Through May 2010, Single Family Building Permit activity was 45.8% ahead of the same pace in 2009. June 2009 was the month that single family permitting actually returned to life, so the first five months of this year presents a very valid point of reference for one of the major ramifications effecting the marketplace: the value of new.
Actively marketed sellers need to examine for themselves what the same dollars might buy somewhere else in El Paso County. This might seem ridiculous and foolish: why compare downtown Colorado Springs to Lorson Ranch in Fountain? Why compare Peregrine to Pine Creek? How can Falcon in the $300,000’s compare to Gleneagle? Would an appraiser ever compare these two areas? Never. But is a buyer? Maybe. Okay, probably. Okay… most likely. Hey, if you wanted to sell a ’99 Benz for $10,000, and a buyer could get a 2006 Honda Accord for the same price and mileage… that’s how consumers tend to think.
There are 515 homes for sale from $225,000 to $250,000. The average sales price market-wide in June improved to $237,000 and change. So why is there an 8 month backlog of sell-time in this price-range? Consider: Classic Homes is no longer the city’s largest builder. The same company that produced more than 1200 homes in 2005 now has less market share than two companies that did not even exist in the market in 2004 (Journey Homes and St. Aubyn Homes). These two builders, along with Challenger Homes, account for 1/3rd of the marketshare among new home builders. Classic is now fourth. These Top Three builders are all producing homes in the $200,000’s (and no, that’s not the advertised “from the $200K’s… those are closed values). No, they’re not in Oak Valley Ranch, Divine Redeemer or even Springs Ranch areas where homes in this price range should be flying off the shelf (but aren’t)… but it begins to explain why resale homes are struggling to sell from $200,000 to $300,000.
Classic Homes builds entry level homes, but their average sales price is $375,000. The new-build focus from 2002 to 2006 shifted to a higher and higher price bracket due to the ready availability of cheap credit, especially jumbo credit. After the market freefall and credit crunch, the game had to change dramatically. While Saddletree/Symphony is still making a profit, and Keller, Vantage, Acuff and Classic all seem to have “survived” the downtown, the growth is not in their price range: it’s in the average-priced-home available with a two car garage, new HVAC efficiencies and shiny new appliances.
Of severe significance: average now equates to a custom experience for the home buyer. At average price… they can pick their colors; their trim; their flooring; their appliances; their landscaping. Double that average price point, and how special does a resale home have to be when there are granite slabs to be chosen, wet bars to be designed, 16″ tile to be selected for the two-person shower? In the higher price brackets, a new built $500,000 home is not the same as a new built home from four or five years ago. First, it is probably energy-star rated. The added insulation and HVAC inspections cost more money. The counters are probably slab granite. The appliances are probably standard stainless. The lot has probably been discounted. It might have a standard basement finish. The builder has trimmed work forces and had to trim their profit margin on the building. This all adds up to a property that probably offers 10% more value than the same product purchase three or four years ago.
Add to that money leverage. Every one percent drop in interest rate increases a buyer’s buying power by 11%. Consider this crazy reality: the market has fallen in value 5% to 20% depending on neighborhood. It is fair to say in general terms that prices are about 8 to 10% less than they were two summers ago. Rates at that time were 6%. Rates today are as low as 4.5%. That means buyers have 25% MORE BUYING POWER than they did just two years ago.
Add to that the fact that buyers still control the market. A balanced market has 6 months of inventory: neither buyers nor sellers control the market at 6 months. Below six months, sellers control the market and appreciation is likely. Above six months, buyers control the market. Appreciation is less likely due to increased supply. Buyers correspondingly hold out for… MORE.
That “MORE” that buyers hold out for is critical. They are operating in a whole other realm of reality and possibility right now with 25% more buying power this summer than two summers ago. With that come heightened expectations. The first place that is made manifest is in the house itself. Yes, that lot might have value. Yes, that location might have value. But buyers simply will not tolerate: outdated carpet and paint; 80’s/90’s fixtures; lack of cleanliness; lack of snappy curb appeal; prices that are even slightly out of line.
Sure, it’s the Great Recession. But take one look at the Promenade Shops at Briargate parking lot any day of the week and you’d never know. New and New-On-Sale are today’s consumers two favorite categories.