In the last twelve months, Colorado Springs homes and condo prices were fairly flat year over year. Inventory is up from historic lows, yet home inventory is still tight. 27% of all active homes are under contract. Due to the sharp increase in rates, we anticipate flat pricing and fewer closed transactions. Very few condos are under contract, a leading indicator for lower sales in 1Q’25.
Months of inventory
Months of inventory has steadily tightened since 2012. It got very tight at the end of 2019 through early 2022. It became a seller’s market back in 2015. Inventory has finally started to increase sharply from record lows. MOI on 1/3/25 was 2.8 for homes and 4.2 for condos. We have recovered from historical lows but inventory is still relatively tight.
Current market: showing trends
Showings in Q4 closely mirrored the last 2 years. We see a seasonal, holiday rated decline in showings.
COS market by size: homes
The Colorado Springs detached single family market is larger than the condo market. Marketing time has been fairly consistent among all segments. Inventory is low for smaller homes but building up in the larger segments. Sales are relatively flat year over year. We have more inventory vs the same time last year. A lot of larger homes sold in 2024.
COS market by size: condos
Inventory for attached homes remains low, especially due to the small amount of this inventory type in this market. Very few of the smallest and largest units are on market. Marketing times are longer for all segments vs this time last year. MOI is higher for all condo sizes. Pricing was fairly flat vs Q4 last year.
Historical context comparisons
Both markets (Denver and Colorado Springs) have seen significant price appreciation in the past decade. The home & condo prices in both markets have leveled off, driven by increases in interest rates and overall market cooling.
Similar patterns across all three markets: Pueblo, Denver Metro, Colorado Springs. Denver regained its losses from the Great Recession by 2013, while COS and Pueblo took two years longer. Denver continues to have the fastest rate of growth… but the lead is smaller than most people think. All three markets continue to appreciate after a slight correction. Homes have been appreciating for approximately 10 years.
Data Source: https://fred.stlouisfed.org
Historical context: mortgage rates
Mortgage rates continue to increase, which has made headlines. However, when looking at fifty years of history, rates are near the historical average. On the right, the mortgage spreads are much higher than historical trend… that could eventually provide some downward pressure to rates.
Net worth for owners is higher than renters
Homeowners are the 1%’ers!
- Well, it’s not quite that simple… but what is true is that the vast majority of wealth in America is held by homeowners, not renters.
- The average net worth of a U.S. homeowner in 2019 was $255,000, compared to just $6,300 for the average renter.
- The numbers are shocking, and renters definitely aren’t aware of this, so educate them. Let them know that if they want to build wealth over time owning a home is the tried and true formula.
- Investors (landlords) with a few rental properties do even better!
- The more the world changes, the more it stays the same – buying a home is the right thing to do to house one’s family and build long term wealth.
- Or they can just make their landlord happy (and wealthy) forever. Whichever they choose.
What does it mean for the client?
- If you are renting you should STRONGLY consider buying if you want to build wealth. The numbers are clear.
1st time buyer
If you buy a home today vs. next year (First Time Buyer). More than $400,000 in wealth creation in ten years!
Data Source: BankRate.com
Net worth for owners is higher than renters
Buying is generally more affordable and less expensive than renting. In addition, research by the Federal Reserve found that home owners accumulate 40x more net worth than renters over their lifetime.
Wealth creation for an investor
How can investors generate wealth with rentals?
- The top left looks at what that client might face if they buy today.
- The bottom left examines how much more their payment might be in a year if…
- Home prices go up 5%.
- Interest rates go up 0.5%.
- Your payment could go up 9% if you wait for a year.
- The right side is a chart depicting…
- Top: The home value, with 5% annual appreciation.
- Middle blue: the mortgage balance, which is paid off over time.
- Lower green line: the accumulate equity (“wealth creation”) for the client.
What does it mean for the client?
- The buyer’s 25% down payment of $50,000 turns into $198,000, or +298% (pre-tax) in 10 years.
- For many buyers, this gain would be subject to capital gains tax.
- You should have positive cash flow each year and enjoy an annual depreciation write-off. These benefits are not included here. See your CPA.
- Historically, the stock market (S+P 500) returns around 11% per year before tax or 8% per year after tax.
- If history predicts the future, $25,000 down payment invested in the stock would be worth $67,240 (after tax) in 10 years, for a 269% return.
What changed from prior example?
- Purchase price $100K (rental condo).
- 15-year loan term.
- 25% down vs. 20% down.
- Rate goes up a little (investor loan rates are often higher than owner occupant rates).
Investor buyer
There’s an expected 396% ROI over 10 years if you buy a rental property today (and this doesn’t even include cashflow!). Even though home prices are up about 40% in four years, rents have gone up about the same amount. An investor can still earn great returns today!
Home builds in the United States
Why is the inventory so low? Denver has experienced strong population growth in the past decade, but almost no additional inventory from new home builders. Builders are limited by high costs for land, water taps, labor, and materials. We don’t anticipate a boom in construction. As a result, inventories could remain low for several years.
Appreciation
Colorado has historically been a great place for real estate appreciation.
Current home prices vs. 25 years ago.
