Tag Archives: Colorado Springs Market Report

2011 Annual Forecast: Part I

How is the market?

I love the question, but have to prep anyone I know that I’m as big a windbag as anyone they’ll ever meet in real estate. I can talk the pros and cons and opportunities and pitfalls like anyone.

For the sake of everyone’s oxygen-supply, I’ve found it’s better to show how the market is rather then tell.

Page 2 of the 2011 Annual Report and Forecast

This is Page 2 of the 2011 Annual Report and Forecast.

This page tells everything that is going on in the macro-market. It doesn’t tell you much about what’s going on down the street from your home, but it does tell you what sellers are feeling and what buyers are seeing. This is the pulse of the market.

This page shows four different trends in graph form: Monthly Listing and Sale trends for the last six years; units listed versus units sold for the last six years; months of inventory (sales-rate) for the last six years; and pricing comparisons (all listings, new listings and solds) for the last six years.

As many people know and acknowledge, 2005 was the peak boom year nationally and locally for the real estate market. That is the baseline for comparison for 2010 sold data in all six graphs.

The relationship between monthly listing inventory and monthly sales was most of out whack in Summer 2005 and Winter 2008. The 2005 sales year was characterized by high purchasing and low inventory; 2008 was characterized by high inventory and low purchasing. But in 2009, inventory started to return to more normal levels. Demand picked up. This lead to a more balanced market. This lead to declarations that maybe the end of the slump was at hand (yours truly: guilty).

What few anticipated was the rapid build-up in listing inventory in the first six months of 2010. Inventory increased from just under 4000 to 6000 in less than 180 days. This spike in inventory actually out-paced the massive listing build-ups (on a percentage basis) in 2006 and 2007. Following the expiration of the tax credits June 30th, the lid was coming off of inventory while demand disappeared. July 2010 was the worst summer sales month in decades. It was then eclipsed by August. Quarter 3 sales were off 26.9% from 2009.

The massive drop in Quarter 3 explains why 2010 ended up as the worst performing year for sales in the last decade. Sales began to pick up moderately in November and December, but the four to five month echo behind the expiration of the tax credits radically changed the game. For the year, it was more probable your home listed for sale would not sell, then sell.

Six months is considered a balanced market. That means prices are not likely to go up or down, but stay flat. Less then six months sustained gives pressure to rising prices; over six months gives credibility to falling prices. Again, this is the market as a whole. There are neighborhoods in the $300K’s with 4 months inventory today; there are neighborhoods in the low $200K’s with 10 months inventory today. But 2010 looked more like 2007 and 2008 then 2009 when the year ended with less than six months on the board. It is worth noting that months of inventory has actually declined through the fall into winter on a monthly basis, after peaking at over 10 months in August. But this graph indicates further threats to pricing in 2011.

For my money, this is the craziest graph of them all, and it doesn’t have to do with my color scheme. It’s all lines merging towards some sort of magnetic pole. Since February 2009, average price has steadily increased. Since approximately the same time, new listings coming to market have moderated their expectations. At the start of Summer, 2009, total listing price began to drop. The average list price in the market has dropped by more than 20% in the last 20 months, while average price has risen to 2004/2005 levels again. In the last four months, when listing volume has slackened notably, sellers that are coming on are increasingly coming on in lower price ranges and/or are coming on closer to in-line with price expectations. If you’re looking for a new listing in the $500K’s, keep waiting; not many have hit the market lately. But if you’re hoping that sellers would quit over-pricing their homes, start looking at inventory again. Right now, new to market average asking price and average selling price are identical as 2011 begins.

So what to make of all this?

We’ll keep un-packing the story later this week. This is some of the data. I’d love to make a neat and tidy explanation of all this, but that would be 1.) cheating and 2.) inaccurate. There’s more data to share to complete the picture and generate the forecast.

How the Market REALLY Works…The Stat Pack

The New, More Colorful, and still Data-Rich Stat Pack

For those not yet indoctrinated in all-things Stat Pack…

This month I enjoyed another laugh at the “wisdom of crowds / conventional wisdom folks” by saying that:

The informed consumer should read Bloomberg,, MSNBC, Fox News, The Wall Street Journal, Case- Shiller, The Gazette, The Denver Post and whatever else big media wants to throw out there about how horrible the economy is doing, how poor the job creation is, how volatile import/export balance sheets are, and what the Fed Policy decisions will do to the dollar against foreign currencies.
They should do that: as long as they temper that with simple observations, like a glance at what is going on in local pricing. Pricing has been marching unmistakably all year to a place of balance.

What color is the sky?

What is happening to price?

Both of these questions have obvious answers. The sky is still blue, and price is climbing.

In the world of data-crunching, it’s important to stick to data and not to headlines. In the world of data-crunching, there is excess hyperbole. In the world of data-crunching, nothing sells quite like fear.

Buyers and sellers like to say right now that prices are coming down.

They’re right.

Sellers see their neighbors coming down in price.

They’re right.

So why are sold prices going… UP?

Here is a quote about the Pikes Peak Market from the October 2010 Stat Pack (You can link to the November Stat Pack – posted today – RIGHT HERE).

Sellers are so frustrated that they are quitting the market, so prices logically are going… up? How is that possible? The reason is that the buyers who see this as an opportunity are often ones who focus on their interest savings, interest that won’t change for 15 to 30 years.  At 4.375% – the going-rate on a 30-year mortgage – every $1000 increase in price represents a mere $5 a month in payment to a buyer. So a buyer who increases their search by $20,000 only ends up paying $100 a month more (or $1200 a year) for a home that is probably significantly “more” in every way.  With the low taxes of the Pikes Peak Region, a $200,000 30-year fixed mortgage usually has less than a $1200 monthly payment, even with taxes and insurance escrows.

The hidden story here is that buyers end up reaching, and what they end up buying are homes that previously were considerably more expensive. Take a home in N/E, where the average time to sell was around 100 days last month at and average price of $234,000. The buyer of that home might have capped initially at $220,000, not found what they were looking for, and stretched in price to $240,000. There, they found a home that initially started at $259,000, reduced to $250,000, then $245,000, before finally getting to the right price at $239,900. With a 97.3% price differential (the sold price divided by the final asking price), they were able to settle at a very-near-all-market-average price of $234,000. The data on the story is really this: the buyer came up $14,000 and the seller came down $26,000; the headline is that prices are going up. Here, reality and headlines are not really the same thing.

Don’t buy the headlines. Don’t buy the hysteria. Unpack the data. Look for simple answers. Watch for trends. That’s the Stat Pack.

Market Report July 2010 (Mid-Year Stat Pack

Click For July 2010 Stat Pack

The First-Time Buyer Tax Credit perhaps worked too well: it fueled a sequel that provided both excess optimism and (later) damaging conditions that reversed much of the good accomplished. The intent and purpose of the tax credit was to activate the most easily activated segment of consumers (people who didn’t own homes, but aspired to own one) and convert them to homeowners. In the process, they would draw down the record inventory of homes, buy up and fix up bank-owned and distress-sale residences and help the market find equilibrium. A stable housing market would trickle to other segments of the economy and eventually stem the tide of the Great Recession. After November 30th, when the first version was to have expired, there were only 4301 listings for sale.  Despite the dreadful beginning to 2009’s sale year, the calendar year ended up 400+ units in sales,  and with 794 sales in November, the market had actually moved past equilibrium to a seller’s market: an equally-beneficial market is considered to be sitting at six months of supply, and November ended with a mere 5.4 months.
Today, during what is supposed to be the peak demand season of mid-summer, inventory is at 6.4 months. Last year at this time it was at 5.9 months. This is not a huge change, but it presents a serious problem looming ahead. This is shown in the first graph on Page 2, Single Family Home Comparison: in May and June of this year, the bottom fell out of the pending sales (ready to close escrow contracts) indexes once the second wave of tax-credit fever expired. In March and April, 1477 sales went to a pending status. In May and June, when the market demand should still be accelerating, only 1067 went to pending. In May and June last year there were 1360 pending sales. Instead of peak demand numbers in July, when they normally occur, it is fair to assume this year that July will be 10 to 25% off the pace it was at last year.
The real problem with a 10 to 25% downturn in volume is that it convinced a fair number of sellers (and agents) that homes were easy to sell again. What followed was the largest six month run-up in inventory in the PPAR MLS history: a 51% increase in only six months, and today 2000 more properties populate the MLS than started the year. With a 15% increase looming and a 10 to 25% decrease running the other direction, the market enters the second half of the year once again out of balance.