Upturn seen for local housing market, but gains will take time
You don’t need to be a numbers geek to know that year-end housing statistics are hinting at an upswing for the Pikes Peak region in 2012.
The supply of homes listed on the resale market in December plunged to a nearly 10-year low; sales in 2011 eclipsed the previous year; home construction slightly trailed 2010, but remained ahead of the pace of a few years ago; and foreclosure filings fell sharply last year.
So, after five years of a housing downturn, is 2012 finally the year when the local market begins to truly rebound?
Sort of.
Yes, the new construction and re-sale markets have started to turn around, say some longtime housing industry members. But don’t expect major strides forward in 2012 — only small steps on a road to a sustained recovery that’s still a few more years away.
“Is it really significantly better?” John Cassiani, board president of the Housing and Building Association of Colorado Springs, asked of this year’s resale and construction markets.
“Headed in the right direction. Cautiously optimistic. Significant (improvement) is still a year or two away.”
It’s not just local housing statistics pointing to an upturn.
Thirty-year, fixed-rate mortgages remain in the 4 percent neighborhood — the lowest in several generations of homebuyers. Consumer confidence, as measured by the economic industry Conference Board, hit an eight-month high in December. Homebuilder confidence in January rose to its highest level in four years, according to the National Association of Home Builders.
Those indicators, along with positive numbers at the local level, should signal a boost in single-family homebuilding permits by 5 percent to 10 percent this year from their total of nearly 1,400 in 2011, Cassiani said.
That’s only 70 to 140 more permits, and would still be a far cry from the early 2000s, when permits regularly topped 4,000 annually and set a record of 5,314 in 2005.
Still, “we think we’ve hit the bottom,” said Brian Bahr, owner of Challenger Homes in Colorado Springs. “We’ve drug across the bottom for a couple of years now. We expect 2012 to be slightly better, and then over the next five years to see substantial growth in the new-home market.”
Campbell Homes, a longtime Springs builder, had been offering free finished basements for the past 18 months as an incentive for buyers, said CEO Randy Deming. Other builders had offered similar incentives.
“It helped us to sell some homes,” Deming said.
But since the market seems poised for an upturn, Campbell is discontinuing its free basement finish next month. Campbell is one of the last builders to discontinue such a program, Deming said.
Will buyer traffic continue without the incentive?
“We’re going to find out,” Deming said.
While Deming also believes the local market has passed the bottom and has leveled out, job creation will continue to be a major factor in how quickly the market rebounds, he said. The Springs-area unemployment rate fell to a more-than-two-year low of 9 percent in November, yet Deming said he doesn’t see enough new jobs being added to propel a strong housing market rebound.
“I think we’re going to have a very, very slow climb back up,” he said of homebuilding. “But I sure don’t see us going down any further.”
On the resale side of the market, some veteran industry members expressed the same cautious optimism — a healthier market in 2012, but still a long way before the return of robust times.
The optimism stems from a gradually shrinking supply of listings — 3,225 homes for sale in December in the Pikes Peak region, the lowest monthly total since February 2002. Meanwhile, year-over-year home sales rose each month in the second half of 2011, and increased 3.3 percent for the year.
While sales climbed last year, fewer homeowners were getting into trouble; foreclosure filings plunged by about 25 percent, meaning there will potentially be fewer homes taken back by lenders and returned to the market to compete with new homes and resales.
Fewer homes for sale and an uptick in demand could lead to an increase in prices — the one component of the market that’s still lagging. The median price for a home was $187,000 in 2011, an $8,000 drop from a year earlier — although some agents say part of the reason is that lower-priced homes were most in demand, and their sale prices dragged down the overall median.
Price aside, some real estate agents say they’re seeing instances in which bidding wars are breaking out on homes. Rick Van Wieren, of Re/Max Properties in Colorado Springs, said he represented a buyer who recently put in an offer that was $5,000 above the $320,000 asking price of a home that had been on the market for many months. His buyer, however, lost out to someone who offered more.
There’s a changing mindset on the part of some buyers — a “herd mentality” in which they’ve watched prices fall and now are deciding that the combination of affordable prices and low mortgage rates makes it the right time to purchase, Van Wieren said. Part of that pent-up demand, he added, includes adult children who have lived with their parents because of the poor economy and now are getting back into the market.
Then there are young parents who are buying to have a place to live, not because they’re looking for a long-term investment, said Ben Day, a broker associate with The Selley Group Real Estate in the Springs.
“They’re buying for the sake of ownership, with an ownership mentality, rather than an investor mentality,” Day said. “They’re buying for a place to raise their kids.”
The combination of factors is leading some real estate agents to suggest that both sales and prices will increase in 2012. Van Wieren, for example, expects sales to rise 5 percent this year, with prices increasing 3 percent.
Bruce Betts, broker-owner of Re/Max Advantage in Colorado Springs, said some area residents have adjusted to the area’s higher unemployment rate and the economic downturn. Now, some are positioned to buy, and he expects sales to increase this year.
Still, the resale market remains fragile, Betts warned. Mortgage rates climbing back to 5 percent or 6 percent would be tough for buyers to swallow, while a sudden jolt of bad economic news could shake consumer confidence, he said.
“It could turn on a dime,” Betts said. “If interest rates go up or economic news continues to not improve ... if you’re not comfortable with your job and the future of your own income, you’re not about to go out and buy a house.”
Another potential market factor: While overseas deployments are ending for many Fort Carson troops, nobody knows for sure what will happen when they return, Betts said. If they remain in the military, they’ll have steady incomes and the need to buy homes; if they don’t, their ranks could swell the local unemployment rolls, he said.
Even as the supply of homes has shrunk to a nearly 10-year low, Day said he’s seen the same scenario in the past — only to watch as inventory swells and the market begins to lag.
“If you have a big surge in listings, any optimism that we have about the market goes by the wayside,” Day say.
One thing in the market’s favor when it comes to inventory: There is no artificial incentive — such as the federal tax credit — for homebuyers, and therefore there is no carrot to entice sellers to put their properties on the market and increase supply, Day said.
Other factors outside the Pikes Peak region also can affect the local market. For example, new residents moving to the area could help boost local home sales, but they won’t buy unless they can first unload their properties — which has been tough to do if they’re coming from troubled markets such as Arizona and California, Day said.
Meanwhile, some real estate experts worry that even as local foreclosures have waned, there still might be more homeowners who encounter trouble or a supply of distressed properties taken back by banks that haven’t yet been put back on the market for sale.
So even as the numbers point in a positive direction, the market still has hurdles to overcome before a full-fledged recovery is under way.
“The market has never had this combination of factors (low prices, mortgage rates and inventory) that have been this good for a recovery,” Day said. “At the same time, it doesn’t mean it’s going to happen.”
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