The Pikes Peak region’s housing market showed signs of life in 2012.
Homebuilding, sales and prices all rose after having slumped for five to six years, while foreclosures declined. Renters paid higher rents, in part, because apartments were in greater demand, which signaled a stronger multi-family industry.
But will last year’s recovery extend into 2013? Several local real estate industry experts say yes — although not without a few qualifiers.
The pace of the recovery will continue to be steady, but not spectacular. It will rely on mortgage rates remaining near historic lows and the national economy continuing to rebound, they say.
“We should continue to see the same levels as in 2012, with maybe an uptick in 2013,” John Bissett, founder of JM Weston Homes and board president of the Housing and Building Association of Colorado Springs, said of homebuilding levels that rose more than 50 percent last year.
“Having a 50 percent increase is, I think, beyond what anybody had predicted,” he added. “We won’t see another 50 percent increase. But I do feel confident that buyer sentiment is in the positive range, and buyers are realizing that it doesn’t make any sense to wait any longer if they were contemplating a home purchase.”
Here’s a look at what some experts say is in store for local residential real estate in 2013:
2012 Recap: Single-family homebuilding permits, which are a key indicator of the health of the industry, jumped 58.5 percent to a total of 2,218, according to the Pikes Peak Regional Building Department, which issues permits. Last year’s permit total was the highest since 3,446 permits in 2006.
2013 Outlook: Expect building permits to rise again this year; some experts suggest an increase of 5 percent to 10 percent, which would translate to roughly 110 to 220 additional permits.
Affordable mortgage rates and pent-up demand on the part of buyers, which helped drive last year’s rebound, will continue to fuel this year’s recovery, said Joe Loidolt, who heads homebuilding for Classic Cos., the city’s largest locally owned builder.
The city’s population also has grown to a point where it would support increased levels of home construction, Loidolt said, quoting a pair of economists who have done work for Classic.
But rising prices also will drive buyers to act, he said. When the homebuilding slump started in 2006, suppliers held off on raising prices on lumber, concrete and other building materials, Loidolt said. Now prices are headed up for those items, and some builders will pass on their higher costs to buyers — some of whom will purchase now to avoid higher prices down the road, he said.
Prices also will rise because some builders are looking to recoup profits that were practically nonexistent over the last several years, said John Bissett, founder of JM Weston Homes. But builders won’t push prices too far or too fast for fear of turning off buyers, he added.
EXISTING HOME SALES
2012 Recap: Home sales totaled 9,146 last year, an 8.1 percent increase over the previous year and the first time annual home sales have topped 9,000 since 2007, according to the Pikes Peak Association of Realtors, based on home sales handled by its members. The median price of homes for the year was $201,000, up 7.5 percent from $187,000 in 2011.
2013 Outlook: Expect more of the same this year — an increase in sales and prices, as long as mortgage rates continue to attract buyers. Rates continue to hover near record lows.“Interest rates are really driving the market,” said Re/Max Properties owner Joe Clement.
There also is still a pent-up demand on the part of buyers who have been on the sidelines for the last several years, said Hank Poburka of The Platinum Group Realtors and this year’s Realtors Association’s board chairman. He expects the pace of home sales in 2013 to return to levels of six years ago. In 2007, sales totaled nearly 10,000, and they topped 11,900 in 2006.
“Barring anything catastrophic, I see the future being very bright,” Poburka said.
He also suggested prices will rise a modest 4 percent to 6 percent this year.
Clement, meanwhile, said a decline in foreclosures is helping to buoy prices. Banks that had foreclosed on homes and put the properties back on the market usually did so at a discount, dragging down prices for other sellers.
Not everyone is quite as optimistic. The market recovery will depend on the ability of buyers to obtain a mortgage — and tighter lending rules mean many people still can’t borrow unless they have top-notch credit scores, said Nancy Rusinak, co-owner of Rusinak Real Estate.
And with continued uncertainty about job security and changes in tax laws, some area residents will hold off making big-ticket purchases, she said.
“Cautiously optimistic. Headed in the right direction,” Rusinak said about the local re-sale market. “But nobody’s ready to break out the party favors just yet.”
2012 Recap: Property owners who fall three months behind in their mortgage payments can expect to receive a foreclosure notice from their lender, which can lead to the loss of their property a few months later at a Public Trustee’s auction. In 2012, foreclosure filings in Colorado Springs and El Paso County totaled 3,454, the third straight year they’ve declined since hitting a record 5,470 in 2009.
2013 Outlook: Expect fewer filings this year, said Ryan McMaken, a spokesman for the Colorado Division of Housing.
Foreclosure woes in Colorado Springs and around the state generally were caused by the bad economy and because non-traditional mortgages — such as interest-only loans — were made to buyers with poor credit histories. Now, such loans aren’t being made, for the most part.
“You no longer have people who are on the edge,” McMaken said.
While foreclosure filings have fallen in the Pikes Peak region, they haven’t declined as fast as in Denver and parts of Northern Colorado, McMaken said. Employment has been key; weaker job growth in Colorado Springs and El Paso County has kept the decrease in foreclosure filings from matching the decline farther north, he said.
As long as unemployment in the Springs doesn’t worsen, foreclosure filings should continue to fall, McMaken said. If, however, unemployment ticks upward, the decline in filings would flatten out and could even increase, he said.
2012 Recap: The Colorado Springs-area vacancy rate for the third quarter — the most recent data available — was 6.1 percent, while monthly rents averaged a record $787.22, according to the Colorado Division of Housing. The trends of lower vacancies and higher rents have been steady over the last several quarters.
2013 Forecast: Rents likely will continue to rise this year for many of the reasons that have fueled recent increases.
Because many people lost homes to foreclosure, and others couldn’t qualify for mortgages, they’ve moved into apartments. Meanwhile, more troops at Fort Carson on the city’s south side contributed to a growing demand in the rental market, while other people have made a lifestyle choice to rent, not buy.
And, the area’s population continues to grow.
“People aren’t moving away,” said Ryan McMaken, a Colorado Division of Housing spokesman. “They need to live somewhere, and there’s enough doubling up to keep units filled and keep rents strong.”
Also, the supply of apartments over the last decade has remained relatively unchanged; few new projects were added during that span. While developers in recent years have begun to build several local apartment projects, few have been completed.
The local employment picture will play a role in how fast rents rise in 2013, McMaken said. A weak job market could slow demand for apartments and some landlords might even re-think rent increases, he said.
Doug Carter, a Springs commercial broker with national real estate firm Sperry Van Ness, said he expects rent increases in 2013 to be slight. Tenants also are likely to see higher utility costs, he said.
Many renters could see improvements at their residences as apartment complex owners undertake maintenance projects and complete improvements they’ve been putting off, Carter said. Renters who live in complexes that undergo significant upgrades will see higher rents, he said.
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