On Jan. 4, only 341 single family detached homes in all price categories were for sale in El Paso County. Also listed that day were eight patio homes, 34 townhomes and 16 condos.
Harry Salzman, ERA Shields/Salzman Real Estate Services, pulled that data from the Colorado Multiple Listing Service.
In a county with a population currently estimated by the U.S. Census Bureau at more than 720,000, those figures reveal that homes are getting snapped up.
Another way to look at the local home market is months-supply data — the number of months it would take for current inventory on the market to sell, given the current pace.
At the market’s high end — $1 million-$5 million — there are 6½ months’ worth of inventory, said George Nehme, owner of The Nehme Team and 2021 Pikes Peak Association of Realtors board chair.
At $750,000-$1 million, inventory stands at 1.83 months. Below $750,000, supply drops along with price.
From $500,000-$750,000, “we have just under a month of inventory,” Nehme said. The supply is about half a month at the average price point — around $300,000-$500,000 — for homes in Colorado Springs, and there’s only about a quarter of a month’s worth of inventory at $300,000 and below.
Local real estate experts say a number of factors are fueling this superheated market.
Natural beauty and a relatively low cost of living lure people to the area. A supply of good jobs attracts Millennials, and retirees who have built equity in higher-priced areas are cashing in and moving here.
A high population of military personnel are constantly moving in, and 37 percent of those who move here purchase homes, Nehme said.
The COVID-19 pandemic and escalating home prices have incentivized some people, particularly those who are older, to stay in their homes.
At the same time, prices are still affordable when compared with Denver. With the big city only 50 minutes or so away, people can buy a home here for $100,000 less than they would spend in Denver for a similar house.
Homes are selling rapidly. Single-family homes average 20 days on the market, but that doesn’t tell the whole story.
Many homes generate multiple offers, especially if they’re priced under $400,000. Many sellers are accepting offers above list prices, and buyers are finding they’re going to be engaged in bidding wars.
Salzman said he recently had a client who put an offer on a home in the Stratton Hills neighborhood listed at $350,000. His client offered $375,000 with 25 percent down.
“There were 14 offers on day one,” Salzman said. “We did not get accepted.” The buyer who did win the home offered almost $400,000 with 50 percent down.
“Every house I’ve listed this year has received multiple offers,” said Matt Leigh, owner and operating principal at Keller Williams Premier Realty. “The last listing I had sold was under contract for $36,000 over the list price.”
The strong market makes for a strong real estate industry, and it appears that current trends will continue, at least until interest rates start to rise and more homes come onto the market.
Despite the limitations COVID-19 has imposed, “this has been one of the best years our market has ever seen,” Leigh said. “I’m not an economist, but from everything I’ve read, … there do not appear to be any macroeconomic factors that will pump the brakes of the real estate market’s acceleration.”
Real estate in general has always been known as a path to wealth, and it’s always going to be a competitive industry.
Of the 3,500 or so agents in El Paso County, however, the top 20 percent close the majority of business, Leigh said, citing data from Terradatum’s BrokerMetrics, an industry tool that analyzes agent performance.
The data showed that 964 agents have closed 12 units in the past 12 months, he said. On the lower end, 731 agents have closed one or two deals in the past year.
“It’s really a competition among that top 900 people,” Leigh said.
Competition has required agents to hone their negotiating skills and improve their knowledge when it comes to writing competitive offers.
“If you are a buyer’s agent, you have to understand how appraisal gap guarantees work,” Leigh said. In an appraisal gap guarantee, the buyer agrees to cover any shortage between the offer price and the home’s appraised value.
“You have to understand how the contract reads related to inspection rights and how that’s going to affect your clients,” he said. “Escalation clauses are significant. Brokers have to be very knowledgeable when using any of those clauses.”
Agents can unintentionally harm a client while trying to craft a competitive offer if they don’t understand the legal implications of the language they use, Leigh said.
“That’s why we really impress upon our brokers that, if you’re going to write competitive offers — as you should be — make sure those are being reviewed by our employing broker and our in-house counsel,” he said.
Brokers also need to remember that sellers are looking for the highest and best offer, Leigh said.
“Just because you’re willing to pay more doesn’t mean you’re going to win the house,” he said. The sale might hinge on a larger down payment or extra cash if a house appraises below list.
“It’s all dependent upon that word ‘best’,” he said. “The brokers that are taking the time to get educated on how this all works are the ones that are winning deals.”
NEW MARKETING METHODS
The pandemic forced real estate agents to look at new ways to communicate with their clients.
“Real estate has been and always will be most effectively built as a belly-to-belly business,” Leigh said. But agents don’t get to shake hands anymore to build rapport with their clients.
Instead they’re doing listings, appointments and initial consultations on Zoom and wearing masks and gloves when showing homes. Videos on the internet and social media now substitute for open houses.
Clients who do contact agents may experience sticker shock at high home prices.
Salzman said he explains to buyers that, with interest rates at record lows, they should focus on their monthly payment rather than the selling price and factor in the tax deduction homeownership allows.
Further, he encourages buyers to look at a home as an investment.
Salzman cited data from the National Association of Realtors that shows the average price of a home in Colorado Springs appreciated 12.82 percent annually between October 2015 and October 2020; the median price appreciated 12.64 percent annually over five years.
Despite the pandemic, data from the Federal Housing Finance Agency shows that homes in Colorado Springs appreciated 11.3 percent in 2020. Of the top 100 cities in the country, Colorado Springs ranked No. 5 in percentage increase in value. Denver ranked 57th.
From October 2010-October 2020, the average price increased 7.99 annually and the median price grew by 9.17 percent per year.
“The value of a house outperforms to anybody who has some money in a mutual fund or the stock market,” Salzman said. “Once you get to the right house, you’re going to have an appreciation.”
Low interest rates are encouraging first-time home buyers, but the issue is supply.
“We’re starting to see more homes in the $300,000-$400,000 price point, but builders can’t keep up with the demand,” Nehme said.
“Affordable housing concerns are at the top of everyone’s list,” he said. “We really are trying to figure out ways to make that work.”
Both agents and builders are eager to see more affordability, but there are significant obstacles to building lower-priced homes.
“A big part of it is the lot is a lot more expensive — just the dirt itself,” said Todd Anderson, president of Challenger Homes and immediate past president of the Housing & Building Association of Colorado Springs.
“On top of that are all of the entitlement fees — park fees, school fees, bridge fees,” he said. “It’s very difficult to develop a single-family lot for much less than $100,000.”
Since April 2020, the price of lumber has increased significantly, almost tripling by September, he said. It’s dropped now to about double the April price, but lumber still accounts for about $15,000 of the cost of a home.
Bells and whistles like granite countertops come with additional costs as well.
“When you’re building a half-million-dollar house, there’s enough room to add those things without it really affecting the overall relative cost,” Anderson said. “But when you’re trying to deliver a home under $300,000, it’s not that granite isn’t nicer, and the majority of people would prefer it over Formica, but it costs twice as much.”
The Pikes Peak Regional Building Department’s end-of-the year report showed that 5,068 new single-family home permits were pulled in 2020 — a 27 percent increase over 2019 and the largest number since 2005.
While that pace won’t continue forever, “my gut says, all things remaining equal in terms of interest rates and employment growth, we’ll continue to see those permit numbers in that $400,000-$500,000 range,” Anderson said.
The overall rate could slow to a more normal number for Colorado Springs — around 3,000-3,500 permits — because “we’re a little bit lot-poor,” he said. “We’re down to only months’ worth of vacant, developed lots.”
Builders’ sales soared in the first and second quarters of 2020, Anderson said, “so they upped their velocity in terms of building, and they ran out of lots in the third and fourth quarters in many of their filings.”
The 28,000-acre Banning Lewis Ranch likely will be the biggest source of new homes for the local market.
“There’s probably a 50-year supply of lots to be developed out there,” Anderson said.
Principal developers Nor’wood Development Group and Oakwood Homes are looking at many product lines and price points, he said.
Another direction some builders may go is to take some of the concepts of tiny homes and translate them to homes that are built in a factory and assembled on site.
“I know of two builders that are doing that right now,” Anderson said.
For the real estate industry as a whole, Leigh said he believes that 2021 “is shaping up to be a roaring ’20s kind of year.”
People are going to want to invest in real estate, but affordability will remain the biggest issue.
“I see it staying the same or getting worse,” Leigh said. “I don’t see anything that’s going to resolve that other than building more supply. I do think that eventually home prices will stabilize, as the demand will sort of work its way through the pipeline.”