Much has been made of the “cooling” real estate market. The descriptors run the gamut from “course correction” to “flattening” to “leveling off” to “disappearing”.
For the moment, the most apt term should be “normalizing.”
In 2015, Colorado Springs was behind the all-time record pace in unit sales from 2005 until the very last month of the year when sales snuck up to 13,250, a record year. This was fun little news, especially because the market cooled for 60 days in August and September and then surged back at year’s end.
In 2016, the market began at a blistering pace and never eased up. For 12 months, sales were in record territory, inventory could not keep up with demand, and the year ended with more than 15,000 units closed, blowing away all previous years in terms of units. But the greater market saw an appreciation growth that was about the same as 2015, with appreciation around 6.5%. Keep in mind, during this time there were regional markets that showed no appreciation, other neighborhoods that were over 10%, but the only constant was that “stuff was selling”. It wasn’t constant that “stuff was appreciating”.
To this point, Pikes Peak Regional market activity mimicked Denver area market activity in terms of supply and demand. Enormous, record-setting demand, and shrinking supply. But Denver started seeing 10% appreciation in 2013 and methodically clicked-off 10%+ years for five consecutive years. Such appreciation was not seen in the Pikes Peak Region.
That changed in 2017. Yours truly predicted price gains in excess of 8% and possibly double-digits, but there was simply no way – in my less than humble opinion – units could surpass the year-of-years in 2016. My prediction was based on the knowledge that on an annualized basis, 2016 had just seen the lowest interest rates in history, with the monthly Freddie Mac average being a meager 3.65% interest rate. Rates had to climb with a new administration and this would slow demand… that was my logic, at least. Rates climbed, but not much, and only late in the year. The average rate for 2017 was still one of the lowest in history at 3.99%. With the economy still improving and rates still unusually low, sales continued to climb with 16,339 single-family units closing in the Pikes Peak REALTOR Services Corporation MLS in 2017. Technically-speaking, double-digit appreciation still did not arrive in 2017: it missed by 0.1% at 9.9%. At last, appreciation seen up-north was now evident “down-south”.
A strange thing happened on the way to the party. Like any good teenage kegger in the age of Snapchat, news spread that there was money to be made in real estate. So somewhere between 2015 and mid-year 2018, the number of real estate licensees participating in the Pikes Peak REALTOR Services Corporation increased to more than 4000 participants. How many of these individuals are really participants is a subject of great debate and large conjecture. I know multiple home inspectors that are participants for lockbox access-only, most appraisers are participants, there are hundreds of “occasional participants” from the Denver market that are really double-counted agents that primarily sell in the domain of REColorado. But the point is, the pie got divided. Considering that the great Pikes Peak Region is 750,000 to 800,000 individuals (depending on if you’re counting Park County to Peyton, etc), a Realtor participation ratio that says that at least one in twenty people in the region (and maybe as many as one in 15 depending on how you’re counting) is participating in RSC… any slowing effect will be felt in an out-sized manner. Take any pie away from the table, and the offense can range from “well, I didn’t really need that third-helping” to significant entitled outrage.
The truth of the market correction/leveling/flattening/pancaking/disappearing to date, is really just one of normalization.
Below are the Unit Sales by Quarter from First Quarter 2014 through Third Quarter 2018 for Single-Family Home Sales in El Paso County, Colorado.Qtry SFU Units
The most recent data, far to the right, is notably smaller than the same third-quarter 2017 data. But it is quite similar to the third-quarter 2016. It is substantially larger than the third-quarter 2014 or 2015 data.
Where it “gets real” is when money gets involved. How much sales volume was being pushed through the market by quarter? Context matters. Until second-quarter 2016, no quarter in RSC history had pushed through a billion dollars in sales in a single quarter. How short the memory. By the end of second-quarter 2018, billion dollar quarters had become normal. Seven of the previous 10 quarters have sold more than a billion dollars in real estate, and the three that didn’t were over $800 million, with two of the three over $900 million.
Below is the Sales Volume by Quarter from First Quarter 2014 through Third Quarter 2018 for Single-Family Home Sales in El Paso County, Colorado.Qtry SFU Volume
To summarize, the fourth quarter 2018 data will be important, but so will the first and second quarter 2019 data. October 2018 unit sales were not as robust as October 2017 sales, but they were stronger than September 2018 sales. The realities of real estate are this:
Money is made on the Buy
Real Estate is a great instrument to accrue long-term wealth
Flipping houses and making quick cash on real estate is a fool’s errand. The reason debts are allowed to be put to death (the real meaning of the word “mortgage“) over 30-years is because real estate as an investment should have at least a five-year horizon and preferably a 10 to 20-year horizon. Looking at the three practical fundamentals above, and the long-term growth trajectories that can be shown and proven will apply economic rails to any buyer’s decision-making.
“Based on information from the Pikes Peak REALTOR® Services Corp. (“RSC”), for the period January 1, 2014 through September 30, 2018. RSC does not guarantee or is in any way responsible for its accuracy. Data maintained by RSC may not reflect all real estate activity in the market.” The analysis in this document is created by Benjamin Day, a participant in RSC MLS and a real estate licensee in the State of Colorado.