Who was in CO real estate in the 80's? (Denver: sale, real estate market)

[treyjay]

I have a question for any of you who were in CO in the 1980's and had the presence of mind to witness the real estate crash that occured there. What were the conditions in the market leading up to the crash? What exactly triggered it? I am looking to make a move on some CO real estate, but I beleive it to be tremedoulsy overvalued and ripe for a fall. Your comments are appreciated. Thank you.

[StealthRabbit]

I got to make house payments on my empty Colo home for 2 yrs, (Circa 1982) when I needed to move to WA for a job. I eventually rented it to a friend, who ended up buying it for 10% less than we had paid 6 yrs earlier. He sold it in 3 yrs for 2x what he paid. Last sale was ~7x what we paid, but... that was 30 yrs ago... do the math, and it wouldn't have been a terrific investment, but better than a passbook acct. Your famous Dem. legislature did a number on the interest rates in the 80's... that mixed with the end of an energy boom = bad news for home owners. Both my dad and Father-in-law lost everything in residential spec houses in the 80's. They started over at age 50+. I'm hoping to avoid that maneuver. I've sold my commercial props, and am waiting this out for awhile. I was in NO CO last week bottom fishing for RE, but... I'll keep shopping and waiting. I consider it overbuilt, and limited opportunities for employment that sustains mortgages on $400k homes, but I've been wrong before. (several times today in fact )

[2bindenver]

Oil and gas crisis lead to the exudus of many. Colorado was a one horse town and the horse left and went to Texas.

Since Colorado has grown, it is home to several industries, it is less likely to experience a crash like the 1980's.

We have been moderate and steady since the summer of 2001. I do not see a crash in my crystal ball....quite the opposite, we are due for a hot streak anytime now.

[jazzlover]

treyjay,

Read my other posts in this forum and you will see that I regularly "roasted" for my pessimistic views of Colorado's overheated real estate market. I'm glad you asked the question you did. I was around when things went sour in the 1980's. It was economically a pretty rough time for a lot of people. A lot of money was lost, and the state actually lost population for a time. Much of the Colorado real estate market got hit by a "perfect storm" in the early 1980's. First, the region was booming much as it is now, with a lot of in-migration. Denver was booming with the energy industry, as was Grand Junction and that area with oil shale development (that being fueled by a big, fat government subsidy). The first wave exodus of fed up Californians, New Yorkers, and Texans leaving those places was washing into Colorado. Recreational development was going ape. Then you had the banks and S&L's throwing money around in loans like drunken sailors on shore leave. Does all of this sound vaguely similar to now? It should.

Colorado had rebounded pretty nicely from the recession in 1975. Inflation got to be a problem by the late 70's, but that just fueled the real estate market. The oil price shock in 1979 hurt tourism some, but it stoked the energy boom. Many people blame "Black Sunday" in May of 1982 for sending the economy "over the edge." The Feds had announced that they were no longer going to subsidize oil shale research and pilot production around Parachute, Colorado. On "Black Sunday," Exxon announced it was shutting down its oil shale facility there. Instantly, hundreds of workers lost their jobs at the plant itself, and a whole cadre of support companies in Grand Junction lost their main contracts. Within weeks, the real estate market and employment in west-central Colorado was reeling. The was a chronic shortage of U-Haul type rental trucks on the Western Slope because so many people were moving out. The reverberations went all of the way to Denver. As general energy prices collapsed, Denver's "energy center" economy started to implode. (Joke: "What do you call a petroleum geologist living in Denver? 'WAITER!'") The Federal Reserve's tightening of credit had been driving the prime rate up (to 20% or so) already, and that led to a lot of ARM's (adjustable rate mortgages) to go into default. Commercial real estate, not surprisingly, started to collapse. Whole skyscrapers were nearly vacant.

Foreclosures went crazy, and a lot of borrowers simply walked away from their houses, mailing the keys to the lender (called "jingle mail"). Banks and S&L's wound up owning tons of real estate, and a number of them (the Silverado Savings fiasco being one of the famous ones) failed. For years afterword, either the banks and S&L's, or the Resolution Trust Corp. that "bailed out" failed banks and S&L's, were selling real estate from their inventories. In some parts of the state, it was almost a decade before real estate appreciated back to the level of 1982 or so. In some places, it was virtually impossible to sell a house or condo. A joke made the rounds that the one thing different among AID's, herpes, syphilis, and a house in Clifton (a suburb of Grand Junction) was syphilis--because you could get rid of that!

Fast forward to today. The same BS lending practices that got us in trouble back then are going gangbusters today. (Colorado has one of the highest foreclosure rates in the nation--HELLO!!!) The energy boom is back, but national inflation probably isn't far behind, either. As to 2bindenver's comment, Colorado is no more diversified now than it was in the 80's, it's just changed horses. There's more high-tech now (not exactly a healthy industry these days), more "recreational" and residential real estate development (which, once built, don't produce much more than minimum wage jobs and not a lot of those), and more low-wage service industries. In the meantime, land development, water diversions, and national economics have pretty much raped the agricultural industry, which used to be one of the major industries in the state. There has been a large exodus of heavier industry--CF&I is a shadow of its former self, Gates is pretty much gone, Schwader Bros. (Samsonite) the same, Great Western and Holly Sugar atrophied. Coal mining is still fairly strong, but hard rock mining, for base metals (including molybdenum) and precious metals, is largely ended. Lumbering is skeletal.

What's left is construction (building trophy houses that don't produce anything and may soon be unaffordable), recreation (hopelessly dependent on cheap AND plentiful gasoline that will likely soon be neither), high-tech (a large amount of jobs therein now being exported overseas), and the skeletal remains of a whole lot of industries that used to support the economy that have pretty much had the crap kicked out of them. That, and a bunch of service jobs and industry that depend on the robust health of the REST of the economy to exist.

Ripe for a fall? You bet. All it will take is the right "trigger." So many people post on this board who say, "It won't happen. It can't happen." That's understandable. Most of them hadn't been born yet or were sucking on a bottle the last time it happened. Sadly, when they get to "enjoy" this "crash," I think it will be much deeper and longer than the very painful '80's event. I just hope this country is able to "Cowboy up" and endure it. It's going to be a long, rough ride.

[Phazed-Coug]

Colorado has one of the highest if not the highest foreclosure rate in the country.
I could see it falling hard in non metro areas

[COflower]

I was not in real estate but worked for my father's window and door company.

A lot of the builders were tied to Texas (my favorite of our builders was Nash, Phillips Copus) and when a lot of the Texas oil went bust, so did much of Colorado. In addition, here in Colorado Springs, we were known as the foreclosure capital of the world because of the savings and loan bust. That was some scary stuff for this older teen as I didn't quite understand economics.

Over all, it's been much more stable since.

[sunsprit]

I bought most of my best performing real estate in Colorado during the aftermath of that '82 crash. What it took was buying the right places at the right prices and hanging on for 10-15 years.

Still kicking myself over not having bought houses in Grand Junction for the $30,000 that a lot of them brought before that marketplace came back with retirees and others not tied to the energy biz.

I had two Denver properties given to me back then by people who just walked away from their recent down payments and equity ... it took awhile to get the cash flow up to the mortgages, but not too many years before they sold for several times what they'd been bought for.

I helped friends buy a place for $63,000 down by DU. Nice little one bedroom house with a non-conforming basement rental apartment. When they had to leave for a new job posting, the rental apartment made the house payments. They had me do the property management for them for awhile, and we kept the place rented continuously through 1995 when they decided they wouldn't be able to get posted back in Denver again. Sold the place for $320,000 in two weeks. You can imagine how it looked inside after all the years of young tenants, and the yard was a mess. But not a bad investment for 22 years ....

The toughest part for me was to learn not to fall in love with a place that was going to be damaged by careless/thoughtless tenants. As a landlord, I just had to accept that it wasn't the house that I was going to live in.

[Luke9686]

Any experienced R.E. investor will tell you that you make your money when you buy. If you use the typical formula of FMV (fair market value) X .70 - repair costs=your offer than you can't go wrong. Buying property at market value for pure speculation is doomed for failure.