Home prices continue to rise in the Colorado Springs area, but that’s partly a reflection of the increased cost of building new homes. New-construction prices are going up, thanks partly to a spike in the cost of materials, particularly lumber, as well as labor costs.
“Resales [of homes] track new construction. And prices are absolutely going up in resales,” said Harry Salzman, a broker with ERA Shields Real Estate and Salzman Real Estate Services.
He said that doesn’t mean local builders are taking advantage of buyers, however.
“Builders aren’t making more profit,” Salzman said. “It just costs more to build.”
That’s true, said Theresa Hurt, the sales and marketing manager for Vantage Homes. She said material and labor costs have primarily led to higher-priced new homes. “We have different house plans that saw a 10-percent increase, and some more than that,” she said.
So, when will the Springs’ real estate bubble burst? Not in the near future, according to Salzman.
“There’s a bidding war for resale homes in our area; that probably started a year ago,” he said. “I don’t think it’s going to end any time soon, and I don’t think prices are going to go down.”
He predicts residential home values will rise about 8 percent this year.
Material costs spike
Hurt said Vantage Homes, and the home-building industry in general, has seen “significant material increases in the last two to three months.”
That’s largely due to the tariff imposed by the Trump administration late last year on imported Canadian lumber, although natural disasters like the hurricanes that hit Houston and Puerto Rico, along with the California wildfires, could also have an effect on lumber prices.
Whatever the causes, the cost is being passed on.
“Home builders traditionally raise prices at the beginning of the second quarter [April 1],” Salzman said. “I saw a couple builders that told me they raised prices [a month ago].”
Jennifer Pasquino, senior vice president of investor relations for Builders FirstSource, said lumber prices are up close to 25 percent and “18 or 19 percent of that is attributable to the tariff.”
The Bush Administration imposed a tariff on Canadian lumber more than a decade ago, but that expired in 2016, Pasquino said.
“We import about one-third of the lumber used to build homes in America,” she said. “The tariff has made a difference in cost.”
Pasquino noted that other materials have increased in price with “normalized inflation” over the last few years.
“Most materials have followed the Consumer Price Index the last few years and not been hyper-inflationary,” she said.
She argued that the spike in lumber cost alone doesn’t dramatically increase the price of a new home.
“We sell materials that make up about half the cost of the home,” she said. “The other part is labor.”
Although the U.S. construction industry added 36,000 net new jobs in January, according to the Bureau of Labor Statistics, and construction employment jumped by 226,000 jobs over the past 12 months nationwide, Hurt said there is definitely a local labor shortage in the construction industry.
“From some of the trades we’ve worked with, they’re about half or slightly over where they need to be in number of workers,” she said.
That includes trades such as welding, concrete work, framing and skilled technical jobs, she said.
“They could use twice as many as they have, and so they end up paying more for the ones they have,” Hurt said. “The other problem is they can’t take on new jobs and get ahead of the game, or they have to turn down work. Labor shortages mean cost delays, so the labor piece of this is definitely a concern when it comes to rising costs.”
Spike in Springs
Home prices in Colorado Springs experienced one of the nation’s highest increases in the fourth quarter of 2017. The median home price of $285,800 jumped 10.8 percent on a year-over-year basis, according to a recent report by the National Association of Realtors. That tied for the 16th-biggest increase among the 177 metro areas examined in the report.
“That is unbelievable,” Salzman said. “The average gain of those 177 cities was just 5.3 percent, so we were more than double that.”
The numbers don’t include houses sold by owners, family trust property sales or foreclosures.
Salzman doesn’t foresee a slowdown in home value increases, not even as mortgage interest rates are slowly rising. He says the economy is strong and the Springs is becoming an increasingly popular destination for families and Millennials.
Another big reason for the spike in resale and new construction values is a lack of inventory. Salzman said detached house totals that were on the market on a recent Monday in February were 895, well below what he normally sees.
“The [inventory] number was 4,000 to 5,000 three to four years ago,” he said. “Basically, there’s no inventory right now.”
And that leads to not just bidding wars among prospective buyers, but quick sales. It’s all about supply and demand.
On a recent Sunday, Salzman was showing a home to a potential first-time buyer and earnestly explained that dilemma.
“I told him if he felt the need to think about it, that was fine, but the house might be gone,” Salzman said. “You can sleep on it, of course, but the house might not be available if you take too long.”