A large housing inventory, high foreclosure rate and potential for military growth make Colorado Springs a real estate investment market with bargain opportunities for long-term investors.
Colorado led the nation in foreclosure rates in 2006, according to RealtyTrac, and new construction in Colorado Springs continues to expand what is already a large inventory of available properties. Although the large housing inventory may be negative for sellers, it can lead to bargains for discerning buyers seeking long-term buy-and-hold opportunities.
“Right now, we’re kind of in a lull, which for most people around the country, that’s bad, but for me, working mostly with investors, it’s a great cycle in the market for opportunity,” Lania DeMers, owner of Rocky Mountain Realty Company, said.
Climate, natural beauty, cost of living and quality of life are attracting new residents, and a large number of troops are also expected to enter the area later this year. For investors who predict future long-term growth in Colorado Springs, now may be a good time to consider purchasing.
“Having a market that is at this point tremendously oversupplied so that only all year long 46 percent of our homes have sold, we are finding sellers that are ready, willing and able to sell their homes at a better deal,” Jan Kifer, broker/associate with ERA Shields Real Estate, said. “We’re finding more reasonably priced things. We’re finding sellers more anxious to negotiate.”
Job growth and commerce
The military plays a major role in Colorado Springs’ growth; five military bases are concentrated around the city. This includes four U.S. Air Force bases and one huge Army base, Fort Carson.
Between 15,000 and 25,000 new troops are expected to move to Fort Carson during the next couple of years, Tom Lazzaro, broker/owner of Performance Plus Realty, said. “There’s other units closing down worldwide and…coming here, so that’s a huge influx of people right there.”
Along with that influx will be more Department of Defense influence coming in, “which is more stable really than the active military is,” Kifer said. “But we have growth happening in all those military fields.”
“There’s some pretty big proposed projects. Some of them are government projects…the Pinon Canyon proposal to make Colorado Springs the largest military installation, Fort Carson,” DeMers said. “So we already have a great projected growth.”
In addition to military growth, “we have all kinds of things going on in this market,” DeMers said. “We’re a big college town….We also have, associated with the military, several civil service agencies located here that are pretty large, and government contractors. Teaching opportunities. Some high tech stuff.”
The University of Colorado has a campus in Colorado Springs, and Colorado College and other smaller colleges and community colleges are located in the city as well.
The high tech industry in Colorado Springs is not doing well, but Colorado Springs is expanding out of software and into high tech research and development, Kifer said.
Biotech is another emerging area of the economy; the city is already home to more than three dozen—mostly small—biotech firms, according to the Colorado Springs Economic Development Corporation.
A highly educated and skilled workforce and a positive business environment help to attract incoming businesses, Kifer said. “While we’re not setting the world on fire with regard to employment, we have been gaining about 1,500 over what we’re losing, even this year with the departure of Intel.”
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Unemployment is low, but “it has had its ups and downs,” as large companies open up jobs and then go through cycles of layoffs, Lazzaro said.
Colorado Springs is home to 27 Fortune 500 companies, according to the Colorado Springs Economic Development Corporation.
Tourism is also a major economic factor; the city draws more than six million visitors each year, according to the Chamber of Commerce.
Many major faith-based organizations are located in Colorado Springs, such as Focus on the Family, Compassion International, The Navigators and Andrew Womack Ministries, DeMers said.
Quality of life
Colorado Springs had a population of 399,452 in 2006, according to the U.S. Census Bureau 2006 American Community Survey. DeMers said the population doubled since she moved there from Massachusetts in 1990 and it is projected to double in the next decade.
“The big thing is that people want to live here,” Kifer said. “The Employers’ Relocation Council has named us consistently one to five in cities of our size to work in and bring your families to.”
Just last year, Money magazine named Colorado Springs the best big city to live in.
“One of the things that draws people to this market is that the climate is dry and we have over 310 sunny days per year,” DeMers said. Other attractive factors include the low cost of living, convenience of amenities, natural beauty and recreation, she said.
Colorado Springs’ cost of living is approximately 94 percent of the average for cities of its size, Kifer said. “Our house prices until this year looked a little higher, but when you consider our utility costs, our taxes, our food and other miscellaneous items, we do come out about 94 percent of the national average.”
“We are a place where people want to retire to,” Kifer said. “I see an awful lot of active adults, the baby boomers, coming in to purchase their retirement home a few years in advance, so that they can get it worked on, they can have it paid for, and…through rental arrangements, they make a lot of money by the time they get here.”
The biggest worry that could hinder growth is the availability of water in the area, Lazzaro said. “We’re running out of water here.”
Colorado Springs is heavily dependent on the Colorado River’s water supply, and the river is currently experiencing a record drought, according to the Colorado Springs Gazette. Reservoirs up and down the Colorado River are at a fraction of capacity, and Colorado Springs could lose a significant share of its water supply if precipitation doesn’t return to normal, according to the Gazette.
“Colorado Springs gets a fifth of its new water from mountain springs that feed the Colorado River….Shortages downriver could force Colorado Springs to give up some of its diversions and let them flow toward California,” according to the Gazette.
The reason the upper basin, including Colorado Springs, “owes” water to lower basin states of the river such as California dates back to 1922, when the Colorado River Compact divided up shares of the river’s annual flow among the upper and lower basin states. Rather than dividing up the water based on percentages, the contract assigned specific quantities of water to the upper and lower basin states, and those quantities were calculated based on an unusually high average flow assumption, according to the Colorado Springs Business Journal.
This means, of course, that water scarcity was almost certainly going to become a problem, and with a drought in progress, it is uncertain how the Colorado River’s water will be divided up when the situation becomes dire enough for some communities to go without.
“I would say the biggest worry…is the water thing. And that’s…up in the air as to whether that’s really going to hurt this whole region or not,” Lazzaro said. “That will remain to be seen.”
Real estate market
“While our market has not been absolutely wonderful this year, we are doing much better than the rest of the West, and we hope to come out therefore of this little downturn faster than other people in the western part of the United States,” Kifer said. “This year, we are down only approximately 5 percent with regard to our sales as opposed to the rest of the West, which averages out according to NAR about 21 percent.”
“We’re dropping like the rest of the nation has,” Lazzaro said. “It was a hot, hot market until things tightened up, but we’re also not crashing like Vegas is, like lots of…areas of California are.”
“We have had our first price drop…in August. We were down about $15,000 in average price, $7,000 in median price,” Kifer said.
“What fell tremendously was properties over $400,000. This can be related directly, we feel, to the inability to get the subprime and 100 percent jumbo loans,” Kifer said. “If you can buy in that department, that’s where the deals are to be made.”
More than 7,000 properties are on the market in Colorado Springs, which is about seven months’ of inventory, Kifer said. “It’s going to take a long time to absorb our inventory.”
The inventory is down from last month, which was up, “so that’s a very positive trend to us,” Kifer said. “The builders cut way back; they’re at 49 percent of what they were a year ago.”
“There are fantastic opportunities to be had…if you have a good FICO score and 10 percent to put down,” Kifer said.
The market has tapered off and become a buyer’s market, but it will recover when lending restrictions loosen up again, Lazzaro said. “Once lending restrictions loosen up again and the foreclosure rate begins to taper off, then you’re going to see a much, much better market.”
The market is going through a lull, “but it’s not going to crash” because of the strong commerce and military presence, Lazzaro said.
Colorado Springs also did not experience as great of a boom as many other markets in the West; it stayed more stable with a 5 or 6 percent appreciation every year except one since 2001, Kifer said. In 2006, appreciation was 4.7 percent, according to the Office of Federal Housing Oversight.
“It is a steady growth town, so if you’re looking to make super fast appreciation in a high-growth market such as California or Vegas, that’s not what we have here,” Lazzaro said. “This is just a gradual, probably between 4 to 10 percent appreciation rate, depending [on] where you’re at in town, and you can usually count on that.”