Area housing outlook: Continued slowdown

   For home buyers, sellers and builders in the Pikes Peak region, the second half of 2008 probably won't look much different from the first half, industry experts and economists say.

   A housing slump that took hold in Colorado Springs and the rest of the nation more than a year ago won't end any time soon, they say. For the rest of the year, expect stable or falling prices in many neighborhoods; plodding home construction; and rising numbers of foreclosures that real estate experts fear will hurt property values in some areas.

   "These things don't turn overnight," said economist Fred Crowley of the University of Colorado at Colorado Springs.

   The local economy is fine when compared with what's happening nationally, Crowley said. But for the Springs' housing market to rebound, the nation's economy must improve, which will pump up local consumer confidence, he said.

   Another boost to local housing will come with the arrival of thousands of troops at Fort Carson, who are scheduled to show up starting next year, Crowley said. They won't all buy homes right away, but many will purchase new homes or resales after a few months.

   "The combination of those two things (healthy national economy and Fort Carson additions) puts us 12 to 18 months away" from a housing turnaround, he said.

   When it comes to the current housing malaise, some real estate veterans say they've seen worse.

   Twenty years ago, during the area's last major real estate downturn, interest rates for homebuyers were in the double digits, and overbuilding by construction companies littered neighborhoods with thousands of newly built but unsold homes.

   Today, 30-year, fixed-rate mortgages average less than 6.3 percent nationally and builders haven't made the same mistake of constructing thousands of speculative homes, or those without buyers. While home prices have fallen in Colorado Springs, the declines haven't been nearly as severe as in other cities, such as in the southwestern and eastern United States, where 20 percent and 30 percent annual price increases a few years ago have been followed by through-the-floor reductions in values.

   In the second quarter of this year, home prices fell in several Colorado Springs and El Paso County neighborhoods when compared with the same period a year ago, according to figures released this month by the Pikes Peak Association of Realtors.

   Sales, meanwhile, have declined on a yearover-year basis; in the second quarter in El Paso County, sales dropped 18.3 percent from the same period last year.

   "The sales side is slow," said Jay Gupta, managing broker of Gloriod & Associates in Colorado Springs and board president of the Pikes Peak Association of Realtors. "It's nowhere near where we were three years ago. On the other side, it's a tremendous opportunity for the buyer."

   Buyers also are being wooed by new-home builders, who are offering amenities, upgrades and financial incentives. Builders are trying to jump-start construction, which fell 43 percent in the first half of the year when compared with the same period in 2007.

   Foreclosed properties coming back on the market, often at a discount, also are swelling the ranks of homes for sale. Foreclosures in the first half of the year were up 48 percent over the same period last year.

   Here's what the experts say to expect in the second half, along with ongoing trends:

   - Prices will continue to erode, although declines will vary from neighborhood to neighborhood and nobody can predict how much. A large supply and tepid demand are forcing down prices.

   "We're seeing the impact of Economics 101, the supply-and-demand situation," said Bill Hurt, president of ERA Shields Real Estate in the Springs. "People (sellers) are getting more aggressive (and lowering their price). If they truly need to sell, they are getting more aggressive."

   High numbers of foreclosures and short sales, which generally involve a lender accepting a lower amount as a payoff than what's owed on a mortgage, also result in those distressed properties being sold at a discount, which drives down the value of other homes, said Joe Clement, owner of Re/Max Properties in Colorado Springs.

   - Home prices also are being affected by appraisers, who are under pressure from lenders to take a hard line on values they're assigning to homes, said Clement and Becky Gloriod, co-owner of Gloriod & Associates in the Springs. Lenders were burned when they gave too many loans to buyers with risky credit histories in the past few years; now, Gloriod said, lenders are seeking to make sure borrowers are qualified and the homes they're purchasing are worth the amount of the loan. "They're making sure the buyers are qualified, but they're taking it almost too far," Gloriod said.

   Clement said one of his recent clients listed a home in northern El Paso County at $417,000, and accepted a buyer's offer of $410,000. But an appraiser valued the home at $391,000, citing a lack of recent sales in the neighborhood and foreclosures and short sales that drove down nearby property values. Clement said his client had no choice but to sell for $391,000.

   "These things are starting to happen all over town, and it's a concern," Clement said. However, he added, homeowners who don't get their price when they sell often make it up when they buy their next house, which likely is being sold at a discount.

   - Homeowners have learned they must be more realistic on their asking prices. That means lowering their price tags, although they can still make money if they've been in the house for several years.

   "Sellers have finally caught on that what they were expecting is probably not a reality," said Wynne Palermo, owner of WYNNE Realty in Colorado Springs. "It's been hard getting them to that point."

   - Lower prices are attracting investors back into the market, especially in the price range of $180,000 to $225,000 because those properties are easier to finance, Hurt said.

   "We are aggressively talking to people, that you should be looking at real estate as investment planning," Hurt said. "Whether you're looking at retirement or college for kids. It's a great time to look at it."

   Also, Clement said a few developers of higher-end residential projects are looking to sell lots at a discount.

   - Buyers are becoming even pickier than before. In the past, they'd look beyond worn carpeting, aging paint and a battered roof in order to purchase in desirable older neighborhoods, Hurt said. That's not true any longer, Hurt said. "People will just go down the street and find one in better condition, if not pristine condition," he said. "It's hurting the people who are not able (financially) or willing to put the property in Class A condition."

   - Sellers no longer are accepting contingencies because there are no guarantees buyers coming from another neighborhood or another city will be able to sell their home, Gloriod said.

   When the market was strong, sellers often would agree to sell their house on the condition that the buyer sells their property. "People aren't doing that now," she said. "The markets are so slow all over, you can't take a contingency."

   - Home construction rebounded in May but dipped in June. For the year, single-family building permits - a measure of home construction activity - probably will total 1,500 to 1,600, Crowley said. Last year, permits totaled nearly 2,200, and annual totals exceeded 5,000 in 2004 and 2005. When additional Fort Carson troops arrive in 2009, and assuming the national economy has improved, permits next year should total 2,100 to 2,500, Crowley said.

   - Foreclosures show no signs of slowing. El Paso County Public Trustee Thomas Mowle, whose office processes foreclosure filings, said a change in state law to give homeowners more time to resolve financial problems before losing their home hasn't stemmed the tide of rising foreclosures.

   Foreclosures totaled 3,556 in 2007, but are on pace this year to surpass 5,000 and set a record for the second consecutive year. 
  
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