Another Good Reason To Live In Colorado Springs!

I was recently asked by two non-local buyers why we settled down in Colorado Springs. It was a very easy conversation. At the top of our list are the schools in Academy School District 20, the climate, our neighborhood (Pine Creek), our house (main level living) and an incredible view.

Well, now we can add one more to the list - an improving real estate market.

CNN Money recently published an article - Housing Market - Best Recovery Bets and it is no surprise that Colorado Springs is #8 on the list.

Additionally, today I attended a meeting sponsored by our local MLS, Pikes Peak Association of Realtors® (PPAR). The guest speaker was the Chief Economist for the National Association of Realtors (NAR), Dr. Lawrence Yun. He talked candidly about the economy, the national real estate market, and the local Colorado Springs housing market. Below is a summary of some of his main points.

Businesses - are saving more than they are spending. With the uncertainty in the economy, taxes, and health insurance, businesses are holding on to their profits. The economy will not improve until the businesses start to spend their profits, which will not happen until the Washington politicians move out of the way and stop regulating the different businesses.

Jobs - this year the nation lost 8 million jobs and created only 1 million. At this rate, the economy will not improve. If 2 million jobs are created annually, and the job loss slows down, then it will take over 6 years to recover. The job market for Colorado Springs is at the same level as year 2000. From 1990 to 2000 Colorado Springs had tremendous job growth. Long term job growth for Colorado Springs is about twice the US average.

Home sales - today are at about the 2000 level for the nation, but it is showing signs of improvement. As jobs are created, home sales will improve. Home sales for Colorado Springs are improving, while the nation stabilized at 0.2% growth the past year, Colorado Springs showed a 5% growth.

Home Prices - stable for the nation and Colorado Springs since late 2008.

Default rate - Colorado's default rate is lower than the national average.

New construction - nationally at a 40 year low. The problem is that the builders can not get financing for their projects and inventory homes. If this continues, Dr. Yun predicts that we could be facing a housing shortage in 3 years, which translates to a seller's market.

Home price to income ratio - with the reduction in home prices, the price to income ratio is back to normal. In February 2006, I attended the Keller Williams Family Reunion, and I remember very clearly that our founder, Gary Keller, stated that "the ratio is out of whack and needed a correction, so we could anticipate a bursting of the bubble with prices becoming more affordable for the typical buyer." That is exactly what happened. With lenders being more cautious today than they were in 2005-2007, we can anticipate more modest appreciation.

Rent - anticipated to go up at a higher rate than in the past due to the increased demand as a result of mortgage defaults. Dr. Yun reported that a co-worker of his in Washington DC, recently bought a home because their rent was going up 20%. Now, in the Colorado Springs area, we don't anticipate this type of rent hike, but a more modest increase of 6-10% may encourage renters to become buyers. Those renters who can buy, should conduct their own Rent vs. Own analysis.

Future of Frannie and Freddie - restructuring is a must. There is a need for government backed mortgages. NAR has recommended that the government back the simple 30 year fixed mortgages. All other less traditional types of higher risk financing should be on the private market allowing the private market to assume the risk and benefit from the profits of higher mortgage rates. Dr. Yun believes that eventually, this is what will be approved.

Mortgage Interest Deduction - has been in place for 100 years and for the third year in a row, has been a target of the politicians. NAR is fighting this tooth and nail. If government eliminates the mortgage interest deduction, Dr. Yun predicts a 15% reduction in home value resulting in wealth destruction for those that are relying on the value of their homes for retirement. The 2011 President's Budget, delivered 2/15/2011, eliminates the mortgage interest rate deduction for "only the wealthiest." Dr. Yun anticipates this to be voted down for a third time.