The winds of change?
Nationally, reports are mounting that the real estate market is slowing down. We’ve mentioned this in previous market updates, but it’s important to take national trends with a grain of salt. Real estate is a hyperlocal industry so national trends tend to be irrelevant when analyzing what’s happening in your city or neighborhood. While most regions in the United States are experiencing increasing inventory with fewer homes sales, the western region of the country is definitely not. Colorado Springs continues to see low inventory and a competitive market.
Let’s stay local
Colorado Springs is experiencing a softening in the real estate market in terms of sales. What exactly does that mean? Homes in competitive prices ranges are receiving 5 offers instead of 30 and they might go under contract in 10 days instead of 3. July 2021 had 1,844 home sales and could not live up to last year’s frenzy where we had the ALL TIME high sales number of 1,978 (July 2020). The Pikes Peak Region MLS shows we had 1870 home sales in August 2021 compared to 1771 in August 2020.
August 2020 was the last time we actually had more than 1000 listings for sale, and a year later we have just barely crossed that threshold again with 1009 active listings! Colorado Springs has had several months with painfully low inventory numbers at less than 500 homes for sale. That is just a ridiculous number when you think about the fact that less than 500 homes for sale were serving all of the buyers pushing into the market. Additionally, we have had corporate buyers scooping up starter homes (usually they buy anything under 450K) while construction costs continue to increase. All of these factors make it very challenging to buy a less expensive home and contribute to the lowest number of homes for sale since the 1970’s.
While our average home sales price dipped a bit in August $499,278 (down from $501,138 in July), the average sales price is still 102.99% of list price. This means that houses are still selling for more than list price. Showings have also decreased by approximately 25-30%.
The decrease in price could be because some buyers are taking a temporary step back from the home buying process to recover from a stressful and competitive market. Alternatively, they have found other housing solutions like building a new home (which takes an average of 8-12 months to complete) or they decided to rent with the hopes that home buying in Colorado Springs might be less challenging at a later point in time. It’s possible that we are also going back to our traditional real estate cycle where things start to slow down when the busy summer moving season ends. The low supply in homes for sale has remained fairly constant with just a tiny increase in the recent months.
Related Reading: Steps to Buy a House
Where to now?
It will be interesting to see how the end of the eviction moratorium will influence the market. There are some predictions that smaller housing providers will want to exit the rental business and cash out. Homeowners with balloon payment forbearance agreements that are not able to refinance could opt to sell their homes instead of going into foreclosure. These circumstances could all provide more inventory for the real estate market and bring relief for the buyers that have held on. Time will tell if those sellers are enough to reduce the tight squeeze of homes for sale.
Buyers have become more cautious about the homes they are purchasing than they were earlier in the year. There is still plenty of capital on the sidelines and inexpensive mortgage rates are also still available. We are seeing more buyers who wait for the perfect home and then jump in with both feet to get that dream house they have been looking for.
Related Reading: What’s my home worth?
This demographic group born between 1981 and 1996 surpassed baby boomers in 2019. There are now more than 72 million millennials home buying age range and that is having a huge impact on a market that is already struggling to keep up with demand.
The millennial lifestyle has shifted and these changes were expedited by the pandemic. Remote work has freed up location opportunities that have never been available before. This could mean a move to a less expensive area of the country or relocating to a dream location. Close proximity to employers is becoming less of a primary consideration. We’ve had several people in this age group reach out over the past 18 months and say something along the lines of “My job no longer cares where I live and I’ve always wanted to live in Colorado.”
Related Reading: Steps to Sell a House
2020 saw a great shift either in location or in home buyer preferences. There were some very quick decisions made that are now being corrected in 2021. Urban living isn’t as scary as it was in the early days of the pandemic and it’s already making a comeback after last year’s exodus. It’s standard advice that potential buyers should only buy a purchase a home if they intend to keep it for at least 4 years in order to gain enough equity to recoup closing costs. Now? If you bought a home last year and decide you want to sell this year, you can usually get enough to cover sales costs and walk away with cash. Keep in mind, that real estate is a long-term investment.
Related Reading: Post COVID Real Estate Trends in Colorado Springs
What to expect next
While we can’t predict the future, we can give you our best guesses about how the market will play out based on our experience in Colorado Springs real estate.
- The common consensus agrees that, at least for the near future, prices will not significantly decrease.
- Home inventory is not expected increase quickly. Our market will need to have about 3000 listings for sale (almost triple of what we currently have) just to improve the severe supply shortage. The inventory shortage is exacerbated by construction costs, supply chain issues (today it’s lumber, tomorrow it’s paint and appliances), corporate buyers and uninterrupted demand for homeownership.
- There is a correction coming. This is a safe bet. Investments, including real estate, go up and down in value. It’s simply a matter of how long you wait to buy or sell.
- Inflation is imminent.
- If inflation starts to have a larger impact, mortgage rates will rise and demand could decrease. This could cause home prices to decrease so that homebuyers can still afford to buy.
- Home price could inflate while mortgage rates increase. If wages do not grow with the inflation it could slow home sales regardless of inventory levels.
What does all of this mean for you?
I have always believed that you should do what you feel you have to/want to do if it’s financially feasible. Make a plan, do your research, reach out to your lender and real estate agent (that’s us!) to learn what your options are. Be flexible and willing to shift your plans if necessary. Trying to wait out the market is always a gamble.
If you are selling, sell the best house you possibly can. When we speak with sellers, many times they go from 0 to 100 preparing a home to sell in just a week or two. Is it really necessary to go all out to prepare your home to sell in a seller’s market? Your home presentation is one of the activities with the highest return on investment. A clean, well-prepared house will bring you more eager buyers and that means more money for you. There is only so much pictures can convey, and your house has to convince buyers that they want to live in your home. This is why we always include complimentary professional photography and staging to all of our clients .
Related Reading: What our clients say
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*Source: PPAR.com – a REALTOR only resource.