Colorado Springs housing market: Are we stalled in 2023 or ready to get back on track?
Colorado Springs’ housing market, like those in most cities, hit the brakes last year — though it stopped short of a crash.
Now, with the first quarter of 2023 in the books, is the market still stalled or ready to get back on track?
Springs-area housing industry members are split over what might happen next.
Some worry the market could continue a slump that began after mortgage rates spiked in the second half of 2022, which drove up house payments for many would-be homebuyers.
Renters stayed put because they were priced out of the market, while homeowners held onto their properties because higher borrowing costs meant they couldn’t afford to move up or downsize. As a result, Springs-area sales fell, prices slid and the supply of homes for sale jumped, yet remained historically low.
Now, layoffs reported by Google, Amazon, Microsoft and other big-name tech companies, a handful of bank failures, rising credit-card debt, jittery consumers who live paycheck-to-paycheck and recession fears could mean more trouble ahead in 2023 for housing, said Patrick Muldoon, broker/owner and president of Colorado Springs real estate company Muldoon Associates.
“These things are the starters, precursors to what I foresee as (reasons for) being more bearish on real estate,” he said.
Not so fast, other industry members say.
Home sales fell in March on a year-over-year basis, continuing a downward trend that began in the second half of last year, while prices last month dropped for the third time since December, according to Pikes Peak Association of Realtors figures.
And yet, sales and prices in March were up from February and at their highest levels in five months, the figures show. Also, the pace of home construction — as measured by building permit activity — jumped in March to its highest point since July, the Pikes Peak Regional Building Department reported.
Thirty-year, fixed-rate mortgage rates that began 2022 at 3.22% climbed to as high as 7.08% in early November, which slowed home buying and selling, according to mortgage buyer Freddie Mac.
Average rates, however, have drifted lower since the first of the year and now hover in the 6% neighborhood, Freddie Mac figures show. And some buyers increasingly have accepted a 6% long-term rate as the new reality and increasingly are looking to purchase a home, some real estate industry members say.
“The door shut; it was crazy how quick that door shut last year. I’ve never seen anything like it,” said Brian Maecker, a real estate agent with Re/Max Advantage in Colorado Springs. “Now, the door is opening back up and buyers are coming back out. … We’re finally getting the word out — 6% is way closer to normal than 3%.”
Here’s a look at where Colorado Springs-area housing trends stand after the first quarter of 2023, how they compare with last year and where some local industry members believe the market is headed:
• Sales and prices did an about-face in the second half of 2022 and first quarter of 2023.
Long-term mortgage rates in the neighborhood of 3% over the last few years had ignited a furious demand for housing in Colorado Springs, just as they did in many cities. Combined with a shortage of new homes and resales, sales and prices skyrocketed.
The area’s median sales price rose by double-digit percentage gains for 24 straight months starting in July 2020 and topped $400,000 in February 2021 for the first time. By July 2022, it reached $495,000.
In what became a seller’s market, homeowners who listed their properties often fielded multiple offers that topped their asking prices by thousands of dollars, and even tens of thousands.
Sellers frequently didn’t have to paint rooms or make other household repairs; the demand for homes was so fierce that many buyers bought homes in as-is condition.
“A year ago, March, we were in 100% a seller’s market and it felt like we were going to do a complete repeat, of course, of 2021,” Muldoon said. “We were just coming into 2022 hot, and everybody was prepping at that point for a complete seller’s market and buyers are just going to totally have to give everything up in order to get a house.”
But after long-term mortgage rates soared starting in late spring of 2022, second-half sales of single-family and patio homes nosedived 16.5% from the first half of the year, according to Pikes Peak Association of Realtors reports. First-quarter sales this year fell almost 44% from the same period in 2022, while March sales dropped 21%.
Prices followed suit.
The median sales price of homes sold in December declined to $441,000 or 2% lower than the same month a year earlier — the first such drop in eight years, Realtors Association figures show.
Year-over-year prices were unchanged in January, but fell again by 5.4% in February — the largest percentage drop in 11 years. In March, the median sales price of $450,000 was down 3.2% from the same month last year.
Maecker, of Re/Max Advantage, said he generally saw 10% price reductions. A home that might have sold for $500,000 before the hike in mortgage rates would sell for $450,000 to $460,000 in the second half of 2022, he said.
Sellers still made money on their homes — just not as much as they would have during the frenzied housing market before mortgage rates rose, Maecker said.
The home construction industry is a key cog of the local economy that employs thousands of framers, drywallers and electricians, among others, and pumps millions in sales tax revenues into local government coffers.
Building permits issued for the construction of single-family, detached homes totaled a robust 2,310 in the first half of 2022, Regional Building Department reports showed.
But last year’s second half total sank to just 761 single-family permits, a drop of more than two-thirds from the first six months of 2022. Last year also ended with just 85 permits issued in December — the fewest for any month since January 2012.
Permits haven’t done much better in the first quarter of this year. Through March 31, they totaled 479, a nearly 59% reduction from 1,158 permits during the same period in 2022.
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“Obviously we’re down,” said Mark Reyner, board president of the Housing & Building Association of Colorado Springs and owner of Weatherbee Drywall in the Springs. “But at the same time last year, we were cranking at basically, you ask anybody in the building industry, at basically an unsustainable rate.”
• Besides lower prices, fewer sales and a construction slowdown, what else has changed about the housing market?
Plenty. Competition isn’t as fierce, and the market has evened out more between buyers and sellers, industry experts say.
Sellers who fielded multiple bids in the past, for example, watched in the second half of 2022 and the first quarter of this year as their homes lingered on the market for much longer. In March, homes spent an average of 48 days on the market before selling, more than three times longer than the 14 days in March 2022, Realtors Association figures show.
Homes that are priced roughly around $350,000 to $400,000 remain in strong demand, yet even those properties aren’t necessarily receiving as many offers as in the past, Muldoon said.
“I’m competing right now at $425,000,” Muldoon said of a home his client bid on. “I was competing, the (seller’s) agent said, against three or four offers. Last year, that probably would have been 10, 12. Who knows?”
Massive appraisal gaps that threatened to derail home sales are disappearing or shrinking, he added. Those gaps occur when the appraised price of a home falls short of an agreed-upon figure; during the red-hot housing market over the past few years, buyers typically would be expected to bring extra cash to the closing table to make up the appraisal gap difference and seal the deal.
Sellers also now are more likely to make concessions that they could have skipped the last few years because their homes were in such demand, Muldoon said.
On a national basis, for example, buyers waived home inspections because they were so desperate to purchase a house. Today, buyers aren’t as inclined to skip those inspections, which often uncover repairs and fixes that a seller would be expected to make as a condition of a sale.
Sellers, meanwhile, also might offer $6,000 to $8,000 worth of closing costs to buyers to help them make a purchase, Muldoon said. That kind of concession had disappeared during the years when the housing market was crazy, he and others have said.
“I think you’re starting to see balance, better balance as far as the offers go,” Muldoon said. “They seem more reasonable and logical to me, where we had a whole (buying) season, a whole two or three seasons, of illogical buyers, very emotional.”
Homebuilders, meanwhile, began offering concessions in the second half of 2022 that they hadn’t made available since the Great Recession 15 years ago.
Several offered programs that effectively reduced, or bought down, a buyer’s mortgage for the first two years of their loan to make it easier for them to get into a new home. Whether adding a mortgage buydown or combining it with a reduction in home prices, Covington Homes in Colorado Springs was making available roughly $15,000 to $25,000 worth of financial savings to entice buyers, said co-owner Grace Covington.
Buyers could take that money in the form of a price cut on a home, or use the money to pay for upgrades such as hardwood floors, granite countertops or a three-car garage, she said.
Mark Long, the owner of Colorado Springs builder Vanguard Homes, said his company also dangled financial incentives, such as mortgage buydowns.
“We’re a small company, so we tried a program for this, a program for that, but in the end, it turns into ‘let’s make a deal,'” Long said. “Bottom line is, we would do about $25,000. If they wanted a buydown, they wanted a straight price cut, if they wanted a closing cost, if they wanted a credit for landscaping, we would kind of tailor it to their needs.”
• So what’s ahead in 2023?
That’s where housing industry experts differ.
Muldoon said his pessimism is based on economic trends and local and national market forces, which he also observed during the Great Recession years.
Even though the Colorado Springs-area supply of homes available to purchase is way up in the first quarter of 2023 compared with a year ago, sales are down during the first three months by 27%, he said. He fears demand and prices will remain soft as the year goes on.
Not only are higher mortgage rates holding back some buyers, but consumer confidence is shaky, manufacturing is weakening and retail sales have fallen nationally for two straight months, he said.
“There’s just a lot of negative out there,” Muldoon said. “That tends to fuel this more. It’s so front page; when I meet with sellers, they get it. A lot of times as we’ve experienced, front page news becomes reality. People are seeing it, so they’re tightening up their belt and they’re doing things different. We just really need (to) watch that.
“But the average consumer is hurting, and I think we’re going to start feeling that in housing,” he added. “That’s just my feeling; I feel like the consumer’s in trouble.”
Others, however, don’t see a doom and gloom scenario.
Tech layoffs might have hit other markets, but not Colorado Springs, said real estate agent Rick Van Wieren of Re/Max Properties in Colorado Springs. In fact, the Springs has had a series of job announcements and business expansions in recent months, he said. Last week, a defense industry startup said it would bring 35 jobs to the Springs with an average pay of nearly $166,000 a year.
Local homebuyers, meanwhile, have adjusted their thinking and accepted long-term mortgage rates of 6% as the new normal and are creeping back into the market. As a result, builders and real estate agents say they’ve already seen renewed interest among buyers, which would ramp up higher if rates were to slip into the 5s.
Pending home sales are strong, Van Wieren said. Realtors Association figures also show sellers in Colorado Springs during the first quarter received 98.8% of their asking price when they sold a home, which is down from 103.1% a year ago, though still a good number, he said.
“The demand is there,” Van Wieren said about housing. Another Re/Max Properties agent made an offer on behalf of a client for a $600,000-plus home, and wound up being one of six offers.
“And they didn’t win,” Van Wieren said. “Those are the kind of stories that we were seeing last January, February. … I feel like the market’s coming back. And it will come back faster when the rates start cooperating. Overall, inflation looks like it’s easing up. The rates should be starting to follow that a little more.”
Long, of Vanguard Homes, said he no longer offers the same financial incentives to attract buyers because he believes the market is turning around.
At the same time, supply chain issues and a lack of skilled labor that triggered delays in homebuilding have eased, he said. Vanguard’s five- to six-month timeline to build a house had swelled to eight to nine months or longer after the onset of the COVID-19 pandemic, Long said; it’s now come back down to five to six months.
Building permits issued for home construction in 2023 might not top previous years’ totals, Long said. Still, he predicted the second half of this year will see a noticeable uptick in activity.
“I feel way better about the state of our market and how things seem like they’re going — sales and trends and so forth,” Long said. “Six months ago, I was not feeling very confident. Over the last six months, things have definitely gotten better.”