Despite some of the lowest mortgage rates in decades, the single-family home market in Colorado Springs is slowing – but not as fast as was feared.
Compared to 2001, year-to-date new single-family residential building permits are down almost 12 percent. That is a “markedly better performance than the 20 percent decline,” said Fred Crowley, economist at University of Colorado, Colorado Springs.
The university’s “Quarterly Updates and Estimates,” shows 2,887 single-family building permits were issued January through July, compared to 3,177 for the same period a year ago.
Including town homes and all categories of multi-family housing, year to day, new residential building permits are down almost nine percent for the January through July period.
“Strong gains among the town home, duplex and condominium sectors contributed to this unanticipated strength,” Crowley said. In 2001, the county had the second-highest number of building permits ever.
“Two reasons help explain the higher than expected residential building permit activity,” Crowley said. “First, mortgage rates are extremely attractive; second, we had stronger than normal growth in population, especially net in-migration.”
It many instances, it can be less expensive for a family to own a home than rent one. “Home ownership, especially for homes in the $140,000 to $175,000 range, can be less expensive than renting,” Crowley said. “This is a key factor of increased home ownership in the region.”
In addition, if you think there seem to be more vehicles on the road than before, you are right. Population for the period April 2000 to July 2001 increased about 13,000 people, Crowley’s report said.
Natural population increase was 5,500, and El Paso County had a net in-migration of about 7,500 people. Naturally, that means more cars on the road, and a need for additional housing. Fortunately, builders were busy building during the in-migration.
The increase in housing, Crowley said, translates into an expected demand of about 5,200 homes or apartments. Builders were given 8,770 permits, creating what Crowley wonders is an excess in housing units.
“Is supply beginning to exceed demand?” he asks rhetorically.
Future issues concerning construction of single-family homes could result fewer built in the next 18 months, Crowley said.
“Three factors will likely impact single-family residential construction over the next 18 to 30 months,” Crowley said.
They are interest rate changes – a one percent increase in mortgage rates will increase a typical monthly payment on the typical entry-level home by about $125 per month. Crowley expects rates could go to as much as 8.5 percent.
Another factor, Crowley said, is net in-migration – which he believes is the most important component of new home construction. In-migration will slow if the economy does not pick up steam.
Finally, Crowley said the disappearance of so many high paying jobs in the area would also hurt. “The high-end housing market has slowed tremendously with the loss of these jobs,” Crowley said.
“Given these issues, it seems the residential construction industry will come under pressure over the next 12 to 18 months,” Crowley said. “The entry-level market will be constrained by rising mortgage rates… the upper-level market will be constrained by limited number of workers with well paying jobs…and population levels are expected to rise, but not at levels necessary to reduce vacancy rates and produce demands for new housing units consistent with levels we have seen in the last several years.”