Find it. Buy it. Love it.
That’s how the American dream of buying a home is supposed to work. For many people, it still does.
But in one of the tightest housing markets Colorado Springs and the Pikes Peak region have seen in decades, finding that dream home too often can be a nightmare. Some buyers endure a painstaking, monthslong search filled with frustration as they struggle to find a house they can afford, in a neighborhood they like and with amenities they want.
Over the past 2 1/2 years, the supply of Colorado Springs-area single-family homes listed for sale each month has dropped to levels not seen in at least the past quarter century, based on Pikes Peak Association of Realtors data. Just 1,229 homes were on the market in February — one of the lowest totals for any month in the past 20 to 25 years.
In somewhat of a turnaround, listings rose to 2,385 in July, the most for any month since September 2016. Yet, last month’s supply was still low by historical standards; July listings routinely exceed 4,000.
Too few new and existing homes on the market mean sellers of houses in more affordable price ranges — mainly $300,000 and under — routinely field multiple offers that exceed their asking prices by several thousand dollars, agents say. The market isn’t nearly as tight for pricier homes.
Harry Salzman of Salzman Real Estate Services and ERA Shields Real Estate recently received six offers on the first day he listed a client’s 995-square-foot home — smaller than some apartments — with three bedrooms, one bathroom and a two-car garage. The house sold for $218,000 — 9 percent over the asking price of $200,000, he said.
“It’s a bidding war,” Salzman said.
At one point last week, the supply of $300,000-and-under, three-bedroom, two-bathroom, two-car-garage homes listed for sale in El Paso County totaled just 261, said Rick Van Wieren, a real estate agent with Re/Max Properties in Colorado Springs.
“For a metro area of 700,000, that’s not a lot to pick from,” he said.
Because there are fewer lower-cost homes on the market, buyers often compete in a mad scramble for the most desirable properties and need to be prepared to do things differently.
In today’s market, and at their agents’ suggestions, buyers will sometimes add an escalator clause to their offer, which says they’ll top another buyer’s highest bid by $1,000 or more.
“In a normal market, you’re going to have several choices, and if one doesn’t work out, you can go to the next one,” said Hank Poburka, an agent with The Platinum Group Realtors in the Springs. “With inventory so low now, you don’t have that luxury.”
Or, buyers might not ask sellers to help cover their closing costs. And when a home inspection identifies problems that sellers typically would be expected to fix, buyers might look the other way.
“There was a time when almost any plumbing leak would get repaired by the seller,” Van Wieren said. “In some cases, the buyers have said, ‘I’ll take care of the leaky faucet myself.’ ”
Colorado Springs isn’t alone
The problem of too few homes and too many buyers — which several agents say is a cyclical part of the local market and not a crisis — isn’t unique to Colorado Springs. “A severe housing shortage” is gripping the nation’s housing market, Lawrence Yun, chief economist for the National Association of Realtors, said last month when the organization released a new round of housing data.
The lack of supply in the face of continued demand has led to slowing sales and rising prices, Yun said. In the Colorado Springs area, year-over-year home sales have declined for five straight months, including a 3.3 percent drop in July, according to the Pikes Peak Association of Realtors. The median price of local homes sold in July rose 9 percent from the same month last year, and prices have risen for 44 straight months on a year-over-year basis, the association’s figures show.
“What is for sale in most areas is going under contract very fast and, in many cases, has multiple offers,” Yun said. “This dynamic is keeping home price growth elevated, pricing out would-be buyers and ultimately slowing sales.”
If buyers are clamoring for homes, especially those priced at $300,000 and less, why can’t supply keep up? There’s no single reason, local real estate experts say.
For one, a strong economy has stoked demand. The area’s unemployment rate ticked up to 3.2 percent in June, the latest figure available. Yet that number has fallen dramatically in recent years; unemployment was 8.1 percent in June 2013.
When people have jobs, they have money to spend and stand a better chance of qualifying for a mortgage, Salzman said. Even as long-term mortgage rates climbed above 4 percent at the start of the year, they remain relatively affordable at an average of 4.59 percent nationally for a 30-year, fixed-rate loan, mortgage buyer Freddie Mac reported last week.
Not only is the economy stronger, but so is the Springs’ reputation as a place to live, which is attracting more people to town. Colorado Springs has snagged a slew of top rankings by national publications, including being named the nation’s most desirable place to live last month by U.S. News & World Report. For newcomers, if they owned a house in another city, they’ll want to buy one here, Salzman said.
“The bottom line is, the market demand is there. Inventory is not,” he said.
Many potential sellers haven’t put their homes up for sale for fear they won’t be able to find another to buy that suits their needs, agents say.
Other homeowners who are thinking of moving up to larger digs or downsizing will look at the higher prices they’d have to pay and their increased property values and decide to stay in a neighborhood they already like, with schools, shopping and other amenities they enjoy, Salzman said. If they want more room, they might add on or finish a basement instead of looking for a larger home.
Another factor: Real estate investors who typically buy homes, repair them and flip them for a profit are holding on to the properties because they’re getting top dollar by renting them out, Poburka said. That return is too lucrative to pass up, he said.
New homes would help market
Poburka, Salzman and other agents say they’d like to see homebuilders ramp up construction and help add to the supply, which would take some pressure off the resale side of the market.
Some builders say they’d love to oblige, but they have their own problems. Home sites, or lots, are in relatively short supply and builders have regulatory hurdles to clear with local governments that can slow lot development, said Mike DeGrant, a land development consultant and this year’s board president of the Housing & Building Association of Colorado Springs. A lack of labor, meanwhile, also is leaving builders unable to construct all the homes they’d like, he said.
“We’ve got not only a lot (home site) supply problem, but we’ve got a labor supply problem,” DeGrant said. “As busy as everyone is in the marketplace, finding crews — framers, to plumbers, to electricians, all the way across the board — is tough. The labor supply is maxed out at this point.”
Randy Deming, president and CEO of Campbell Homes, which has constructed homes in the Springs area for more than a half century, recently had a backlog of a dozen homes he was waiting to build. But a lack of labor slowed production, and the company won’t promise something to customers that it can’t deliver by an agreed-upon date, he said.
“We don’t have the labor force,” Deming said. “We’re scheduled to do a certain number (of home starts) a week, and that’s where we are. But we can’t kick it up any further than that or we’re going to get ourselves in trouble. We pride ourselves on making our delivery dates.”
Like the resale side of the market, the demand for new homes has been surging for about two years, Deming said. Based on the pace that single-family homebuilding permits are being issued by the Pikes Peak Regional Building Department, the new home market could have its best year since 2005.
“I have never seen the market as strong on the new home side as it’s been over the last two years,” Deming said. “It normally cycles. It will go up and down, we’ll be strong for a while and then it falls off. That hasn’t happened for the last year and a half. Right now, we have slowed a little bit. But we still can’t build all the contracts we have coming in timely.”
The strength of the new home market, however, has a ripple effect on the ability of buyers to find the more affordable homes they want. Material and labor costs are soaring, which means it’s difficult for a builder such as Campbell to construct a home for under $300,000, Deming said.
Because of rising new home prices, some buyers turn back to the resale side of the market where inventories already are tight and competition is fierce. At the same time, when sellers of existing homes see new houses going for more than $300,000, they’ll hike their asking prices to match the new home market — further tightening the supply and availability of lower-cost properties.
“What we’re seeing is the marketplace from $150,000 to $300,000 is very, very slim,” Deming said. “What that tells us is, a resale seller is going to look at the market and, quite frankly, kick their prices because they can.”
Problem isn’t going away
How much longer will inventories remain so tight?
Don’t expect changes to the market until at least 2020, barring an international conflict or major shift in political leadership that could trigger an economic downturn, said several real estate industry members.
If mortgage rates continue to rise, some buyers will be priced out of the market and demand could slow. But the influx of newcomers will continue to bring buyers to Colorado Springs and keep demand strong, Salzman said. If the national and local economies also remain strong, corporate profits will remain healthy and employees will invest their paychecks in home purchases, he said.
That means buyers must be prepared when they hit the market. They should be willing to offer more than the asking price and have a preapproved loan in hand, Poburka said. Also, buyers who can offer cash typically have the best chance to win over a seller, he said.
Van Wieren said buyers must be ready to jump when the right house comes along.
“We are going to be facing a somewhat persistent shortage of decently priced, decent quality inventory for a while now,” Van Wieren said.
Nevertheless, housing remains a great investment at a time when the Pikes Peak region is prospering, he said.
“We’re in a great situation,” Van Wieren said. “People have jobs, people qualify (for mortgages). Interest rates are low, and they’re getting pretty good quality product overall. When you compare what they can buy here to some other areas of the country … when you compare it with some of the big metro areas or in Denver, house per house, it’s not close. This is a great quality of life for the money down here.”