPUBLISHED: December 16, 2017 at 9:32 pm | UPDATED: December 17, 2017 at 2:21 pm
As the nation’s economy was still reeling from the body blow of the Great Recession, Seattle’s was about to take off.
In 2010, Amazon opened a headquarters in the little-known South Lake Union district — and then expanded eight-fold over the next seven years to fill 36 buildings. Everywhere you look, there are signs of a thriving city: Building cranes looming over streets, hotels crammed with business travelers, tony restaurants filled with diners.
Seattle is among a fistful of cities that have flourished in the 10 years since the Great Recession officially began in December 2007, even while most other large cities — and sizable swaths of rural America — have managed only modest recoveries. Some cities are still struggling to shed the scars of recession
IN LAS VEGAS, HALF-FINISHED HOUSING DEVELOPMENTS, RELICS OF THE HOUSING BOOM, POCKMARK THE SURROUNDING DESERT. FAMILIES THERE EARN NEARLY 20 PERCENT LESS, ADJUSTED FOR INFLATION, THAN IN 2007.
The Associated Press
Change in employment by metro areas. (Click to enlarge)In the decade since the recession began, the nation as a whole has staged a heartening comeback: The unemployment rate is at a 17-year low of 4.1 percent, down from 10 percent in 2009. Employers have added jobs for 86 straight months, a record streak. And last year, income for a typical U.S. household, adjusted for inflation, finally regained its 1999 peak.
Yet the rebound has been uneven. It’s failed to narrow the country’s deep regional economic disparities and in fact has worsened them, according to data analyzed exclusively for The Associated Press. A few cities have grown much richer, thanks to their grip on an outsize share of lucrative tech jobs and soaring home prices. Others have thrived because of surging oil and gas production.
But many Southern and Midwestern cities — from Greensboro, North Carolina, to Janesville, Wisconsin — have yet to recover from the loss of manufacturing jobs that have been automated out of existence or lost to competition from China, before and during the recession. Like others, they have fewer jobs and lower household incomes than before the downturn.
Those disparities complicate the rosy picture painted by most nationwide economic data. With the nation enduring a widening wealth gap, an overall robust U.S. economy doesn’t necessarily translate into widely shared prosperity.
“There’s definitely a pattern of the coasts pulling away from the middle of the country on income,” said Alan Berube, an expert on metro U.S. economies at the Brookings Institution. “There are a large number of places around the country that haven’t gotten back to where they were 15 years ago, never mind ten years ago.”
That said, for all the economic might the top-flight cities have gained in the past decade, many city officials and business leaders have become concerned that their success is running up against limits. Surging home prices and rents have made housing unaffordable for many. With cities like Seattle and San Francisco choked with traffic, engulfed by homeless people and requiring ever-larger incomes to live comfortably, quality of life may be at risk.
In the Western United States, inflation reached nearly 3 percent in October compared with a year earlier, according to government data. By contrast, inflation rose just 1.5 percent in the Midwest and New England.
“It’s the first time I have noticed a persistent spread between inflation in one area and the rest of the country,” says Steve Cochrane, an economist at Moody’s Analytics who has studied regional economics for 25 years.
Mindful of the financial burden on employees, some tech companies have decided to set up shop or expand where expenses are more manageable. Snapchat and Hulu have put down roots on the slightly more affordable west side of Los Angeles, joining outposts of Google and Facebook in an area now known as “Silicon Beach.”
Last year, nearly as many people moved out of Silicon Valley — defined as Santa Clara and San Mateo counties — as moved in, according to a report by Joint Venture Silicon Valley, a civic group. It was the first time since 2010 that the number of arrivals and departures have been roughly equal.
The trend isn’t entirely surprising given that commuting times in San Francisco have lengthened by 40 minutes a week in the past decade, the report said. The price of a typical San Francisco home has reached an eye-watering $1.2 million, according to Trulia, an online real estate data provider.
Housing costs, inflated by local regulations restricting home-building, can act as a barrier to opportunity. They make it harder for people in poorer areas to move for better opportunities. With fewer people able to move to places with more jobs and higher pay, the national economy tends to suffer, economists say.
Among the nation’s 100 largest metro areas, San Francisco experienced the biggest gain in median household income in the decade after the recession began. Adjusted for inflation, it jumped 13.2 percent, according to data compiled by Moody’s Analytics. San Jose, which is part of Silicon Valley, enjoyed the second-largest increase, at 12.7 percent, followed by Austin, Texas, with 8.8 percent.
By comparison, median household income in the 100 largest metro areas actually fell 2.7 percent, on average. And the income gap between the 10 richest and 10 poorest metro areas has widened in the past decade, Moody’s data shows.
The Associated Press
Income inequality between cities. (Click to enlarge)Eight of the 10 cities with the largest income gains are “tech hubs,” with heavy concentrations of software architects, data analysts and cloud-computing engineers. They include Denver, Portland, Oregon; Provo, Utah; and Raleigh, North Carolina.
Pittsburgh has experienced the ninth-largest income gain, thanks to increased tech and health care jobs. Oklahoma City, where inflation-adjusted incomes are up 5.5 percent, has benefited from the oil and gas boom.
Most Americans haven’t received raises anywhere near that large. Data compiled by Brookings shows that 65 percent of Americans who live in urban areas — defined as cities with populations above 65,000 — live in places where the typical household income is still below its 1999 level.
Max Versace, CEO of artificial intelligence startup Neurala, who arrived in Boston in 2001 from Italy, has watched the city transform itself into a boomtown, filled with innovative companies working on robotics, AI and self-driving cars. Boston enjoyed the 11th-best income gain in the past decade, Moody’s data shows.
“I have never experienced a slowdown in Boston,” said Versace, whose company is based in Boston’s Seaport neighborhood, a formerly rundown industrial area now crowded with startups and high-end restaurants. “Boston is one of those bubbles — good bubbles — that have been saved by the two locomotives of computer sciences and biotechnology.”
Versace launched Neurala in 2013, and it now has 36 employees, including eight with PhDs. While most workers across the country have endured scant pay gains, Versace estimates that salaries for AI researchers with Ph.D.’s have doubled since 2008.
Neurala is working to incorporate AI in drones, including one aimed at energy firms that will use its technology to spot cracks in pipelines or wind turbines without needing humans to monitor video feeds.
One other change Versace is happy to observe: “I no longer have to spit out espressos or pasta,” because the quality of each has improved so much since he arrived.
The divergence between the richest and poorest U.S. cities predates the Great Recession. But it is historically unusual. For a period of 100 years ending in the 1980s, income gaps between richer and poorer cities narrowed steadily.
Economists cite three reasons why such convergence ended. The nature of high-tech work, for one thing, makes it productive for higher-skilled workers to cluster in the same cities.
Elisa Giannone, an economist at the University of Chicago, notes that in past decades, highly paid professionals — doctors, say — might have congregated in cities with fewer physicians to capitalize on the lack of competition and earn more. Likewise, many companies that employed high-skilled workers would move to lower-cost cities to take advantage of cheaper labor.
But her research has found that both trends have been upended by the rise of highly skilled information technology work. People with such skills prefer to work in cities with their peers. And the companies that employ them seem to care just as much about the right skills as they do about lower costs. What’s more, higher educated employees typically become more efficient when they cluster together and exchange ideas.
“It’s more beneficial and more productive to go where there are more people like me,” Giannone says, referring to how such workers think. “I don’t want to be left out.”
Jed Kolko, chief economist at Indeed, the job listings website, calculates that one quarter of tech job openings in the first half of this year were located in just eight tech hubs: Baltimore, Washington, Boston, San Jose, San Francisco, Seattle, Austin and Raleigh, North Carolina.
A second factor is swelling home prices and rents, particularly where regulations make it harder to build more. People in poorer areas often used move to wealthier cities to find better opportunities. Now, that option is increasingly available only to those with advanced skills or education.
Two public policy experts, Peter Ganong and Daniel Shoag, concluded in a paper last year that both janitors and lawyers used to fare better financially in New York City than in poorer cities, even accounting for the higher cost of living.
Now, because of rocketing home prices in richer areas, that’s no longer true. Lawyers can still come out ahead. But janitors and other lower-skilled workers don’t.
“Skilled workers move to high cost, high productivity areas, and unskilled workers move out,” Ganong and Shoag wrote.
In the 10 cities with the fastest income growth, housing prices have soared by an average of 31.1 percent in the past decade, Trulia found. That compares with a national average increase of just 5.1 percent.
One result has been huge wealth gains for a fortunate few. A resident of San Francisco who bought a typical home, paying nearly $816,000 in the spring of 2007 — just as the housing market nationwide was collapsing — has gained $365,000 in the past decade.
In Cincinnati, a homeowner who bought at the same time would have paid just $143,000 but would have gained only $6,500.
“Geography plays a critical role in wealth building,” said Ralph McLaughlin, chief economist at Trulia.
A final factor behind the diversion is that the industries and occupations in slower-growing regions were leveled by the recession. Manufacturing and mining are disproportionately located in red states. So are retail jobs. All those sectors have endured weak growth since the recession.
Robin Brooks, an economist at the Institute of International Finance, a trade group, says those job losses have opened a gap between so-called “red” states, which voted for Donald Trump in 2016, and “blue” states.
About 61 percent of blue state residents have jobs, compared with roughly 59 percent in red states, Brooks found. That cuts against recent historical patterns: From the 1990s through the mild recession of 2001, there was no gap at all.
Despite the persistence of regional inequality, some positive trends have emerged: More tech jobs are moving out of the tech hubs and spreading around the country. Software programming jobs have migrated to Dallas, Detroit, and Charlotte, among other cities, according to Brookings data. Software increasingly plays a vital role in banking and finance, auto manufacturing, and retail.
But many of those tech jobs are lower- or mid-level positions, such as technical support and help desk jobs, rather than higher-paying, cutting-edge positions. Kolko notes that the most highly-skilled tech jobs — in such areas as machine learning, a form of artificial intelligence; computer vision; and database engineering — are even more concentrated in tech hubs than are tech jobs overall.
“There’s a spreading out of the tech economy, but it remains a different tech economy in the middle of the country than what you find in the Bay Area, Boston, New York and Austin,” Berube said.
Software may be more widely used, but when it comes to actually inventing new software, “that is still a phenomenon you find in only four of five places in the United States.”
AP Writers Gene Johnson in Seattle and Matt O’Brien in Boston contributed to this report.
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Thank you for another great year! I look forward to 2018 and being able to help more more buyers, sellers and those looking to relocate or invest achieve their goals in a stress-free environment. If you or someone you know is looking for a realtor, know that I am here to provide the best service and support possible.
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Gord Collins summarized his predictions for the 2018 housing market. With a good economy and a lot of new construction, things are looking good. But, on the other hand, prices could increase with less labor and higher lumber. Collins will answer if you should sell or buy in the new year, the best cities to find a home for sale that will give you a good return and much more.
Read the full article The US Real Estate Forecast 2018 to 2020
The US Real Estate Forecast 2018 to 2020November, December, January and the coming spring 2018 real estate season should be interesting times. The economy is solid, trade deals look okay, new construction is active and recovering from the hurricanes in Texas and Florida, and the California fires.
Labor shortages and higher lumber costs are looming which could mean house prices could rise, and perhaps fewer resale houses will be for sale. If you’re buying or selling, check out the factors that will affect the housing market for the next 5 years.
The Denver Metro Association of Realtors released this report stating that Denver is on track to sell a record number of homes in 2017 and the sale of luxury homes have significantly increased. Read more below:
DMAR Real Estate Market Trends Report | NOV. '172017 is on pace to set a new record for the number of homes sold in the Denver area. Also notable, luxury homes priced $1 million and over saw a 50 percent increase in sales year over year.
November 3, 2017Download the report here
October set a new record low for housing inventory in metro-Denver for the month of October with 6,312 listings, down 16.79 percent from the month prior and 6.22 percent from last year. Contributing factors to the low inventory included fewer new listings coming to the market, down 3.06 percent from last year, and the number of homes sold increased by a healthy 9.75 percent month over month.
“The inventory number was a little scary in October and it was not what we were hoping to see,” said Steve Danyliw, Chairman of the DMAR Market Trends Committee and Denver REALTOR®. “In addition to fewer listings coming to the market, low housing inventory was also due to the surprising treat of higher-than-expected homes under contract. As we tend to see normal seasonal slowing, under contracts increased by more than nine percent from last month and last year. Even with cooling temperatures, homebuyer demand remains strong.”
According to the DMAR Market Trends Committee, average active listings in the residential market (single-family and condos) for October is 16,306 (1985-2016). The record-high October was in 2006 with 29,722 listings, and 2017 represents a new record-low with 6,312 listings.
“Seasonally, we expect the number of sold homes to drop 4.18 percent month over month; the larger 9.75 percent drop in homes sold compared to the month prior was expected due to the low amount of under contracts in September. Even with the number of closings dropping over the last couple of months, we are still ahead of last year as year-to-date homes sold was up 3.3 percent over 2016. At this pace, 2017 should set the record for number of sales,” adds Danyliw.
Additionally, the report cites that REALTORS® report home sellers are beginning to reduce prices, yet the average and median sales prices in October were up year over year by 11.85 percent to reach $443,873 and 8.88 percent to $380,000, respectively.
Danyliw comments, “While this is good news, take into consideration the mix of properties sold. We had a substantial increase in the $1 million plus segment.”
Our monthly report also includes statistics and analyses in its supplemental Luxury Market Report (properties sold for $1 million or greater), Signature Market Report (properties sold between $750,000 and $999,999) and Premier Market Report (properties sold between $500,000 and $749,999). In October, 158 homes sold and closed for $1 million or greater, up 32.77 percent month over month and up 49 percent year over year. The closed dollar volume in October for all luxury residential was $242,929,424, up 31.71 percent month over month and up 53.74 percent year over year.
The highest priced single-family home sold in October was $5,275,000 representing four bedrooms, six bathrooms and 7,826 above ground square feet in Denver. The highest priced condo sold was $2,325,000 representing four bedrooms, five bathrooms and 3,523 above ground square feet in Denver. The listing and selling agents for both transactions are DMAR members.
“The Luxury Market hit a sweet spot in October,” stated Jill Schafer, DMAR Market Trends Committee member and metro Denver REALTOR®. “After a very strong summer, the sale of single-family homes priced $1 million and over dipped a bit in August and September, only to rally again in October with sales up 40.38 percent from September. Luxury condo sales were down 20 percent from September to October, but that’s still up 50 percent from the same month last year.”
Year to date, sales volume topped $2 billion, and the sale of single-family homes was up 27.67 percent and condos was up 60.44 percent. So far in 2017, luxury single-family homes and condos are selling faster overall with the median days on market down 16.28 percent and the average price per square foot hitting a record-high at $303. “The playing field is close to equal between homebuyers and sellers with just over six months of inventory,” adds Schafer.
Download the report here
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The DMAR Market Trends Committee releases reports monthly, highlighting important trends and market activity emerging across the Denver metropolitan area. Reports include data for Adams, Arapahoe, Boulder, Broomfield, Clear Creek, Denver, Douglas, Elbert, Gilpin, Jefferson and Park counties. Data for the report was sourced from REcolorado® and interpreted by DMAR.
Haunted houses are for the scares and thrills that the spooky Halloween season brings. It is not, however, the curb appeal you want to have when selling a home. Remember, that curb appeal plays a huge part in if a buyer will want to buy your home or even proceed with going inside the home to get a better idea of what they are looking at. We all know that we shouldn't "judge a book by its cover," but, let's be real, houses are being judged the second that a car pulls up to the driveway. So, make sure your home looks presentable by:
Happy Halloween from the Boulder Home Zone Team
It looks like the Denver Housing Market may be starting to calm down. Whereas before, Denver stayed steady in the top three markets for homes selling quickly, now it is starting to trail behind. Denver came in one day behind the third place market, San Francisco which had 26 days on the market as an average. Until there are more homes in the mid-prices that are more affordable, however, the market will continue to lean towards a seller's market. Learn more in the Denver Business Journal below:
Is Denver housing market cooling a bit?By Ben Miller – Contributing Writer
Oct 18, 2017, 6:43am MDT Updated Oct 18, 2017, 7:14am Is Denver's housing market cooling a bit? A new study indicates that Denver's no longer a national leader in one key housing market indicator.
Denver used to be one of the nation's top three markets when it comes to homes selling quickly. Not anymore. According to the latest Re/Max National Housing Report, Denver homes are selling a tad more slowly than the three national leaders.
In the latest Re/Max report, the metro areas with the lowest Days on Market were Omaha at 23, Seattle at 25, and San Francisco at 26. Denver has barely fallen off the list of top leaders, coming in at 27 Days on Market for September. Nationally, the Days on Market for homes sold in September was 49. Days on Market is the number of days between when a home is first listed in an MLS and a sales contract is signed, Re/Max said.
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In the past, Denver was always listed at or near the top: In the previous report, Omaha and Seattle led the country at 21 days and Denver followed at 24.
But Denver still ranks near the top nationally when it comes to not having a market balanced equally between buyers and sellers. Re/Max estimates that a balanced market has a 6 months supply of housing inventory; currently the national figure is 3.6 percent.
"The markets with the lowest Months Supply of Inventory continued to be in the west with San Francisco at 1.2, Seattle at 1.5, Denver at 1.6 and San Diego at 1.8," Re/Max said.
"Plain and simple, we need more homes, particularly at the entry-level price point. Until then, it will most likely continue to be a seller's market with homes going from listed to sold quickly," said Adam Contos, Re/Max co-CEO, in a statement.
While no U.S. cities are classified in the "bubble risk" zone, neighbors such as Toronto are experiencing increasing housing prices at a dangerous rate. In other words, income and employment levels aren't matching what is being asked to buy a home in the current housing market. And with overly priced markets so close, a corrective period could be sooner than we expect. Read more in the CNBC article below:
Toronto, London and these other major housing markets are in a risky bubble, UBS says
Diana Olick | @DianaOlick
Published 12:14 PM ET Thu, 28 Sept 2017 Updated 3:51 PM ET Thu, 28 Sept 2017CNBC.com
Home prices are rising in most major cities around the world, but in some they are rising too far, too fast.
When prices reach the so-called bubble territory, that is, overvalued in relation to fundamentals like income and employment, they are at a far greater risk of correction. While it is hard to pinpoint exactly when that correction will occur, identifying the bubbles early can offer insight and protect investors.
In the last five years, bubble risk has grown significantly in several cities, according to a new report from UBS. Toronto, Stockholm, Munich, Vancouver, British Columbia, Sydney, London, Hong Kong and Amsterdam are at "bubble risk," according to its Global Real Estate Bubble Index.
Real house prices in these cities have risen nearly 50 percent since 2011. This is far higher than local economic growth and inflation rates, and incomes and rents have risen less than 10 percent in these cities during the same period.
While no U.S. cities make that highest "bubble risk" category in the index, San Francisco and Los Angeles are considered "overvalued." Prices in San Francisco are up almost 65 percent since 2011, but has "limited bubble risk, given its strong economic fundamentals amid the astonishing boom of tech companies," according to the report.
The reasons for strong price appreciation are varied. In Canadian and European markets, prices have been able to rise swiftly due to historically low mortgage rates. In European cities, while prices are higher, homeowners' annual payments are below their 10-year average. In the U.S., low mortgage rates are also helping buyers afford more homes, but the real driver of prices is very low supply of homes for sale.
U.S. homebuilders still have not recovered from the housing crisis that began in the late 2000s, and are not back to producing even the historical average of new homes, never mind all the pent-up demand. The U.S. market also lost about a million homes to investors, who turned them into lucrative rentals, removing them from the potential for-sale stock.
'Superstar' city?Of course a bubble can't be proven until it bursts, but history proves the risk to these markets when home prices are decoupled from economic fundamentals of a local market.
"A change in macroeconomic momentum, a shift in investor sentiment or a major supply increase could trigger a decline in house prices," according to UBS researchers.
And then there is the "Superstar" scenario. This theory suggests that even when prices are out of whack with fundamentals, there are certain superstars, that will dominate. This holds true for movie stars and major metropolitan cities alike. UBS researchers suggest that Hong Kong, London and San Francisco are "Superstars." High net worth investors will always flock to these cities, and as long as supply doesn't exceed demand, prices are at less risk of weakening.
The one variable in all this is a big one: interest rates. Should rates begin to rise, slowly or swiftly, investors could pull back. "Also, the current affordability crisis may trigger policy responses that could end the housing party rather abruptly," according to the report.
Housing policy in Vancouver, specifically a tax on foreign investors in real estate, was designed to cool the overheating home prices there. As a result, more investors set their sights south, to Seattle, which now leads all U.S. markets for home price appreciation.
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