Colorado Springs’ hottest housing market in years continues to also be one of its most frustrating.
Single-family homes sell briskly, property owners enjoy double-digit appreciation and builders are busy — trends that have helped the local market rebound after prices plunged, foreclosures soared and sales slowed following the Great Recession.
That’s the good news.
But many buyers can’t find a home because of a shortage of properties for sale and, when they do, they often can’t compete with other house hunters unless they pay thousands of dollars above a seller’s asking price. Bidding wars are common and the supply of low and moderately priced houses for sale continues to shrink, which increasingly puts homes out of reach for entry-level and first-time buyers.
“It’s no fun seeing these young families not being able to get a house,” said Joe Clement, broker-owner of Re/Max Properties in Colorado Springs.
Some business leaders, meanwhile, worry that high prices and a lack of affordability have created what Colorado Springs Chamber & EDC president and CEO Dirk Draper recently called a “housing crisis” that could chill economic development efforts and the overall economy.
“If we aren’t talking about it as a community and trying to make sure that we remain accessible and competitive … it is going to have long-term consequences,” Cecilia Harry, the Chamber & EDC’s chief economic development officer, said of high housing costs and affordability.
As Colorado Springs and the Pikes Peak region head into Memorial Day and the start of the traditional summer homebuying and selling season, here’s a snapshot look at the local housing market:
• A lack of homes for sale remains the market’s biggest problem.
Low mortgage rates — recently hovering around 3% nationally for 30-year, fixed-rate loans, according to mortgage buyer Freddie Mac — have helped propel demand for housing.
Colorado Springs’ population growth, a healthy economy that’s recovering from the COVID-19 pandemic and desirability as a place to live have contributed to a homebuying frenzy. Denver-area residents who’ve sought to escape high home prices also are part of the buyer mix — moving to Colorado Springs and northern El Paso County and commuting to their jobs.
Despite the demand, the Springs continues to have a shortage of homes for sale — a problem shared by many cities and one that’s been building for years and grown worse in recent months.
Clement said a reduction in home construction nationally, which began in 2010, laid the groundwork for today’s shortage; many builders scaled back production to reflect slower demand after the Great Recession and because lenders sought to avoid loans for speculative building, according to a 2019 report by the Joint Center for Housing Studies of Harvard University.
Locally, permits for construction of single family homes in Colorado Springs and El Paso County — an indicator of the pace of building activity — hit a record high of 5,314 in 2005. But permits then slid for the next few years before dwindling to just 1,105 in 2009, according to Pikes Peak Regional Building Department reports.
Annual building permits since have risen over the last several years, and climbed to just shy of 4,500 in 2020. Through April of this year, single-family building permits were up nearly 25% over the same period in 2020.
But the Springs’ housing shortage isn’t just about a slowdown in home construction.
Over the last several years, many homeowners who might want to move up or downsize haven’t put their homes up for sale because they worry they won’t find another property to buy, real estate agents have said.
As the COVID-19 pandemic took hold in 2020, some owners also didn’t want to sell for fear of having strangers walking through their homes, agents have said.
The result is a shrinking supply of homes on the resale side of the market that plunged to a record low of 460 in January, a month when inventories often topped 3,000 in pre-Great Recession years.
Last month, the supply of homes for sale edged up to 557, still less than a half-month’s supply, based on recent buying trends, the latest Pikes Peak Association of Realtors report shows. A year earlier in April 2020, there were 1,589 homes on the market; five years ago in April 2016, the supply of homes for sale was almost 2,100.
“There’s a fear factor right now,” Clement said. “They’d like to move. And some of it is moving down. They had 6,000 square feet; they want to move to 3,000 square feet. But they don’t see it (available homes). And so they don’t put the 6,000 on the market. They just say, ‘we’ll just stay here.’ So we end up with 650 homes for sale instead of 1,600, or whatever. It’s not good.”
• Looking to buy a home? Bring your pocketbook, patience and perseverance.
The fierce demand and home shortage have pushed prices to record highs.
The median price of area homes sold in April spiked to $425,000, the 10th record high in the last 16 months, according to Pikes Peak Association of Realtors figures.
A yearlong surge in lumber prices and other building material costs also have driven up new home prices.
The lack of homes in lower price ranges is especially troublesome, real estate industry members and business leaders say.
In April 2020, nearly 64% of the 1,219 homes sold that month were priced at $399,999 and under, Realtors Association figures show.
Flash forward to this year. Of the 1,489 homes sold in April, just 38.3% went for $399,999 or less.
Not surprisingly, when lower priced homes come on the market, there’s a stampede.
Clement, of Re/Max Properties, said a home with an asking price of $240,000 was recently listed by one of his brokerage’s agents. In just two days, the home had 110 showings, which produced 22 offers. The seller accepted a bid of $285,000.
“It was like In-N-Out Burger,” Clement said of buyer interest in the home. “There must have been a line with cars just pulling up. God almighty. But the sad part is 22 people tried to get it, and one person got it. One couple got it and 21 others that bid on it didn’t get it. But 110 looked at it. Where do they go?”
Even higher priced homes see plenty of demand these days.
Bruce Betts, broker-owner of Re/Max Advantage in Colorado Springs, said a client recently listed a home for $640,000. Over four days, there were 62 showings for the home. The seller received more than a dozen offers — and sold the home for $701,000, which was $61,000 above asking price.
“We’re seeing multiple offers in all price ranges,” Betts said. “The only exception to that might be over $900,000, over $1 million. But sometimes even then we’ll see it.”
The seller’s market has led to several changes in how purchase contracts are structured, Betts said.
Buyers often will include escalation clauses in their bids — offering to top anybody’s else offer by perhaps $5,000, he said. Or, if a home appraisal comes in lower than a contracted price, the buyer will agree to bring cash to the table and make up the difference. Buyers also might submit a backup offer, seeking to be next in line in case a primary offer falls through.
“Contracts are not written like they were in 2009,” Betts said.
• Business leaders worry, too.
Could record-high home prices discourage businesses and employers from locating or expanding in Colorado Springs?
When the Springs vied to become the permanent home of the U.S. Space Command, home prices were one potential drawback.
Huntsville, Ala., named by former President Donald Trump in January as Space Command’s headquarters, though federal lawmakers have questioned that decision, had a median home price of $284,800 in the first quarter — nearly $100,300 cheaper than Colorado Springs, according to a National Association of Realtors report.
In December, the Springs-based Christian and Missionary Alliance cited a lack of affordable housing for employees as a primary reason for its planned move to the Columbus, Ohio, area. Columbus’ median home price of $242,000 in the first quarter was $145,500 less than in the Springs, the National Association of Realtors report shows.
Harry, of the Colorado Springs Chamber & EDC, said the group — which works to attract jobs to town — has never been told explicitly by an employer or site selection consultant that the Springs was passed over as a candidate for a business relocation or expansion because of high housing costs.
Still, it’s something business and community leaders wonder about, she said.
“We’re not always told why we’re eliminated (by an employer looking to move or expand),” Harry said. “We’re often eliminated without even knowing we’re under consideration and there’s no opportunity to even ask. … Any community that’s planning for smart growth in their region is anticipating all elements of competitiveness, and housing prices and housing availability are absolutely a component to competitiveness.”
High housing costs aren’t just a worry when it comes to whether Colorado Springs can attract new employers, Harry said. Home ownership allows families to build wealth, which creates a more successful local economy, she said.
“If we have median household prices that aren’t aligned with our median household incomes,” she said, “we’ve got a gap there that’s keeping people out of wealth generation, and the consequences of that through a community are pretty significant as well.”
The purchase of goods and services by employees who can afford a home has a ripple effect throughout a community, Harry said. If they’re paying too much for housing, they aren’t spending that money at area stores, restaurants and the like.
“Picture your income like a pie,” Harry said. “The larger the slice of pie that’s going toward rent or mortgage, the smaller the slices that go toward goods and services in the region — toward everything from preventative health care to savings. All of that has consequences on the economic health of the region.”
Defense contractor Delta Solutions & Strategies, headquartered in Colorado Springs, employs 225 people, many of whom work near military installations around the country. About 100 of Delta’s employees work in the Springs and the company plans to add another 20 in the next two months, said CEO Mark Stafford.
Stafford said he’s not aware of Delta losing employees or being rejected by applicants because of the Springs’ high housing costs. Still, the company has heard concerns from job candidates about pricey housing, whether it’s buying or renting, he said.
“We’re moving people in from other parts of the country,” Stafford said. “They’re aware of the housing costs, here, going up. But it is a sticker shock to them.
“The other thing is, it’s not just the price, it’s the lack of inventory, both to rent and buy,” Stafford said. “That’s been brought up quite a bit, too. People come in, they wanted to buy a house, they couldn’t. They went to rent, and even renting, especially if they were renting a home over an apartment, you have to jump on those right away.”
A month ago, Nick and Elizabeth Sovis moved to Colorado Springs from Ann Arbor, Mich., as part of their jobs as Delta software engineers.
They weren’t scared off by high housing prices in the Springs; the cost of living in Ann Arbor, home to the University of Michigan, is only slightly less than that of Colorado Springs, they said.
Even before the couple moved to town, they agreed in February to rent a three-bedroom home on the Springs’ far north side. It’s a hefty $2,100 a month, but has roughly double the space of their Michigan apartment and they were OK with the price.
Though they wouldn’t arrive for two months after signing their lease, and their rental house sat empty for that time, Nick and Elizabeth were relieved to have grabbed it after seeing the warp speed-like pace that sale and rental properties were disappearing.
“Every time I tried to find a place, even for rent, I would call to try to set up a viewing for a place that wasn’t going to be available to view for a week or two,” Nick said. “And by that evening, after I set up the viewing, they called me back and said somebody took the place sight unseen. That happened constantly.
“We got to the point where we found a place that was put up that day and just applied for it,” he said. “Thankfully we ended up loving the place. But it’s moving so rapidly that stuff would appear on the market for rent … the same is happening for purchase, and it’s gone that evening, sight unseen. People aren’t even in the state yet and they’re taking these properties.”
• What’s next?
More of the same, said Clement and Betts.
If economic conditions remain unchanged and COVID-19 cases continue to decline, the demand for housing won’t let up anytime soon, Betts said.
Yet, there’s little that can be done to increase supply, while rising lumber and other building material costs will continue to drive up overall housing prices, he said
“I don’t think there’s anything that can be done other than let the market play out,” Betts said. “I don’t know what it would be.”
At the very least, streamlining local government regulatory approvals for land developers and homebuilders might help boost the supply of homes and give buyers more choices, Clement said.
If mortgage rates begin to creep up, the demand for housing might cool, Betts and Clement said. And if demand slows, price hikes might level off.
“(Rising) interest rates always take people out of the market,” Clement said. “They used to be able to afford X. Now, they can only afford X minus, which means they’re not going to get five bedrooms or four or whatever the case might be.”
At a community housing forum last month sponsored by the Chamber & EDC and area real estate groups, national economist Elliot Eisenberg offered up several public-private strategies for communities such as Colorado Springs that are struggling to overcome a housing shortage and seeking to provide more affordable options.
Among his ideas, Eisenberg said communities might want to allow greater housing densities, implement dynamic or flexible zoning to respond to market changes and tax vacant land at higher rates to encourage its development.
Two more forums are planned this year, and Harry, of the Chamber & EDC, said business leaders are eager to talk more about public-private housing solutions.
Some of Eisenberg’s ideas, she said, would “incentivize or reward the private sector for creating housing stock that meets the needs of the business community and still provides a return on investment. Because that’s critical. We can’t expect our developer community to build homes at certain price points just because it’s the right thing to do. They also have a workforce to pay and stakeholders to keep engaged and that sort of thing.”
Housing solutions, she added, must address the needs of all employees, from software engineers to accountants, to hairdressers to grocery store clerks.
Ideally, “no matter what role you’re in in the community,” Harry said, “you’re able to afford quality housing and make that work for your family in this community.”
This content was originally published here.