| 68° |  |
| High: 71° | |
| Low: 41° | |
| At Colorado Springs Airport | |
Colorado Springs Market Overview-Sept 2007
September 2007 Market Overview
Looking back on August
- Are we doomed? Has the bubble popped and the remnants are spastically flying around the Pikes Peak Region?
- Can I still get a loan? My lender’s not even returning my calls?
- I’m a seller... should I panic? I’m a buyer... should I avoid buying?
1.) Are we doomed? No. This is a rough patch. We had a great party in 2003-2005, this is the hangover! The financial uncertainties are similar with post-9/11; the emotional uncertainties are different. August was a bad month because the perfect storm of bleak real estate news was like a slowly moving hurricane that slipped into a low pressure trough and decided to hang out for an extra couple of weeks, slowly churning the stomachs of investors, buyers, sellers, REALTORS and poor closers who recalculated settlements again and again. And guess what? This hurricane covered the entire nation and the low pressure curve was global... that means it wasn’t unique to Colorado Springs. The low pressure front that stalled the hurricane was credit (or the lack thereof). The investors drunk on sub-prime interest finally saw the ugly number that 5% of American loans were behind and said “hey... this is dumb. People are getting hurt. Let’s move on to something safer before we get hurt.” That pulled the plug on 100% financing, and the combination piggy-back loans it seemed everyone was using (80/20, 80/15, crazy interest-only, etc.) disappeared overnight. But what is left are these ancient financing vehicles... ancient as in cutting edge in 2003. Fannie Mae and Freddie Mac financing is still out there, so too the venerable FHA and VA and guess what? Mortgage insurance is deductible in 2007 if you make less than $100,000 a year. Write your congressman to get that renewed for 2008. September 2006 was a more dramatic dip in activity than August 2007. We’re not in uncharted waters. However September 2007 could be worse than August 2007.
2.) Can I get a loan? This is a maybe not. If you are a risk for a credit card company, a car retailer, a washer and dryer, and someone approved you for a loan in June... you probably can’t buy a house today. That isn’t to make light of the situation, but sub-600 credit buying homes with no money down was nuts. If you have 1.) cash and 2.) credit the answer is: welcome to the market of buyer opportunity. If you lack 1 or 2, wait around until 2008 or (see, there is still money to be had out there) do a 100% Fannie Mae loan... OR exercise your VA( if eligible)... OR if you’re buying less than a median priced home locally use an FHA in combination with CHAFA...OR explore local grant money... Wait...Gee... that sounds like a few options. Because it is. Financing that was quickly moved from experimental to routine has dried up. The everyday exotic loan has been retired (or at least put into hiding). There are still many responsible and palatable conforming vehicles waiting to transport a buyer to home ownership.
3.) I’m selling... should I panic? I’m buying... what’s the market like elsewhere? This is real estate 101: it depends. If you are a seller that needs to sell in 60 days and you don’t have room to move in your price, you are running out of options. It is unlikely in the next three to six months to see appreciation, and it is more likely to see a price drop. The sooner you sell, the more likely you net more money. The longer you wait, the more likely you net less money. So should you hold off buying? No. America is a nation thirsty for tangible investments, and not much is more tangible than real estate. With an immigration boom and mini-baby boom in progress and a demand for elbow room, the lull in prices will not be as short as it was in the 80’s or 90’s. That’s the nationwide landscape. Locally, Colorado Springs is still in better shape than most of the west, especially the downtrodden and foreclosure-filled southwest (AZ and NV). As a buyer, you may buy and then lose a percent or two in value over the next six to nine months (but not if you buy well). But rates are creeping downward like they do every fall and there are lots of sellers who want to play let’s-make a deal.
This isn’t to ignore the dreadful numbers turned in after August. After 18 months of worrisome real estate news, August is a real cherry on the bad news sundae. September could be the whipped cream. There is no reason to sugar coat this reality: it’s harder to get a loan, it is less probable your home will sell, and buyers are worried about depreciation (and they should be). But one of the graphs in this report shows the markets nationwide that have been hammered the most by the real estate bubble burst: by comparison (and this is so vital), Colorado Springs did not go up as high, has only now started to go down in price (less than 1%) and has less supply of inventory with already lower prices than other markets in the west and in fact, quite a bit of the nation. To live in Colorado Springs at the median national real estate value in 2007 is a promising reality, especially with unemployment less than 4% (and this is after a lot of the malaise of builders has hit the job market). Add to that mix our low taxes, you get Colorado Springs for less than most of the west and less than the majority of the United States. The market underwent another surgery... now how long will the rehabilitation last?
Good News and Bad News
BAD: The Average Sales Price saw a big drop, by $15,000 to $259,095. The median dropped to below the national median to $220,000 a $7000 dip. average peaked in June at $278,000 and median in July at $227,000. Both numbers are down.
BAD: Why the inventory build seems to be slowing: There are 7 fewer homes for sale at the end of August then at the end of July, which is an unexpected piece of good news. Inventory reductions usually begin a month or two later. Why the reduction? There were over 1700 expireds last month. That means some of these numbers are short term absorptions: they’ll be back in the next six months.
BAD: 46% of the listings put on the market this year have sold. At this time last year, 55% of the listings put on the market had sold. It is less probable that a listed property will successfully sell this year as opposed to last year, by 16%.
GOOD: Rates are beginning to creep down. Job reports on September 7th have shoved rates down to 6.25% and sub-6rates may be weeks instead of months ahead.
BAD: Financing a home is a lot harder on September 1st than it was on July 1st. There are dozens of loan programs that have disappeared, piggy-back secondary financing (the portion that makes up the downpayment not covered with an 80% first) are hard to come by and Jumbo loan rates have skyrocketed.
GOOD: At the risk of offense, someone stating an income without documentation with a credit score in the mid 600’s getting a loan at close to market rate with near-term adjustments in rate and the option to pay interest-only and not principal and no money down... well, it was harder to buy a car than a house. That has been corrected. That has a major macroeconomic benefit.
Perspective:
PERSPECTIVE #2: Our situation is the same here, or better, than other locales in America and especially the West. A big reason for the major dip in price (Median $227,000 in July to $220,000 in August; $274,000 average sales price in July to $259,000 in August) was sub-prime... but probably not the sub-prime you’d guess. The drop occurred in private investment of loans in excess of $417,000, where jumbo loans begin and Fannie and Freddie end. Sales in July over $400,000 accounted for 13% of all sales. They just barely accounted for 9% of all sales in August. If this 4% dip sounds incidental, consider that sold units over $400,000 dipped 28% month to month. Overall the market dropped 7% in units, but in the higher price range (all sales over $400,000) the dip was huge at 28%. Two of the three tracked categories between $200,000 and $400,000 actually saw unit sales increase, not decrease. So the market-wide price dip had more to do with big stuff not closing (which in the case of no Fannie and Freddie is directly tied to mortgage credit investment and the same woes as all other sub-prime problems) as it did with real estate market problems. In fact, under $400,000, the market was basically no different in August than it was in July.
PERSPECTIVE #3: The Warning or just Reality? While we are better than other parts of the United States, the United States is collectively pinched by the re-writing of economic rules, credit liquidity problems and bad press. August written business was weak because many August contracts that normally would have been scheduled to close in September are effected by credit and the present media attention. Last year September 2006 was the month that hit the skids with a 20%+ month to month drop off and 888 closings. A repeat of 2006 (and the stage is unfortunately set to do that) would be bad.
Advice
SELLERS: If you have been on the market for the last 30 days (or more), how much longer do you want to stay on? Newer to market properties are coming on at a value that is likely less than your present asking price. Buyers buy value. Why would they buy your home? That’s a painful question to ask, but the time to ask soft or easy questions has passed. If you have been on the market for over 30 days, the race to the bottom has begun. The market will be flat to down over the next six months which means buyers are in the process of moving away from your value. The sooner you go to meet them in asking price, the sooner you will sell. The sooner you sell, the more you net, at least for the next six months. Another motivating factor however is where your property is priced... there were a couple price ranges below $400,000 that saw unit gains in August (that’s a real surprise). But sales from July to August for properties over $400,000 were down 26%, and the average sales price from $400,000 to $600,000 dropped $8000. Why? Jumbo financing (over $417,000) is really hard to come by. Properties from $200,000 to $399,999 for the most part saw a repeat of July. So if you’re over jumbo limits, it got a lot tougher. It’s only marginally tougher below jumbo.
BUYERS: Got cash? Got credit? Get after it! Be honest with the fundamentals of Colorado Springs. Really honest. Is this market over-built? Maybe, but for the present time only. There is no exodus out of Colorado Springs and the diversity of employment opportunities continues to expand. Sellers that are selling are doing so with a market-awareness and buyer appreciation that is unprecedented in the last decade. If you can close when a seller needs to close (sooner rather than later is likely) you are buying yourself an extra percent or three in negotiating power.
BUILDERS: Build what buyers want, and buyers want value. This may sound like a shot at the Parade of Homes, and not every builder participated, but there were a lot of confused faces looking at 16 properties over a million dollars when only 37 had sold the entire year in the local MLS over that price. Buyers want quality, they want value, but if they are buying new, it borders on remarkable. The product itself is what the buyers want to pay money for, and they are scrutinizing neighborhoods with homes that don’t have their landscaping in, questioning loan and bonus tie-ins that are tied to other specific products (the builder’s lender), etc. The more consumer-centric you become, the better your product will be received. Right now building is not an option for some buyers like it has been for the last decade. The reason is they see the motivation in resale properties and if they were to go new, they really want it to be just-so. Under $350,000, that’s still pretty difficult. From $400,000 to $599,999 a whopping 6 of 81 properties sold were year built 2007. Maybe that isn’t all of the specs for sale, but that is not a positive number as to the buyer’s inclination towards new construction right now in the builders’ bread-and-butter price range. Expect to negotiate (and deal) with buyers even on build to suit.
INVESTORS: Diversify. This is not a great time to sell a piece of real estate if you don’t have to. But if you have something that you have done well on, and you’re willing to price it ahead of the competition, the ability to lose a little money on the sale will be more than made up in your ability to buy with great negotiating power. There are good buys in many areas. Buy with the fundamentals of dirt first and numbers second (not far behind) because this market will be improving, likely sooner than other markets in the west.
| Strengths | Weaknesses |
| Enormous Selection for Buyers | Giant inventory remains with the relocation season done |
| Prices at National Median, below other Western Cities with only a hint of price depreciation | More difficult to obtain financing and most lenders having significant difficulties adjusting |
| Quality dirt that’s always popular still sells | So much media attention it’s much easier to do nothing than something as a buyer |
| Rates are coming off of six year peaks and will likely head below 6% this fall | Concerns over national delinquency rates with 5% of American mortgages past due |
| Opportunities | Threats |
| Cash is King, but... Got 10%? Got 700 FICO? Can close without a contingency? You’re a Hero. There are lots of heroes ready to be made out there. | Likely surge in foreclosures late 2007, 2 million rates adjust nationally in early 2008 and little federal interest in a bail out. |
| Sellers are getting increasingly realistic | Unemployment is low but no big job growth |
| Builders are negotiating on completed specs... and almost complete homes... and even build to suits. Expect a lot of dirt to come back on the market in the next six months from no-go projects. | Continued Credit tightening may result in some more surprises. If credit really hampers Wall Street, the economic dominoes could create bigger national problems. |
| The average agent this year will do one more transaction between now and Christmas. Have your agent present the offer in person to the listing agent with an earnest money check prominently displayed. Make sure that offer is put in the hands of the other agent. This can buy you thousands of dollars in negotiating value, by being respectful, polite... and an obvioussure-thing. | Perception. The market in Colorado Springs is not vibrant, there are signs everywhere and 7,000 listings at a $15,000 price reduction heading into fall sounds awful. A lot of that is real. But the comparison to other markets, nationwide, shows that our location is weathering the storm a little better than average. |
Conclusion: The Fall Fashion Forecast
 |
Joe and Jennifer Boylan
ERA Shields Real Estate
1710 Jet Stream Dr. #100
Colorado Springs, CO 80921
Toll Free: 888-611-5935
Local: 719-388-4000