The real estate numbers showcase the robust local residential real estate market with a 95 percent increase in home sales from June 2012 to June 2016. Likewise, median home prices increased 9 percent from the first quarter of 2015 to the first quarter of 2016 in the Pikes Peak region, whereas they increased 6.3 percent in the United States during that same time period.
The high in-migration rate into the state and the relative affordability of Colorado Springs (median price in the second quarter: $259,300) compared to nearby Denver ($394,400) and Boulder ($549,600) will likely continue to highlight our region as a gem and a bargain in the milieu of frenetic growth, particularly in the northern part of the state. Our lower median age (33.8 years vs. 37.7 years U.S.) also bodes well for household formation, a major factor in home buying. All of these statistical determinants make it likely that home sales and appreciation rates will stay strong in our region into 2017. This is what the residential real estate market wants to hear, but cautious types speculate that there could be a housing bubble looming. This isn’t likely, however. The much more stringent credit criteria for essentially all types of mortgage lending makes this improbable on the consumer side. On the producer side, lending criteria for development-based loans is also stringent — making overbuilding less likely. Today’s housing high is not a house of cards driven by lax loan standards; it is driven primarily by new job creation and low interest rates, which is a much more favorable scenario.
When we are in such a positive housing scenario and current inventory does not meet demand, as indicated by the meager 28 average days on market, the natural market response is new construction. We’ve had a 39 percent increase in permits pulled from 2013 to 2016. When such growth is occurring, the building industry is euphoric and there is the positive externality of new employment related to construction with its own positive impact on local, economic activity in other industries (e.g. auto, retail). Some communities can get into trouble through overzealous building, once there is an economic downtown. Existing inventory can quickly adjust prices once a recession hits; existing empty new neighborhoods just stay empty (or homes are sold at a significant loss bringing down all comparable property values). Given the high level of construction in our region, and the perception of past, repeated episodes of overbuilding, it is perhaps not a bad time to examine the “optimal” level of building for our given demographics.
Let’s look at the demographics. The number of permits for a population our size and with our age distribution is currently around 4,500. Historically, Colorado Springs did indeed have significant overbuilding in the early 2000s. Conversely, the economic downturn and regulations such as Dodd-Frank reined in building — resulting in construction levels that are well below what is indicated by our population dynamic. This is part of the reason that building levels now are particularly robust; we are making up for lost time, the economy is still strong and the rate of population increase is still high (both in-migration and birth rates). At some point, new-home inventory will catch up to the optimal levels, or there will be an economic downturn or interest rates will increase. This is all the more reason to use this data for future planning. It is important to track our demographic trends, as well as the optimal building levels corresponding to those trends. Doing so gives our community well-informed parameters for growth. Right now that means appropriate enthusiastic building to meet demand. In the future, it could mean different things, but at least we would make informed decisions that keep our expanding community in a sustainable and healthy growth pattern.
Tatiana Bailey is the executive director for the UCCS Economic Forum. She can be reached at email@example.com.