Southwest Colorado News

According to a recent forecast by Zillow chief economist Svenja Gudell, inventory shortages will drive the market in 2018. There is a huge generation entering the housing market and they are not finding the level of inventory and home choices they would prefer. Gudell expects builders to respond to this on a national level by moving from adding density within cities where land costs and zoning laws push home prices out of reach for first time home buyers, to the suburbs where land prices are more reasonable and zoning issues are easier to navigate.

She predicts many first-time home buyers will move to the suburbs, which they have so far resisted, hoping to be able to afford a home within an urban center. Builders will shift some of their focus away from urban center luxury residential projects to capture market share of the pent-up demand among first time home buyers.

Gudell also expects a large number of homeowners to skip the historical trade-up scenario in favor of staying put and remodeling their existing home, making it feel and look brand new. (This should help to further boost the stock prices of Home Depot and Lowes.)

She says Boomers and Millennials will drive home design with wide halls for strollers and wheelchair access (aging boomers) and more “smart home” technology applications.

What does Gudell forecast for home price appreciation during 2018? She expects the current rate which she pegs at 6.9% to drop down to 4.1% next year. What about mortgage interest rates in 2018? Here there seems to be a consensus view that rates will creep higher next year, climbing to between 4.25%-4.75% or slightly higher by year end.

If the stock market and job growth continue to be strong in 2018, we expect demand for vacation homes and condos to increase in mountain resort areas.

Within the Pagosa Springs housing market, there will be more speculative new home building during 2018 as construction lending sources expand and demand within the $250,000-$400,000 continues to be strong.  We also expect the luxury home market to gain further strength and see a reduction in inventory of homes priced above $800,000. Homes prices will rise during 2018, though not at the same level as 2017, but we are projecting prices of existing homes will move toward reducing the 20% gap between the cost of existing homes and the cost of new construction.

Other factors that will come into play next year are the final components of the Federal Tax Reform. Will mortgage interest deductibility be capped at $500,000 for new loans? Will property taxes no longer be deductible? Will there be a limitation on mortgage interest deductibility for vacation homes? What impact will we see from lower income tax rates?  Locally, will there be efforts to curb the growth of VRBO and Airbnb rentals? How will this impact home values? How will the shortage of experienced construction workers impact new home prices in 2018?

Will there be consensus on how serious the local workforce housing shortage is here? Will the town and county come forward with effective solutions and develop the necessary funding or incentives needed to create new below-market rental units? Will the Town of Pagosa Springs follow the lead of the County and look again at eliminating Impact Fees?

There are plenty of variables to analyze and here at Pagosa Source we spend a considerable amount of time each week looking at these and other issues, to provide our clients and customers with the best real estate guidance possible. As residents and/or property owners, we encourage all our readers to be active participants in local government. Your money and your future are at stake.

You can reach Mike Heraty at Mike@PagosaRealEstate.com or by phone at 970 264-7000. You can also explore more on our website http://PagosaRealEstate.com

Overall, 2017 was a strong year for the Pagosa Springs Area real estate economy. There were 878 Closed Sales totaling just under $188 million as compared to 755 and slightly under $147 million for the same period in the prior year. Key measurements for nearly every category are up as compared to the prior year, including the luxury home market, which has been significantly over-supplied and soft for the last five years. Building permits issued in the county and town are up as well, with 146 New Home Permits through November of this year compared to 111 last year, showing strong building activity and good construction employment levels. These measurements compliment the increased sales and lodging tax receipts during 2017.

The number of single family home sales are up more than 7.3% for the year with an increase in total dollar volume of over 26%. The Median Selling Price of $339,500 compares to $312,000 for 2016. *

Sales of Luxury Homes also recorded very positive numbers, with 29 Closed Sales posting $43,230,750 in Dollar Volume, an increase of 142 in units sold and a 126% increase in Dollar Volume over 2016**. We see this as a strong vote of confidence for upper-end values and a sign that more affluent buyers are liking the direction the economy is taking, with Wall Street delivering strong returns for investment and retirement accounts during 2017. Our luxury home price points compare very favorably to Durango Area prices and even more “buyer-friendly” when compared to markets along the I-70 Corridor, such as Summit County and the Vail Valley. We are seeing more buying activity coming down from the Front Range due to traffic issues and price pressures in those I-70 Corridor markets.

The number of townhome and condo sales are also up over last year by 9%, with a 12% increase in total dollar sales, while the Median Selling Price remained unchanged at $160,000. The inventory of townhomes and condos listings has decreased as the number of entry level single family homes has declined during 2017. The market saw more first-time home buyers opting to purchase condos and townhomes rather than continuing to rent. As the size of these households grow and income increases, some of these owners will trade their equity up into single family detached homes in the years ahead. This investment creates some forced savings that renting cannot accomplish. Hopefully, the current low interest rate environment will continue during 2018, providing higher levels of affordability to younger and first-time home buyers.

An added bright spot in the market this year is the sales activity in the 35-acre market. Closed Sales are up 100% versus 2016 with 24 tracts sold while the median selling price ($183,500) is up by 36% over 2016. Total Dollar Volume in this category was just over $5,000,000 as compared to $2,000,000 for last year. Historically, many of these buyers will contract for the construction of larger homes within 2-5 years of their purchase which helps to keep our custom homebuilders busy.

What will the Year 2018 look like? Will prices continue to climb? We interest rates remain low? How many new homes will come on the market? Will it still be a good time to sell? Watch for our 2018 Real Estate Forecast right after the holidays!

As always, Mike Heraty is available to answer your real estate questions and to provide details on any part of the market that is of interest. You may reach him at: Mike@PagosaRealEstate.com or by phone at: 970 264-7000. You can also explore more on our website http://PagosaRealEstate.com

* Single family detached stick-built homes. Does not include townhomes, condos and manufactured homes.

**Homes selling at $800,000 or more.

We are half way through the current year and a third of the way into the summer here in Southwest Colorado. The first quarter real estate market data showed significant improvements over the same period of 2016. The figures tallied and analyzed for the first half of 2017 are even more impressive. Total residential closed sales volume hit $75,449,000, an increase of 70% over the $44,465,000 recorded for the same period in the prior year. The total number of homes sold hit 221 for the first six months of this year, as compared to 163 units closed during the first half of 2016, an increase of 36%. We have been very busy from January forward this year, which is unusual.

Prices-

Single Family Stick-Built Detached Homes:

With the increase in sales activity, prices have also moved up. For “Stick-Built” single family detached homes, the average selling price was $183 per square foot during the first half of the year. For the same period in the prior year, the average selling price was $157 per square foot, showing an increase of 16%. The Median Selling Price for this type of home was $325,000, an 11% rise over the first half of 2016.

Condos and Townhomes:

The total sales volume for condos and townhomes for the first half of this year was $7,410,000, an increase of 113% over the first half of 2016. The total number of units sold was up 105%, while interestingly, the average selling price per square foot increased barely 1% at $130,  versus $128 per square foot a year earlier.

What is moving the market?

Several forces are driving prices and buying activity. First, within certain price brackets there is a very limited supply of existing homes available for sale and new home construction has not been able to keep up with demand.  Costs for new home construction have risen as land prices, wages, building materials and soft costs have all increased. The average selling price per square foot for homes built in the last two years has averaged $195, as compared to $178 a year earlier, representing an increase of 9.5%.

Second, mortgage rates have remained relatively low and government-backed loan program qualifying guidelines have eased, though only slightly. Low interest rates, an improving national economy and friendly stock market returns have all worked to improve consumer confidence–an essential ingredient in resort housing market performance.

Third, prices in many other mountain markets have put property ownership out of reach for some buyers and they have found the Pagosa Springs Area to offer a better value, with exceptional outdoor recreational resources in a friendly and safe small-town environment. This pressure has also fueled price appreciation.

Where are the best values in the current market? Existing upper-end homes ($500,000 and higher) can be purchased today at a significant discount to the cost of new construction. If you are looking for a home in the $200,000-$300,000 price range, you have little bargaining power. There is limited inventory and many qualified buyers. If you want to know what areas are likely to perform the best in the next 1-5 years, drop me an email or contact me at Pagosa Source Real Estate Advisors.

Mike Heraty is Managing Broker and Owner of Pagosa Source Real Estate Advisors. Mike has been active in local real estate for over twenty years. Mike holds a Master of Real Estate Designation (MRE), is a Member of the Council of Real Estate Brokerage Managers (CRB), and holds brokerage licenses in Colorado and New Mexico. You can reach him at Mike@pagosarealestate.com or at 970 264-7000. You can also explore more on our website http://pagosarealestate.com

In 2008 and 2009 I was working with one of the best clients I have had in my real estate career. In the summer of 2008 we looked at a large number of residences on acreage with water features and were not able to find the right property. We looked at many listings but most seemed over-priced, or at least they were not what we defined as “good buys”. At the time the real estate market in Southwest Colorado was depressed, in the early stages of the great recession. Still, because we were looking for premium residences with premium features, most Sellers were quite proud of their properties and hopeful that with the high level of buyer traffic during the summer months, if they held out, they would get their price.

At the end of the summer we decided the best approach would be to wait things out. In February we resumed our search. We found many Sellers with greater motivation and a good number willing to look at offers substantially below their listing prices. After ten days of looking we found the right combination of properties and were able to successfully negotiate good prices on each of the three properties he purchased.

Bob is the most financially successful individual I have had the privilege of working with. He started with nothing and built a company which he eventually took public and subsequently sold, generating significant wealth for himself and his shareholders. Because of his strong management and financial research skills, I knew I would learn much working with him, which I did. Bob accurately gauged his purchasing power in the “off-season” would be much greater and the competition among Buyers much lower. I have shared my “Bob Story” with many of my Buyers, suggesting that if they were serious about obtaining a really good value, they should not put off the buying decision until spring or summer. February and March are great months to buy real estate in the mountains.

According to the National Association of Realtors, January and February home prices are 8.45% lower than July and August, two of the most popular homebuying months. The NAR Chief Economist does not expect this spread to remain as great going forward, but still, the savings can be substantial.

Another reason to buy now is that mortgage interest rates are expected to rise further during 2017, possibly by as much as a half a percent. On a loan of $300,000, a half point rise in rates would increase the monthly payment by $88, over 30 years that amounts to an additional $31,680.

Yes, here in the mountains of Southwest Colorado a lot of Sellers will take their homes off the market for the winter, which would make the available inventory look more scarce than it really is. I can research which properties that fit your criteria were taken off the market and whether those Sellers are open to having you look at their home ahead of putting it back in the MLS. You would be surprised at how much further your money goes when buying real estate ahead of the strong selling season.

Market Still Improving Overall.

Looking at the broadest measurement, the market during 2016 was ahead of 2015. Total real estate sales recorded through our local MLS system showed an increase year over year of 8.2% in the number of properties sold. The Total Dollar Volume of $148,515,994 was up just over 6% above 2015.

Single Family Homes

The total sales of single family homes sales ($114,867,448) was up over 16% and the total number of homes sold was up 13% over 2015. So, while the aggregate numbers for single family home sales are quite positive, there was very little increase in the average selling price per square foot. For 2015, homes sold for an average of $164.40, while the average for 2016 was $166, an increase of less than 1%. But, in the years between 2012 and 2015 we saw considerably more value appreciation–in 2012 the Median Price was $ 217,000 and the average selling price per square foot was $120.76 an increase of 37.5% over the last four years, or an average of 9.4% per year. Newly constructed homes sold for an average of $178 during 2016, a slight increase above the average for the prior year.

Condos and Townhomes:

Condo and townhome sales showed real strength during 2016 with volume was up over 25% from 2015, and the total number of units sold up nearly 16%. What is more impressive is the increase in the average selling price per square foot, $138 versus $114, an increase of 21% for the year. In 2012, the average selling price per square foot for condos and townhomes was $91 indicating an increase of 53% or an average of 13% per year. This category of our real estate market has out-performed the single family detached sales by quite a margin. Will this continue to be the case going forward? Possibly.

While the strongest price category for single family homes was $200,000-$300,000, there was plenty of demand for housing priced under $200,000 but a very limited and dwindling supply. A number of those Buyers opted to acquire condos and townhomes as they found themselves priced out of the market for single family detached homes.  So, strong demand for housing under $200,000 moved up the average condo selling price per square foot. We would expect this to continue until the price of existing homes more closely approaches the cost of new construction.

2017 will be an interesting year as the community continues to explore potential solutions to our workforce housing needs and the supply of entry level priced housing continues to shrink. The Town of Pagosa Springs Planning Department is revising its Comprehensive Plan, which will hopefully address the extremely high impact fees levied for new development. We are hopeful the Town Council will not approve the proposed tax-payer funded $7 million 5^th Street Bridge Project while there are so many other worthwhile infrastructure improvement needs. We could see a decision on this by January 3^rd.

We may see a boost in demand for vacation homes if the federal income tax cuts Trump has proposed go into effect providing more household income and higher consumer confidence—two key factors that fuel demand for second homes and tourism spending. The other factor that could come into play is the price of oil. If the economy in the oil industry improves, Pagosa can expect to see a return of more visitors from West Texas which have been a significant element in the second home market in Pagosa Springs over the last thirty years.

Buyer Trends Going Forward:

What are we seeing in terms of trends in second homes? Buyers are looking for less square footage, more energy efficiency, lower maintenance burdens, more storage space, smart-home technologies, lots of natural light and well-appointed kitchens and bath areas.

For more specifics on any part of our local and regional real estate market, give me a call. Also, if you would like more information on what you can do to make your home more appealing to achieve a higher selling price in a shorter period of time, call or email me: Mike Heraty, Managing Broker- Pagosa Source Real Estate Advisors: email: Mike@PagosaRealEstate.com Phone: 970 264-7000.

*Single family homes= detached, site-built residences, excludes multi-family, condos, townhomes, modular and manufactured homes.

A sea change is underway in the leadership of our county and town. Two of the sitting members of the Board of County Commissioners are likely to be gone after the November election. Both Commissioner Lucero and Wadley voted in favor of building a new Justice Center along county owned property on Hot Springs Blvd. at the special meeting on September 19^th. The preliminary cost estimates for a facility at that location are reported to be $28 million. Michael Whiting was the only County Commissioner to raise a concern about cost and how the local tax payers could be expected to vote in favor of such a huge expense. What economic reality were Commissioners Lucero and Wadley operating from? With the deteriorating county roads, future needs of the schools and many other financial priorities it is hard to understand the vote that took place. I expect the new Board of County Commissioners will be more responsive to the taxpayers and develop more creative and sensible solutions to the need for improved facilities for the county.

In the last forty five days, three new Town Council Members have been appointed. Matt deGraaf, Rebecca Anderson and Nicole DeMarco each bring a new and refreshing perspective to Town Council Meetings and governance. They take their positions seriously; they study the agenda packets, they ask intelligent questions and they look at the issues from more than one perspective.

The Town Council has many issues and tasks ahead of it. One of the topics sure to resurface soon is the Mayor’s plan to build a $7 million bridge to the Dawson and Mees undeveloped 27 acre parcel. This  controversial proposal has been put on the back burner while the Town waits for completion of the Economic Impact Study it ordered. I am hopeful the newly seated members of the Town Council will take a very careful and critical review of the report.

I have continually monitored real estate activity in Southwest Colorado, including the average and median selling prices of homes and condominiums, and the rate of sales. I believe it is unlikely a reputable outside consulting firm will find our current market conditions will justify a large scale residential and commercial development, one that would require selling price ranges above $300 per square foot. It is equally doubtful to expect a national hotel chain to build a new hotel project while our present hotel occupancy rates remain below 40%. Mees and Dawson have not prepared a market feasibility study, an absorption rate projection or a construction cost estimate for their “development”, I doubt an outside consultant will able to find economic justification for a taxpayer investment of $7 million for a bridge to their land. How the Mayor and his friends Mees and Dawson could possibly spin things differently remains to be seen. With three news voices and votes on the Town Council, we all hope sensible, rational decisions and direction will prevail.

MAJOR NATURAL GAS PIPELINE PROJECTS- TEXAS- MEXICO

Recently we closed the sale of a property south of Pagosa Springs, which we had listed for sale at $1.6 million. So far this year, the sales activity above $1 million has been limited and our analysis clearly indicates the depressed energy sector is at least partially to blame. Going back over a ten year period, more than half the purchasers of $1 million+ properties have been from Texas. A very large percentage of those purchasers have been connected to the oil and gas industry. The price of oil began its descent in July of 2014 when it was above $100 per barrel to today where it currently trades in a range $40-$50 per barrel. With the downturn, oil rig counts have dropped, and layoffs and capital spending cuts among large and mid-size oil firms have been widespread as companies make adjustments to ride out the downturn. The ripple effect of these changes began to be felt here in Southwest Colorado a year ago–more luxury properties were put up for sale and fewer Texas purchasers were actively shopping. To date we have not seen any drastic price cuts or panic selling, but luxury properties are certainly taking longer to sell and there is a higher level of negotiating taking place. With all this negative economic news, what is there to be optimistic about?

Back to the sale that we just closed. The purchaser owns a company engaged in construction of natural gas pipelines. Recently several huge gas pipeline projects were announced, including a line supplying Texas gas to Mexico’s factories in Monterey and other industrial centers. His company will be involved in the construction of the huge natural gas pipelines. Because the price of natural gas is low, it makes sense for many large energy users to convert away from coal generated electricity to natural gas— we are seeing this across the U.S. as coal burning power plants are converting on a large scale. For some companies in the natural gas industry, new opportunities are opening up, even while the price of oil remains impaired. We may see more improvements in this corner of the energy sector in the months ahead and we are hopeful we will see a greater number of Texas second home buyers will be returning to Southwest Colorado.

In the meantime, prospective purchasers have plenty of luxury second homes to choose from, both in Pagosa Springs and the Durango area. Many may be acquired for a significant discount to replacement cost. Interestingly in spite of the abundance of $ 1 million+ homes available for sale, there are several custom homes under construction well above the million dollar level. For some folks, saving a substantial amount of money by buying an existing home is not a motivator. They choose to design and build exactly what they want, because they can.

It has been an interesting summer for the real estate world in Pagosa Springs. Overall sales activity is up slightly as measured against the prior 12 months. 2016 is a bit ahead of 2015 for the total number of properties sold with the total dollar volume of closed sales up nearly 5% above the prior year. For all property types (building lots, acreage, commercial, ranch, single family, condos, etc.) the average selling price was down 2.5% over the prior year. These numbers summarize the broad performance of all components of real estate sales within Archuleta County.

Homes sales activity is the measure that typically attracts the most attention. For my analysis, I track the sales activity of single family detached homes as a market benchmark. This excludes condos, townhomes, duplexes, modular and manufactured homes. (I look at condos, townhomes, duplexes, manufactured homes separately.)

The number of homes sold is up over 10%. There have been 151 homes sold so far this year versus 137 for the same period in 2015. Total closed sales dollar volume is up 10% above 2015 at $50,235,841. The average selling price of $332,687 is nearly unchanged from 2015 while the Median Selling Price of $297,500 is up 6.4% above last year. 75 of the sold homes were under $300,000. For most that follow the local market, these figures are probably not surprising, but they should not be considered the only important indicators of what is happening within the local housing market. True, there are more spec homes under construction and most are selling quickly, but, there is a narrow price band of robust market activity that may distort the reality of the market as a whole.

When you cross into the $500,000+ price ranges the level of supply significantly outpaces demand as shown below. What are the factors that are impacting this imbalance? First there have been changes in the buying preferences of both primary and second home buyers over the last several years. More buyers are choosing smaller homes and lowering their financial investment for vacation and primary residences. We also see this change from the next wave of housing consumers. Unlike many Baby Boomers that are now aging out of the housing market, younger buyers in second home markets are not choosing the larger, more expensive homes their parents chose. This is a change we are seeing across many of the second home and resort markets across the country. Second, the market in Southwest Colorado has been impacted energy prices. Pagosa Springs has always benefitted from our visitors and second home buyers from Texas and other nearby energy states. An increasing number of households with a significant portion of wealth and income tied to oil and gas are choosing to postpone plans for a second home or cabin in the mountains of southwest Colorado. When oil recovers they will return, but until then we can expect to carry a higher level of unsold home inventory, especially in the upper middle and high-end of the price ranges. Third, I suggest there are some Buyers that are holding off their purchase plans until the outcome of the November elections are known. This is a hard factor to quantify, but I can attest to the fact that a fair number of upper-end Buyers I have communicated with this summer have decided to wait until next year so that they can first assess the impact of the elections on their tax burden and discretionary income. How much change we will see after November is anyone’s guess.

For specifics on a particular price range or real estate category, email me at: Mike@pagosarealestate.com or give me a call at my office: 970 264-7000.

Average Annual Number Homes Sold All Price Ranges (based on last 5 Years): 271

Listing Inventories:

$200,000-$300,000 – 67 Active Listings =        10 month supply

$300,000-$500,000 – 90 Active Listings =       16 month supply

$500,000-$750,000 – 53 Active Listings =       29 month supply

$750,000-$1,000,000 – 35 Active Listings =    76 month supply

$1,000,000 + – 49 Active Listings =                 106 month supply

In one of my earlier articles I discussed the potential impact of low oil prices on our real estate market here in Southwest Colorado. You can read that article here lower down on this site. Subsequent to those discussions I did an analysis of the residential closings for 2015 to look specifically at where the upper-end Buyers in Pagosa Springs, Colorado came from last year. I define upper-end as those sales that closed at $500,000 and above. Generally this will include custom single family homes within the Pagosa Lakes Area, including Timber Ridge, homes on small acreage within planned ranch developments such as Echo Canyon Ranch and Hidden Valley Ranch as well as large acreage ranch properties that included at least one residence.

For all of 2015 there were 48 upper-end closings, totaling $40,926,825. I could have chosen to only look at sales above $1,000,000 or started with a lower bracket, but historically, this is how I have defined the upper-end of the market in all of my past research. Within this group, 13 of the 48 purchases were made by Colorado residents totaling $8,676,600, representing 21% of the total, with an average purchase price of $667,431.

Buyers from California purchased only 3 upper-end residences for a total of $1,755,500, with an average purchase price of $585,167. Our friends to the south in New Mexico purchased a total of 3 homes for $1,805,000, an average of $601,667 per home. Buyers from California and New Mexico each accounted for 4% of the total sales volume of $40.9 million. During 2015 we did not have any upper-end Buyers from our other neighbor to the south, Arizona.

Let’s look at the volume of upper-end residential Buyers that came from Texas last year. There were 22, purchasing a total of $19,145,500 in residential properties, accounting for 47% of the total, with an average purchase price of $870,250. These are significant figures to consider, especially in light of the current downturn in the energy field.

Will Texans continue to visit Southwest Colorado and invest in our real estate? During the summer months, the daytime temperatures in August in Lubbock and Houston run from 91-95 degrees with humidity of 74%-90%. Unless there are some radical climate changes near term, the mountains of Southwest Colorado will remain an attractive place to visit and invest. If we continue to improve our area and remain friendly to the many folks that help to make paydays possible in a tourism-based economy, we should survive. If we forget how important our visitors from Texas are to our local economy, more could decide to bypass Pagosa Springs and drive an extra hour to Durango. Please, don’t forget to say “Welcome, glad you’re here” to those friends with the white and black license plates.

For assistance of any kind related to Colorado real estate, you can reach me at 970 264-7000 or email me at: MikeHeraty@frontier.net