2020 is behind us (insert slow clap here). It was a painful year, but it often provided opportunities to adjust our paradigm of what matters most.
While COVID has changed consumer behavior in Colorado Springs real estate, it has not broken the demand curve for housing here. It’s important to consider both direct and indirect influences on the local real estate market as we look at 2021 and beyond.
A Growing City
Colorado Springs remains a rapidly growing city. It was originally built as a tourist town with a beautiful backdrop of Pikes Peak and many outdoor activities. Colorado Springs retains a high quality of life and consistently ranks as one of the most desirable places to live in the United States. It’s especially attractive for people who can work from home and afford the higher cost of living. Other factors that make Colorado Springs appealing include early implementations of economic diversity, cultural and recreational opportunities, multiple military installations and higher education institutions.
Related Reading: 10 Reasons to Move to Colorado Springs
A Growing Population
It will be a continuous challenge to accommodate a rapid population growth by expanding vital infrastructure. The Colorado Springs metro area population is currently about 740,000, though it still feels like a small city of 70,000. Colorado Springs is growing outwards with sprawling edge communities. The hope is that the outward growth will encourage a more peripheral traffic pattern instead of one giant rush hour in and out of downtown. This would probably be the case if the city did not have multiple large military installations dictating the traffic of thousands of active duty service members and contractors. Hopefully, the city planners stay ahead of the traffic and plan for mounting traffic issues.
Colorado Springs Neighborhood Guide
A Growing Economy
Over the past few years, the city has implemented large projects to revitalize the downtown area. A whopping $2 billion investment in the actual skyline of Colorado Springs is planned to expand Colorado Springs’ urban core and create a new business district in the blocks surrounding America the Beautiful Park (a decades-long project). Our tourism industry took a hit in 2020, but it will continue to grow the economy of Colorado Springs with additions like the impressive U.S. Olympic and Paralympic Museum, the new Pike’s Peak Summit House, the Air Force Academy Visitor Center, and the new downtown soccer stadium.
The downtown area has been designated as a Federal Opportunity Zone that offers tax breaks to investors who fund projects inside the zone’s boundaries. Multifamily developers with two big apartment projects in downtown Colorado Springs will open their first units in mid-2023. The projects are designed to satisfy a growing young professional rental market. The developers predict that the hesitancy to live in a crowded urban space as a result of COVID will decrease by 2023.
Colorado Springs residents are also anticipating Amazon’s new 3.7 million square-foot fulfillment center near the Colorado Springs Airport. Amazon is planning to offer up to 3000 full and part-time jobs. The city is also anxiously awaiting the selection of the permanent location of the Space Force Command that is currently located on Peterson AFB in town.
What to Watch in 2021
The effects of the pandemic will carry over into 2021 and beyond. We’ve listed the major influences below.
Businesses that are unable to hold their financial breath through the pandemic will leave many employees without a job. This could leave some Colorado Springs residents unable to pay their rent or mortgage. It will remain important to keep a close eye on the unemployment recovery as we move into 2021.
What to watch in 2021: As of October 2020, 5.83% of all homeowners were in forbearance. If these homeowners have to sell due because of unemployment, the existing equity in their home is most likely high enough for these owners to settle all payments and fees and AVOID a foreclosure or short sale (where the home is sold for less than what is owed on it). Some fear that an increased number of homes on the market will cause a deflation of Colorado Springs home values. An influx of available homes would have very little effect on home prices because of our extremely low inventory in the Colorado Springs market. In fact, it would actually help alleviate some of unmet buyers demands.
2. Affordable Housing
Affordability in Colorado Springs has tanked since home prices have increased an astounding 36% over the past 3 years.
- There are disproportionate home price increases in the lower price tiers and it’s preventing lower income and first-time home buyers from entering the real estate market. This hinders their ability build wealth through real estate even with the sub 2% interest mortgage rates and down payment assistance programs.
- The median household income in Colorado Springs has not kept pace with home prices. Add the increased living cost to this equation, and you have the perfect storm for making the dream of owning a home nearly impossible for many in the mid and lower income brackets.
- Investors are opting to convert previously low income apartment buildings into higher end rentals or condos.
- Thanks to tax credits offered to builders, there are several low income housing projects in the works in Colorado Springs. These will most likely not be enough and more will have to be done to address the lack of affordable housing.
What to watch 2021: House hacking will become a stronger trend as we see more homeowners sublease rooms or basements to subsidize the income and higher housing expenses. The rental market will remain strong and carry high rents. The city is expected to complete the project of rezoning Colorado Springs by 2022. Rumor has it that re-zoning will include variances for mixed use properties and converting offices to residential rental properties after the work from home trend continues. This could potentially help our affordable housing issue.
3. Pandemic-related changes in real estate demands
Living with the pandemic restrictions has changed what buyers look for when shopping for a home.
- Many employees are able to work from home at least most of the time. This allows those employees to move to other areas that were previously excluded because of commute times. Very few El Paso County residents will actually move OUT of Colorado, but they might seek more suburban or even rural settings – provided a good internet connection is available.
- Preferences in home features have changed. While an open floor plan has been a big hit over the past few years, we hear more and more buyers requesting a dedicated office or home work space, more separation from neighbors, etc.
What to watch in 2021: The effects of the pandemic restrictions will remain visible through 2021. Industry experts expect the effects to wane and return back to some sense of normalcy. But buyers in our inventory starved market don’t have many choices and have to take what is available and adapt it to their needs. Master planners will have to ensure that buyer demands for more green, open and community spaces are included in their neighborhood designs.
4. Demographic Changes
It’s expected that young professionals and empty nesters will decrease in Colorado Springs in the next decades. These two groups usually prefer a more urban setting.
What to watch in 2021: Demand for urban, high-end apartment complexes could temporarily dip, but the overall rental market will stay strong.
5. Migration Patterns
Colorado Springs’ planning and investment is beginning to pay off by attracting new residents into the city. The Colorado State Demography Office recently estimated that 15 people move to El Paso County every day. It is expected to stay that way for at least another 3-4 years. Texans and Californians are the biggest influence in the incoming migration patterns, but we are seeing a lot of folks from New England and Florida head our way as well. Retirees love the city and employees love the opportunities here.
What to watch in 2021: Colorado is considered an inbound state (we have more people moving TO our state than out of it). Californians have benefitted from the high equity drawn out of their California homes enabling them to bring the cash offers to compete with local buyers’ lender offers.
Colorado Springs is lucky to have a strong economy and a growing and solid tax base for our city. The overall expectation is that the city will make it through the pandemic just fine with increasing home values of at least 5% in 2021. Lack of inventory will lower the actual number of sales. New construction options are becoming more expensive, but they will drive the sales market next year. More expansion east and the connection to Falcon/Peyton is expected. In most areas of Colorado Springs, investors will have to look at an appreciation gain instead of a return on investment rate or monthly cashflow from rents. Investment opportunities are out there but VERY few and far between.