The last thing the Colorado Springs residential real estate market needs is more competition, but that’s what it’s getting.
Local real estate professionals are already battling a hot rental market, slack demand and a drain of workers willing to commute from as far as Pueblo in exchange for more affordable housing.
Now a growing number of homeowners are deciding to sit tight through the housing dead zone by improving or remodeling their homes instead of buying a new one.
Ent Federal Credit Union Chief Loan Officer Skip Wells said his office has seen a 24 percent increase in applications for home improvement loans during the last three months compared with the same period a year ago.
Further evidence of the trend comes from a report the Census Bureau and Department of Housing and Urban Development released last week showing an 18.6 percent drop in new family home sales.
Mark Witte, owner of Dreammaker Bath & Kitchen, said his company has benefited from this emerging trend.
“Remodeling is coming back a lot sooner than new home building,” he said. “People are getting a little more comfortable with spending money again, and they’re looking to invest in their current homes.”
The news couldn’t come at a better time for struggling contractors in El Paso County who have been fighting rising materials costs, crushing industry unemployment, cut-throat bidding wars, bad weather and a lack of large-scale projects.
“Remodeling doesn’t see the extreme ups and downs of homebuilding,” Witte said. “We’re starting to see some pent-up demand there. Folks are still a little nervous. Everybody tightened their purse strings for a while, but people are finally starting to feel a little more at ease.”
The soft sales market and declining home prices have forced a lot of homeowners to evaluate their timelines for selling a home in order to buy a new one. Wells said he has talked with a number of clients who had mulled absorbing a loss or simply walking away, but decided instead to invest in their current homes in hopes it will pay dividends down the road.
“You see a lot in the media today about taking the easy way out through a short sale or foreclosure,” he said. “But even if you’re upside down, walking away will trash your credit and stiff the financial agency on the balance deficiency. People are correctly taking time to remodel or take care of deferred maintenance which will improve the value of the home when the market recovers.”
While the uptick in remodeling might be enough to keep some contracting companies afloat, a meaningful construction recovery is not likely in the short term. Even if a full-blown remodeling craze were to materialize, there are barriers to entry that would prevent a lot of contractors from taking advantage.
“Remodeling is different from homebuilding,” Witte said. “The business is structured different; it’s more service focused. It might be something that some contractors could do to ride out the storm, but a lot of guys with great technical skills can give the industry a bad name because they don’t know how to work the service side or handle the business end.”
Witte also cautions homeowners against thinking they will get a quick return from a remodeling project. The price declines in the housing market have been too steep to expect a renovation will immediately recoup an investment.
“It’s not going to translate dollar for dollar tomorrow, that’s just not reality,” he said. “But if you’re going to keep your house for four or five years, you can enjoy those improvements now and you could see some solid appreciation over that time frame.”
One of the advantages remodeling contractors have on real estate agents is the availability of affordable loans. Banks currently have money to lend for first mortgages and refinancing, but the lengthy and stringent approval process disqualifies or discourages potential borrowers. Meanwhile, new rules and regulations have increased the amount of paperwork and put more scrutiny on the appraisal process.
“A lot of this has to do with market factors right now,” Wells said. “A lot of people would love to refinance but they can’t because they have no equity, so they feel stuck. Getting a small personal loan for $2,000 or $5,000 is much easier. And if someone doesn’t qualify for a home equity loan, there are a lot of other avenues open to them.”
Besides a traditional home equity or personal unsecured loan, homeowners can obtain a loan with the title on a car, or by using a savings account or certificate of deposit as collateral. There are also lines of credit available to some homeowners that can be drawn on as needed.
Talk of banks being awash with cash and a means to distribute funds to borrowers is a positive sign for the industry, but contractors are understandably still in survival mode.
“There are 10 dogs fighting for every bone, and there’ s a lot of fight in every dog,” Murphy Construction owner Chuck Murphy said. “I don’t care if you’re a subcontractor, a contractor, a vendor or a supplier, everyone has taken a spanking. It’s still tough out there. There’s no getting around it.”