Denver Coronavirus updates and Q&A

[Chris Lopez]

Over the last week (man how fast the world can change!) I've had clients and fellow investors and agents reach out to ask questions on the market. I share what I know and often learn tidbits from them.

It's been a great way to share knowledge, but it's over one-on-one phone calls. Add in the fact that news and the market are changing by the hour = inefficient ways of sharing knowledge and staying up to date. Frankly, I'm having trouble keeping up with everyone.

I started thinking of better ways to share ideas and information... then it hit me to start a BP thread! The forum is easy for sharing ideas and collaborating.

There are quite a few smart people around town that can share their knowledge and what their hearing from their network. It should be a great way for all of us to learn and help get through this.

At this point, it's us versus the damn virus.

Tagging people that I know around town who are frequent posters to BP with great info. Add anyone that I don't know or forgot

@James Carlson

@Erin Spradlin (just saw a google hangouts you're hosting. Hopefully you'll share notes!)

@Matt M.

@Craig Curelop

@Dan Mackin

@Scott Trenchfor north Colorado @James Orr

Hopefully, they and others join. if not, I'll keep posting updates. I'm pretty isolated at home, so being isolated on BP will just add salt to the wound. :)

Be safe and stay healthy!

[Colin Smith]

@James Carlson - I should first say this is all speculation here...

I am not saying we won't see prices come down across the nation but I don't see it happening at least in Colorado Springs. Our inventory is so low that even if we saw a sudden surge in listings popping on the market, let's say an additional 50%, we would still be in a sellers market technically from a supply shortage aspect. We may not get multiple offers though and appreciation will likely slowdown. Most of your Buyers are not your hourly employees who work at restaurants, hotels, and gyms but those are where we are seeing the layoffs happening. Then add this stimulus check into the hands of our people, and we are going to see tremendous amounts of spending and shifting of wealth. Keep in mind, the government isn't giving money to people to save it in their bank accounts, it's to give those effected an opportunity to cover their bills while those who are not effected extra spending money. This money might just be what they needed to get to their downpayment goal for buying their first or next home. 

This stimulus money will create a larger gaps between the wealth classes and create many new opportunities. For those who can capture some of this wealth will lead to their ability to purchase real estate building back up our demand faster than the supply can keep up.

Again, just a theory. :) In 2 years I would be curious to look back at this thread to see how it all plays out.

[Chris Lopez]

@James Carlson I agree with @Matt M. about listing vacant properties vs occupied. I don't want strangers in my house! Plus, do you really trust the average agent to really screen their buyers for health issues? Let's be real... To put it very politely, that's not their job.

RE: But then I'm conflicted about helping to sell to someone who might be buying just before the price go down

1) First off, that's not your worry. Representing your seller is worry, not about the buyer.

2) You don't know the long term plans of the buyer. I forget the exact stat, but if someone bought at the peak in Denver the 2000's, they were good five years later. If someone needs to buy a home and they plan on staying in for a long time, timing the market does not matter.

3) Also, I'm not convinced prices will drop. I think there will be some people selling in distressed situations, but not the whole market. The market is very different today:

• No NINJA loans this time around. The average borrower is a lot better qualified.
• We have way less inventory. A lot of buyers will have drop off to move us from this "Extreme sellers inventory" of less than 2 months to a balanced market or a buyers market. Denver has a lot of pent up demand.
• I agree with @Colin Smith about the buyer pool and the wealth gap becoming bigger. 

If you do list, do as much as possible to go virtual and limit people. Do the matterport tour. Screen every buyer to get the serious ones: Who is preapproved, etc? Limit the showing flow traffic.

It will be interesting to look back in a year to see how our "best guesses" play out. I really hope that there are not mass foreclosures. I'm not a cutthroat investor... I'd rather not see a bunch of people lose their homes and go through that stress. I went through tough times in the 2008 crash, nothing like a lot of the horror stories, but it was no fun. I really hope their are not mass foreclosures and distressed sales.

Here's some data I often reference with clients...

[Teri Feeney Styers]

Greetings all from the other side of the mountains! I am not showing or otherwise entering occupied homes. My last listing closes on Tuesday and I don't currently have any sellers in the pipeline. However, I do have many investor clients looking. I am erring on the side of caution and saying that it is not "essential" that they be out and about touring properties. I will do that for them (vacant only). I will take extra pictures, assess general condition, make videos, run comps - whatever helps them decide. I don't see any harm in encouraging them to drive by a property to get a feel for the neighborhood. I have already met vendors at properties under contract to allow them access for bids on work to be done - socially distancing of course. I will write offers with appropriate dates and deadlines and will also use the COVID-19 addendum provided by the Colorado Bar Association. If I get a property under contract for a client then I can arrange for them to see it - preferably at the same time they meet the inspector (financial transaction rules apply). If it is a vacant property I will go with them. If it is an occupied property I will have the selling agent handle it; and again, will not overly encourage my buyers to even deal with occupied properties at this point. As far as the dilemma on where the market is headed: You make the best decision you can with the information you have on hand at that time. I do ask my people some thoughtful questions (always): what is plan b? what are your numbers? Etc. 

I am a flipper - not holder. I am in the middle of one flip and just to the foundation stage of a small new construction project. I also bid this past week on a third. I self fund a certain level with my HELOC and then partner with my local bank on others. I reached out to my banker before bidding the third project and was told that currently they have pulled back by 10% on their contribution to projects. So, while our "deal" used to be 25% me and 75% them, the numbers are now 35/65. I can live with that. I stay in the under $250K ARV for the most part and have confidence that price point will continue to move quickly.

@Matt M. 

[Chris Lopez]

One of my rental units leased up last week with a Section 8 tenant for 1850 (which was my original estimate.) They move on April 1. Very happy about that!

 My other unit is still vacant. I have another unit going vacant in April. I'm budgeting for a few months of vacancy and no-rent payments. Renters are looking, but showings have slowed. Not sure how the statewide shelter in place will impact it. 

Notes from the weekly Your Castle agent webinar:

Showings:

• Technically we are allowed to do showings and list houses
  • Can we = Yes
  • Should we = Probably Not. COULD be a violation of "stay-in-place" order if deemed non-critical and could result in fines for all involved (agents & clients).
  • Can't let the need to put food on the table outweigh an executive order and put others at risk
• Educate clients and over communicate!
  • per Eric - 19 families so far have been directly affected by COVID-19 leading back to showings/seeing properties as source in Colorado.
  • Everyone is more exposed (buyers/sellers/agents). Know the risks
    • If more confirmed cases of COVID-19 are sourced from showings/listings, good chance RE will shut down as non-essential biz to stop spread
    • Buyers need to wash hands before & after each showing
    • Keep hands in pockets at showing
    • Sellers need to disinfect after each showing
    • Vacant homes - buyers and agents still at risk. When was it last disinfected?

Title:

• Curbside Closings
  • Responsibility of agent to explain process of closing and help buyer/seller feel comfortable to close on their own
  • Agent does not NEED to be there and most companies will ask that they are not
  • Agents can call into closing. Receive docs in advance.
  • Trying to have least amt of ppl at table as possible.

Lending (25min 30sec - 33 min into webinar):

Suspended Mortgages:

• Not everyone will qualify for suspended mortgages

  • Landlords & VA qualify??? = probably, call servicer!
  • If owner has already stoped making payments and date has already been set for auction/foreclosure?? = probably, call servicer!

• No Late payments on credit report does NOT mean that no negative items

• No FREE 3 months - comes at a cost

  • Should only be used as LAST Resort
  • Forbearance = Deferment of payments and result in modified loan
  • Credit will take negative hit
    • Forbearance is negative hit to credit
    • Modified loan is negative hit to credit
  • Harder to get new loan
    • To qualify for new loan after forbearance, need to show 12 on time payments from date which loan was modified (date started making payments again)
    • Applies to ANY loan - even REFI

  Massive Volatility:

  • If huge increase of owners need to take forbearance, servicer of loan is still responsible to pay end investor. Servicer "fronts" money for owner which eats into servicer's capital. Takes money to make new loans. Now, servicer has less money to give NEW loans to NEW buyers because they are using that money to pay owner's loans to end user. Government helping servicer's by giving them money but there is an unintended consequence of increased interest rates.
  • Best things to do = IF YOU HAVE THE MONEY TO PAY YOUR MORTGAGE, PAY IT! Only use these programs as last resort. Always pay your bills if you can.

Market Trends (38min 30sec - 45 min into webinar):

• Overall expect market to go down short term 15-20%
• Showings will go down
• New listings will slow but may stay flat
• Slight increase in inventory at beginning of April
• Have buyers ready for when "stay-in-place" order is removed
• Slight increase in negotiation power from seller to buyer when order removed as hopefully more inventory
• Trade up buyers are a little more stable ($500k-$900k)

COVID-19 Stimulus:

Congress and House have signed. President to sign later today

SBA Loans:

• SAB Express - For businesses
  • will probably need receipts/documents to prove payroll & Expenses
• SBA Disaster Relief Fund - For individuals
  • May be good alternative to Forbearance
  • More flexible with what you can spend it on
  • Can coach tenants to apply if they need help
• Both processes seem to be streamlined but with so many ppl applying, expect longer waits
• If you think you will need it, apply NOW. If you don't need it, pay back immediately

Tenants/Landlords:

• Try to get proof of unemployment , reduced pay, or reduced hours from their employer first
• Stay consistent. Handle each tenant that same so there is no discrimination and keep good records of correspondence
• Adding amendment to leases to defer payments as long as they have applied for SBA loan
• Not suggested to lower rent. Could be seen as favoritism or discrimination if you have multiple tenants
• PM seeing ppl being OK for April rent but worried about May rent

[James Carlson]

@Chris Lopez

Thanks again for sharing. I'm not seeing that Covid-19-related mortgage forbearances still affecting credit. I'm actually seeing the opposite. (I'm not advocating what you should do, but do want to know what is possible.)

I'm interested to hear more about what you're reading or hearing. (And any lenders out there have thoughts about this? (@Travis Sperr @Jared Bouzek )

I've been reading advisories sent out by law firms (not necessarily in Denver) that work with banking/lending institutions. Here's what I'm finding:

This advisory from financial services law firm Troutman Sanders says 

• loan service providers will still report to credit bureaus BUT that lenders are required to report any accounts in forbearance as "current" if the forbearance was granted due to coronavirus. (See halfway down page under "Sec. 4021. Credit Reporting During COVID-19")

This advisory from Stokes Lawrence says two interesting things:

• A loan modification is normally classified as a "troubled debt restructuring" (TDR), which negatively affects credit. BUT, the CARES act (coronavirus relief bill) temporarily suspends classifying any loan modification as a TDR, if the modification is due to Covid-19. .... (See 1/4 way down page, "Provisions Granting Temporary Relief From Troubled Debt Restructurings (TDRs)")
• Like the first advisory, it also states that "Financial institutions who enter into forbearance agreements or loan modifications with borrowers due to the COVID-19 crisis must report these borrower accounts as 'current'" ... (See halfway down page under "Credit Protection for Borrowers.")

A couple other notes:

• Lenders are only required to report you as "current" if you were already current before coronavirus.
• You have to apply for forbearance. DO NOT JUST STOP MAKING PAYMENTS!
• Adding a "consumer statement" to each of the credit bureaus is another layer of protection. This is where you attach a statement explaining why there was a forbearance. (See first bullet point half-way down.)

The big takeaway I'm seeing is that applying for and being granted forbearance should have no impact on your future ability to qualify for a loan. What am I missing?

[James Carlson]

Also @Matt M. @Colin Smith, are you hearing anything from your lenders about this?

[Colin Smith]

@James Carlson - I am hearing the lenders tell me to keep paying if I can. All they are doing is delaying the payment but you're not actually saving any money. This really should only be used if you are truly effected and shouldn't use if you can still keep paying. I would guess something of this magnitude trying to be launched as quickly as it will bring its share of problems and headaches. I would hate to be trying to apply for a new loan and there be a glitch on my credit score slowing everything down. 

[James Carlson]

@Colin Smith

I hear you, but I guess I'm trying to suss out the "you never know what will happen" advice from the concrete language of the law. If you can pay, then pay. Avoid any possibility of hiccups later. Solid advice. But if you're on the line and trying to decide what to do, I guess I'd like to know for my Denver or Colorado Springs clients what would actually happen if they did the mortgage forbearance.

[Colin Smith]

I totally hear you there. We are still working on trying to fully understand the details ourselves to help our Landlords out that have residents effected and won't be able to pay their rent on time either. Definitely a mess on both ends. 

[James Carlson]

Looks like Airbnb will cover 25% of hosts' lost revenue for all cancellations between March 14 and May 31. A glimmer of good news for Denver Airbnb hosts.

[Colin Smith]

What would @James Carlson do?

If you're planning to turn a unit into a STR, would you at this point in time? Or would you wait on furnishing the property and do a 12 month lease?

[James Carlson]

@Colin Smith

Interesting question. Is this an investment property in Colorado Springs as an non-owner-occupied Airbnb? (If so, you have to be grandfathered in under the old rules or be outside of a 500-foot radius of any other existing non-owner-occupied STR) Or are you talking about a basement apartment/mother-in-law suite in a primary residence?

Short answer
What would I do? I'd get a 12-month tenant in there and plan on furnishing and listing next March/April. I'm a pessimist about the coming months and want the stability of a long-term tenant.  

Long answer
A lot of this depends on the course you think the market and the virus/economy will take. I see two factors here: 1. When to list; and 2. Whether to furnish now or later

When to list
If you think the virus will go away quicker and the economy (and therefore travelers) will come back quicker, then you could get a 3-month tenant (furnished or not) and plan to list as an STR in July or August on Airbnb. You'd get some summer and early fall prime times.

I'm more pessimistic and think we're not going to see a big increase in traveling for months at the earliest. I wouldn't want to list for the first time in the winter when most short-term rentals are seeing anywhere from a 30-50% drop in their revenues. So I'd wait till spring next year. 

Furnished or not
Side note on listing now as an STR. No matter what, I wouldn't do that. Airbnb definitely gives a boost to new listings, and you want to take full advantage of that when people are looking. List right now, any boost you'd get would be waste when no one's traveling.

Even though you're not listing as an STR right now, you could still furnish right now and get it rented as a medium-term rental for 3-6 months. That would give you some flexibility to see how the market goes and then switch to STR if you want.

The thing I'd worry about is how quickly you can get it listed and rented. There are going to be a lot of STRs transitioning to medium-term rentals soon, so you could be facing stiff competition in the coming weeks. 

Which brings me back to, get it rented now for 12 months, ride this out, and come out next spring/summer with a bang. My two cents, at least. What are your thoughts?

[Chris Lopez]

@James Carlson yea, I'm a little hazy on the rules around forbearance. From reading and a few conversations, I believe the credit issue can happen after the forbearance period is over and the lender has to modify the loan. You won't be reported as having late payments, but they'll report your modified loan (which is still a negative credit factor). I'll see if I can get @Joe Massey to chime in for clarification. He's been the most reliable lending source for me over the last couple of years. 

Frankly, I'd be wary of giving clients specific advice on this as you don't want to get blowback. As an agent, I think it's best to refer them to their lender and loan servicer. I'm hoping my clients have been following my broken-record advice of keeping 6 months reserves. Personally, I'd rather rack up credit card debt than have a mortgage go into forbearance on a loan. Or if I was concerned right now, I'd go grab a credit card with a 0% 15-month teaser rate and throw items on there. 

That's impressive that Airbnb is helping their hosts out! I didn't expect that. 

[Colin Smith]

@James Carlson - Thank you for your opinion of the STR's. I had the same thoughts of putting in a 12 month tenant for a year and see what it looks like next year. We have a 4-plex we were intending on STRing which gets us around the new C/S rules being its zoned R4. I guess its a good thing we haven't bought all the furnishings yet... just need to find a place to store it for 12 months.

@Chris Lopez - I would agree its wise to point people in the direction of talking to their specific lenders regarding the forbearance. I too am going to personally avoid it as I would not want any mortgage payments to be behind at any time for any reason. I would be curious to know what the ramifications will be 6-12 months from now for those who did choose to go forbearance and want to apply for new financing. I would imagine both the primary and secondary mortgage markets are going to have some PTSD from all this and we will see another flood of rule changes and lending requirements like we did after '08.

[James Carlson]

@Colin Smith To me, that sounds like the best plan. Just to be clear, if you're zoned R4, you still have to either have had an existing STR permit before Colorado Springs' new Airbnb rules went into effect, or -- if you didn't have an existing permit -- then you have to be outside of that 500-foot buffer of any other non-owner-occupied STR. (You can contact Susanna Dalsing at planning to check the 500-foot buffers.)

Sounds like you already know that, but just making sure. If you are outside of a 500-foot buffer but you don't currently have your STR license, I'd apply for it now just to blot out any other STR from getting inside your bubble.

[Chris Lopez]

@Colin Smith A few people sent me a PDF this last week. It discusses how rules from the Dodd-Frank bill are creating issues with mortgages in this recession. Here's a copy: https://drive.google.com/open?id=1Eujvctlf7wzjvZHoo7JLyZxCum0DkkKg

Video closing are now available too! I got a few emails from title companies today. That will make life easier for everyone and help with social distancing.

[Colin Smith]

@James Carlson - It is my understanding that as long as I maintain 500 ft from all other permit holders (which I do at the moment) then I should be good to go with R4 zoning. Please do let me know if I missing something. 

@Chris Lopez - Thank you for the information. These are great resources!

[James Carlson]

Originally posted by @Colin Smith:

@James Carlson - It is my understanding that as long as I maintain 500 ft from all other permit holders ...

No, no, you got it. You technically only have to be 500 feet from a non-owner-occupied permit. (If you have an owner-occupied permit within 500', you're fine.) But you still have to have the license, and when you apply, they'll run your address through their list and their map to see if you qualify.

[Chris Lopez]

Denver March 2020 MLS Stats

Lon Welsh, owner of Your Castle, sent a great summary email with the MLS stats for March. It's copied and pasted below.

Our results for March appear as though they will be pretty similar to industry (they always are). Overall, things are going much better than I had thought they would.

Here's the official MLS stats for 11 counties.

• Active listings are down -8%
  
  • There’s been a good influx of new listings
    
  • However, there’s a lot more withdrawn than normal
    
  • Closed sales count is down a bit
    
  • Net, with somewhat fewer buyers, the supply / demand balance probably hasn’t materially changed
    
  • Homes – 11%; Condos -2%
    
• Closed units down -5%
  
  • This is less of a slowdown than I expected; great new here
    
• Average price and median price up 8% from prior year
  
  • This ties to the supply / demand balance not changing much; e.g., in the seller’s favor
    
• DOM down a few days
  
  • Also consistent with supply / demand being about the same
    
• UC were down 8%
  
  • This is much stronger than I had expected – great news
    
  • Homes -4%; condos -16%
    
  • This is consistent with my observations about a week ago that entry level buyers seemed to be more cautious than the first time move up segment
    
• Not much change on discounts
  

If you just look at the luxury homes (MLS defines this as >$1,000,000)

• Closed count +13%
  
• Price +1.5%
  
• DOM down -2 days
  

I am not sure this strength with last in the luxury market, since inventories are building.

If you look at entry level, $300-500K

• Closed count -13%
  
• Price +2%
  
• DOM +4 days
  

The slowdown in this segment will last a few months, since we need to get a lot of entry level employees back to work.

Other news items:

• Most of the iBuyers have suspended operations.
  
• Lenders are tightening credit requirements, which may push the marginal buyer (that used to barely qualify) out of the market for a while
  
  • This will likely be a source for 2020 having somewhat fewer closed deals than 2019

[Colin Smith]

Looks like we are going to have to stick this out a bit longer. Colorado has officially extended its stay at home order through 4/26. 

In addition, Colorado Association of Realtor (CAR) just announced that in-person showing are NOT exempt from the stay at home order, only essential services such as closings are allowed and must follow the stay-at-home order. 

From a Sales Perspective, I would be curious to hear some of your thoughts. Do you accept offers from Buyers who have only seen the home from a 3D Virtual Tour? Or do you still list a property during this time and state that no offers will be accepted until ~May 1st or something of that nature?

From the leasing side, we are already setup for self-showings and 3D Virtual Tour showings to continue leasing. Any thoughts or concerns with continuing to lease using these setups?

[Julie Voycheske]

I'd like to hear opinions on the following situation.  We have a single family rental in Berthoud with a 1 year lease ending on June 30th.  The current tenants want to go month-to-month and I'd much prefer a 1 year lease so we don't end up trying to rent it in an off-season like December.  Given the current stay at home orders, I'm torn between allowing the month-to-month and being happy to have good tenants as long as I can keep them or taking a chance and putting it back out there hoping for a longer term lease.  Thoughts?

[Colin Smith]

I would recommend trying to determine what the motivation is. Do they need an extra 2 months? 6 months? Or are they just not wanting to commit to another year? Personally I would push for the year if they no specific reason. We like to try and avoid M2M when possible.