Following a summer full of home sales hype, both the local and national residential real estate markets cooled off in September for the first time in months.
Although the Colorado Springs market may be on the decline until the new year, local experts say it is faring better than most.
After hitting the highest level in nearly four years this August, U.S. existing-home sales dipped in September — a month also marked by increased interest rates and a government shutdown that slowed the federal lending process — by nearly 2 percent to 5.29 million, according to data from the National Association of Realtors. But that rate is still almost 11 percent higher than the 4.78 million sales at the same time last year.
Though the drop in the Pikes Peak region was more severe — down 25 percent since August — the total number of existing home sales is up 10 percent since this time last year, according to data from the Pikes Peak Association of Realtors.
“I think it’s a bigger drop than we typically see from one month to the next, but I don’t think it’s fatal,” said Prudential Real Estate broker Wayne Jennings. “It wouldn’t surprise me if we saw a further decline in the number of sales … I don’t know if we can attribute it to anything more than a bit more caution and less demand.”
Colorado Springs and its surrounding communities may not have experienced the turmoil that many other markets did during the recession, but the Pikes Peak region is still sensitive and slow to recover.
Compared to the U.S. housing market as a whole — which is still 15 percent below its 2008 peak — Colorado Springs and the rest of the state are doing remarkably well, according to local economist Fred Crowley, senior instructor at UCCS and associate director of the Southern Colorado Economic Forum.
The city is 8 percent below its peak, while the state is only 2 percent under its pre-recession high, thanks to hefty housing demand in Denver.
“Part of that has to do with the lack of a manic depressive swing,” Crowley said. “There wasn’t much crazy financing and our economy didn’t completely collapse like in places like Las Vegas. It wasn’t a fun time here, but our economy is a bit more stable than in most places.”
Although the local market is stable and getting better, Crowley suggests that Colorado Springs lacks a real growth stimulator — postulating that health care might serve that function in the near future.
Meanwhile, the military community helps tremendously with providing consistency and stability in the region’s residential real estate market with a constant need for housing.
“The military is also a phenomenal influence on the community,” Crowley said, referring to the more than 60,000 (according to 2010 data from the Colorado Springs Regional Business Alliance) military personnel and civilian contractors who live near and work at the five local installations.
Jennings suggested that recessionary mindsets drive many of his clients to be overly emotionally guarded when faced with jumping into the market.
“I think that there is still a serious level of caution — people are still cautious about their employment and they are concerned about how the next few years look,” he said. “It’s so much more about their emotional view of what’s happening than it is about reality.”
He said that this deluge of concern has returned after months of excitement and optimism for what looked like a more rapid recovery of the Springs housing market than expected. But although the summer months brought a substantial spike in home sales, the residential real estate market in Colorado Springs probably wasn’t seeing the rebound everyone was hoping for, according to Jennings. Pent-up demand and seasonal swings could have caused the false illusion that the market was on a grand ascent.
“There was optimism in the air, but I think we found out as summer rolled into fall that there just weren’t as many buyers out there as we had perhaps thought who felt good about their jobs and felt secure enough to go out and use their savings to purchase a house,” Jennings said.
Despite growing concern, numbers suggest that it’s still a prime time to buy. A key indicator of that is the current 4.1 percent average rate for a 30-year fixed mortgage, which is nearly as low as it has been at any other point in history — the bottom being between 3 and 4 percent.
Crowley said many people tend to see the recent small increase in these rates and become fearful that they are becoming too high, failing to compare the cost of current loans to those of years past.
In fact, interest rates on these mortgages are only half the historical average, which Crowley said is 8.6 percent since the 30-year fixed mortgage was introduced in 1971. At its peak in the early 1980s, that same loan came with a staggering 15 to 16 percent interest rate.
“When you’re listing half the historical average, that’s a really attractive interest rate,” Crowley said. “Rates will keep going up … there is nothing suggesting that lower rates will happen.”
Crowley calls the city’s recovery a “phenomenal turnaround,” and he expects the resale market will top 11,000 this year. The housing market in the Pikes Peak region peaked in 2005 at 13,118 — 16 percent above the current rate — before declining sharply and leveling off in 2008.
“We under-built for years, so some of this is pent-up demand and the growing population that needs more housing,” he said. “We still have a long way to go.”
While anticipating another 15 percent increase in residential building permits and an 8 to 10 percent gain in pre-existing home sales by 2015, Crowley feels it’s likely to be years before the market normalizes. That would equate to an “annual, sustainable sales activity at about 3,000 to 3,500 new homes per year … in order to absorb the increase in demand every year.”
Crowley and Jennings agreed that the region’s housing market is slowly but surely moving along the right path, and there’s always a constant in the market that sets it apart from anywhere else in the world: the mountain scenery.
“For some people, a Pikes Peak view is worth more than sometimes should be paid for a home,” Jennings said. “If you have a view of the Peak from your living room window, that is worth a lot for some buyers … but it’s hard to put a dollar amount to it.”