In an earlier blog entry we discussed how the average price for an income property, in the MLS, was $392K in 2006.  It increased 12% to $439K in 2007.  However, the average price dropped 21% for the full year of 2008, to $346K. 

Did distress sellers (e.g., REO or foreclosures, and short sales) do the same as the regular, non-distress sellers?  Actually not!  The average price for the regular sellers has been gently inching up, while the average price for the distress sellers was essentially steady.

However, since the number of distress sales is increasing rapidly, that mix change is a big part of the price decline.

To get the definitions out of the way, I’m defining a “distress sales” as either an REO (real estate owned, by a bank… aka a foreclosure) or a short sale.  I’m looking at what percentage of the sold properties in the MLS were distress sales as a percentage of the total sales.  The other part of the 100% would be the regular sellers.

Only 14% of the income property sales in 2006 were distress sales.  This increased by 13% in 2007: 27% of sales were distressed.  It got worse even faster in 2008, when the distress percentage increased another 24% to 51%.  Just over half of the income property sales this year were foreclosure or short sales!

My numbers will be different than Metrolist, as I delete land sales outside of the Denver Metro area (e.g., Central City, Boulder, Breckenridge…).

I’d expect this trend to continue into 2009.  Great time to be a buyer; rough time to sell if you have to.

To get the definitions out of the way, I’m defining a “discount” as the gap between the last asking price in the MLS and the sold price that was recorded in the MLS. 

The average discount in 2006 was 2.6%.  This increased by 1.7% to an average discount of 4.3% in 2007.  The average discount in 2008 increased another 1.5%, to 5.8%.  The trend recently, in the 4Q of 2008, was declining a bit… to more of the 4% range by 4Q 2008.

My numbers will be different than Metrolist, as I delete land sales outside of the Denver Metro area (e.g., Central City, Boulder, Breckenridge…).

The average marketing time (Days On Market or DOM) in 2006 was 114 days.  Things slowed down, just a little, in 2007, when the average marketing time increased by eleven days to 126.  In 2008, DOM remained unchanged at 126 days.

My numbers will be a bit different than Metrolist, as I delete land sales outside of the Denver Metro area (e.g., Central City, Boulder, Breckenridge…).

I think we’ll have more REO inventory, particularly in the 2-4 unit segment, in 2009 than we did in 2008. Since the banks are getting better at moving REO rapidly, this should result in a modest acceleration of marketing times overall.  For regular sellers, though, it will become a difficult time to sell.  If you have a smaller income property you are considering selling – do it ASAP, as mid next year we will have a lot of option ARM resets.  I suspect you’ll have a lot more competition soon.

There were 592 income property sales in the MLS in 2006.  It decreased 32% to 401 in 2007.  We had a modest increase of 4% reduction to 417 completed deals in 2008. 

My numbers will be lower than Metrolist, as I delete land sales outside of the Denver Metro area (e.g., Central City, Boulder, Breckenridge…).  I also exclude one unit deals.

I suspect we’ll see a little more activity in 2009 than in 2008.  This will be increasingly driven by REO activity, especially for the 2-4 unit buildings.

I’m just finishing the end-of-year update for income property price trends.  The average price for an income property, in the MLS, was $392K in 2006.  It increased 12% to $439K in 2007.  However, the average price dropped 21% for the full year of 2008, to $346K. 

My numbers will be different than Metrolist, as I delete land sales outside of the Denver Metro area (e.g., Central City, Boulder, Breckenridge…).  I also exclude “income” properties with one unit, as they are usually just residential listings looking for another audience.

Why did this price decline happen?  It’s largely a mix issue.  The average property sale in 2006 had 4.5 units (e.g., roughly a four unit building).  Larger buildings sold in 2007, and the average unit count increase was 6.1  This drove almost all of the price change.  Smaller buildings sold in 2008 when the average size was 5.3 unit.  You can’t just look at the price!

I think a better way to look at income price trends is to look at the price per unit sold over time.  This removes a lot of the mix issue.  In 2006, the average price per unit was $87K.  This declined 18% to $72K in 2007, and it declined a further 8% in 2008 to $66K.

What drove the decline?  Read on to the next blog entry!

To get the definitions out of the way, I’m defining a “discount” as the gap between the last asking price in the MLS and the sold price that was recorded in the MLS.  Sometime properties start with high, “wishful thinking” asking prices and they decline over time.  We’re just looking at the last asking price… more grounded in reality.

The average discount in 2006 was 2.0%.  This increased by 4.8% to an average discount of 6.8% in 2007.  The average discount in 2008 increase another 2.2%, to 9.0%.  The trend recently, in the 4Q of 2008, was severely higher discounts… the average was around 11-12%!

My numbers will be different than Metrolist, as I delete land sales outside of the Denver Metro area (e.g., Central City, Boulder, Breckenridge…).

As discussed in the prior blog, high end homes have a glut of inventory, so new high-end home construction is grinding to a halt.  I would expect to see further increases in land discounts in 2009.  It could easily be two years before this segment improves.  Other segments of the market (as you will see in blogs over the next few weeks) do look like they are improving though – the dark clouds in our market are not everywhere!

The average marketing time (Days On Market or DOM) in 2006 was 238.  Things sped up, just a little, in 2007, when the average marketing time declined by four days to 234.  In 2008, the slowdown in the land market (see my earlier blog posts) resulted in a fifteen day increase in the average marketing time, to 249.

My numbers will be a bit different than Metrolist, as I delete land sales outside of the Denver Metro area (e.g., Central City, Boulder, Breckenridge…).

As discussed in the prior blog, high end homes have a glut of inventory, so new high-end home construction is grinding to a halt.  I would expect to see further increases in land DOM in 2009.

There were 866 land parcel sales in the MLS in 2006.  It decreased 27% to 635 in 2007.  We had a further 43% reduction to 359 completed deals in 2008.  My numbers will be lower than Metrolist, as I delete land sales outside of the Denver Metro area (e.g., Central City, Boulder, Breckenridge…).

As discussed in the prior blog, high end homes have a glut of inventory, so new high-end home construction is grinding to a halt.  I would expect to see further declines in land sales in 2009.

4Q 2008 Update - Land prices for Denver Metro

(search / replace denver metro for that agent’s geography)

I’m just finishing the end-of-year update for land price trends.  The average price for a land parcel, in the MLS, was $226K in 2006.  It increased 12% to $254K in 2007.  This makes some degree of sense, as this was the tail end of the boom for building luxury homes.

However, the average price dropped 14% for the full year of 2008, to $217K.  Since the high end of the real estate market (homes over $1 million have well over 30 months of inventory!), not very many spec high end homes are being started up.  And that logjam of homes is reflected in land prices.