Appraisal Blog

Much like our own financial tightening to the family budget, budget crunches are impacting the Pueblo West Committee of Architecture.  With the down turn in new residential construction application in Pueblo West, comes reduced revenues to fund the Pueblo West (COA).  Those funds are used to operate and staff the Committee of Architectural. 

The funds are used not only to review the new construction starts but to manage and enforce all of Pueblo West's Covenants, Codes, and Restrictions (CC&R's) set forth by the original developer's master plan.  If funding is not secured for the COA's operation in the coming years (2009 and beyond) the Committee may go defunct and "Pueblo West's CC&R's" will become unenforceable. The impact of this loss will be irreversible and have a sizable negative impact on Pueblo West's property values in my opinion, as a real estate appraiser and broker. 

All of the COA services that the residents of Pueblo West have come to depend upon will effectively go away.  Potential home buyer's and business owners will choose to locate in other well planned, pristine communities with with their Covenants, Codes, and Restrictions intact instead of Pueblo West.  Pueblo West will loose it's competitive advantage in attracting and retaining property owners, that will surely effect property values and our quality of life as residents of this community.

Examples of the services we will loose are; ensuring residential and commercial properties are properly maintained, landscaped and utilized in harmonious compatible ways with neighboring properties.  Enforcement of weed control, eliminating junk cars and debris from home sites will simply not happen. Land uses (residential and commercial) will not be as compatible and complementary as before. For example, lower quality manufactured housing would be allowed to pop up next door to premium homes in even the most established neighborhoods such as Liberty Point and the Desert Hawk Golf Course Area. 

Another issue is approximately 2/3rds of Pueblo West is zoned Agricultural, the least restrictive zoning available.  This means property owners on acreage sites will be able to operate businesses such as construction and trucking companies, automotive repair shops, small farms and live stock operations next door to established residential homes. I would expect Pueblo West would eventually have a patch work of older premium homes, lower end homes and small businesses all intermixed without any continued benefit of the Pueblo West original master plan, making it similar to the Pueblo County Mesa area and all of it's notorious planning issues.  Pueblo County government is currently under staffed with only one land use inspector and no additional funds to begin to manage the needs of Pueblo West's nearly 30,000 residents. So even the enforcement of the greatly reduced, minimal zoning standards by the county is very impractical.      

Funding of the COA, should it not be always self sufficient, was provided for years ago (in the 1980's) for just this scenario by the developer and it's successors. Back then the balance of the developer's unsold properties were deeded over to the Pueblo West Metro Board and a the board passed a resolution stating that a portion of the land sale proceeds were to go to fund the COA as needed and then to other needs such as road improvements.  Since the COA had been self sufficient up until this last year (2007) all of the land proceeds have been put into the the Metro Boards general fund and spent on other needs such as roads and other special projects.  No "rainy day funds" of the millions of dollars of decades of land sales were ever set aside and now land sales have also been greatly reduced with the down turn of the real estate market. Additionally there is a diminishing supply of the developers available lots for sale today.   

There are many tough questions to answer about the future of the Pueblo West Committee of Architecture and hopefully the community will see the need for it's continued operation and funding.  I encourage residents and business owners of Pueblo West to voice their support of the COA to the Pueblo West Metro Board.  

Much of the the local and national buzz in the appraisal industry is about the declining residential housing markets.  So, how about Pueblo Colorado and other Southern Colorado housing markets?

Why all the fuss?  The huge mortgage lenders (not your local mortgage broker/lender or bank) created loan programs for lending money to home buyers and those refinancing with little or no credit or equity.  They misjudged their risk, while telling their investors everything was fine, now their stock is plummeting.  This is the single most important factor, by far, why there is a growing number of foreclosures and REO resales happening in the Pueblo and national residential housing market today.  It is not directly related to any local unemployment rate, the price of gas, the price of tea in China, or the value of the dollar on the world market.

The market expanded to account for all of these junk loans, designer loans, sub-prime loans,  and adjustable rate loans.  They became a significant part of the market.  Now they are gone...  We now have too much housing inventory for very few qualified home buyers in the market place.   

The mortgage lenders now need to compensate for these junk loans and they have tightened up their requirements for obtaining a loan.  Not only will you once again need good a credit history, but if your home is identified as being in a "Declining Market", you will typically need an 5% additional collateral in the hunt.  This means where once you only needed to have 5% (or less) as down payment, you will now need 10% maybe more depending on your credit.      

This new policy considerably dries up the pool of qualified borrowers out there, both for purchases and refinances.  It also kills any chance for someone who got in over their head on a loan and is headed for foreclosure to refinance.  So with no financial asset to protect in a home, many homeowners are simply walking away from their loan obligations and loosing the home to the lender through the foreclosure process.     

Now back to determining what a declining market is. We first need to define what a declining market means.  Fannie Mae nor Freddie Mac have came up with a solid definition.  Does decline pertain to value or sales volume, or both? What period of time do we measure it by, year to year, year to date, quarter by quarter?  I believe every reader of this blog will have a different definition, but I thinks it's safe to say the market has slowed down recently or it has cooled off some, but how much that depends on how you define the market.

Remember too, the golden rule of real estate, "Location, Location, Location". What happens in Pueblo will be totally different that the market in Florida or California or Denver of just across town.   Now of course what we all really want to know is, "what will the market be tomorrow"?  Is measuring the past the best way to predict the future?

Maybe we should just use a crystal ball?  As appraisers we often joke that clients really just want us to have a crystal ball, so we can tell them what will happen. They can then make a lending decision. 

Here is my prediction. Pueblo never saw the run away appreciation that other markets have had in recent years. We have not grossly overbuilt our new construction inventory. Unemployment is relatively low and not changing. People here and everywhere across the county will keep living, loving, having kids and changing their family structure. This creates genuine demand for housing.  The lenders have pretty much stopped giving away money to borrowers that have marginal credit and little no collateral. So, I believe in the long run we are in pretty good shape here in Pueblo.  

My lender clients tell me most borrowers are sitting on the fence.  Waiting to see if the rates will go lower. 

I really think the rates are at or near the bottom. Considering the economy and the Presidentual Elections coming up. they will stay down until we get some movement in housing sales, probably in early 2009.

What do you think?