First, let me share a little history lesson.  The change in the markets the past few years is now affecting what people are buying when they do buy a home.  During the roaring 90s when the dot com industry rose, people had a lot of extra cash in their pockets and built homes to reflect their desires.  Showy, big, extravagant homes dotted (that is a pun ) the landscape, especially in California.  Then the dot com bubble burst starting in 2000 and the market changed.  Investments in the stock market tied to technology went poof and bank accounts dwindled.  Real estate then became the go-to investment arena and we all know what happened.  Real estate prices escalated until 2006.  In markets like CA, FL, AZ, and Las Vegas, prices were surging 30-40% per year and those who were actually awake during that time realized what goes up must come down.  I personally could not believe that interest only loans were being used by consumers to purchase the home they would be living in.  Interest only loans are a strategic product used by real estate investors to manage cash flow.  I don’t think that description applies to most of our neighbors.  So what does all this have to do with smaller homes?

Just think how different the real estate market and our economy would be today if we had foregone the speculation of the past decade.  Did you know 1 in 4 homes was sold as an investment during the go-go years?  That’s 25%.  Do you think that had an impact on pricing?  Absolutely.  Just like tulip bulbs in Holland centuries ago.  We Americans went around with blinders on because getting money was so easy and we didn’t want to believe it could end.  But just like the dot com bubble, it was an upside down pyramid and collapsed under it’s own weight.  We ran out of buyers who could buy at such frothy prices.  Fortunately, in some markets such as Colorado Springs, we had more steady increases in prices and never saw huge increases, so most homeowners can weather the current market.  But even here prices have dropped about 20% on average over the past 3 years and people who bought at the height of the market are underwater unless they had a large down payment or have been making extra principal payments since they bought their home.  If they can stay put, they’ll be okay.  If they have to sell, they have a problem unless they can bring cash to closing.  For some, hardship will allow them to qualify for a short sale to avoid foreclosure.  Sadly, others will lose their homes.

So back to my question.  What would the market be like if the housing market had been steady instead of the scenario we did have?  First off, not as many people would own homes or if they did, they would own smaller homes than they purchased because they wouldn’t have based their decision on an expectation that their home was going to appreciate in the double digits every year and make them rich.  Home ownership DOES make people rich, but it is a slow steady process that lasts a lifetime.  The other thing we would have seen is smaller homes because they would be more affordable.  In some places, like California and Hawaii, they’ve had to keep home sizes smaller in general because land is so expensive.  If speculators hadn’t driven up prices buying properties with loans that required no verification of income or assets, more people would still be in their homes because they would have been given those loans based on more realistic requirements.  Hind sight is always 20-20, and looking into the past shows us a process that was totally out of control.

Fortunately, our economy provides the answers and we will dig ourselves out of this mess.  Without buyers who can or will pay inflated prices, home sellers have had to reduce prices in order to sell.  Many people who would like to sell have kept their homes off the market for now, reducing inventory, which will help with recovery.  The market is winding down, although in some places, it definitely crashed.  At some point we will reach equilibrium.  We are getting closer, although there are still more foreclosed homes coming to the market that will keep prices down for the next few years.  As prices have come down, people who didn’t want to or couldn’t buy when prices were high, are now finding that homes are affordable.  The rate of affordability has increased.  Builders will build smaller homes to entice first time buyers and seniors who are downsizing.  The other good thing that has happened is that people have started saving again and are being more cautious about buying.  Loans aren’t as easy to get and people have to jump through hoops to prove they can pay their mortgage in order to get a loan.  Many people will wait until they feel more secure in their work or feel they will be in the house long enough for buying to make sense.  But more people who didn’t think they could ever afford to buy, can now find homes within their means.  And ultimately we will help the environment as green technologies become more prevalent in building and remodeling and energy efficiency becomes more important.

If we keep the recent market lesson fresh in our minds, what has happened can prove to be a good thing because it is changing how people view money.  Perhaps individually people will remember and not allow themselves to be drawn into craziness in the future.  New homes built will be smaller so that builders can keep prices where buyers can afford to buy.  Condo owners will ultimately be helped as people discover that is an affordable option in not so affordable markets.  As baby boomers retire they will still want 2nd homes and that will once again help the Florida, Arizona, and condo markets recover.  Some baby boomers will retire to smaller, more affordable communities and will help the economies of those areas where their spending will create more jobs.  First time home buyers have a fantastic opportunity right now to get into a home at lower prices and amazingly low interest rates.  Even when the $8000 tax credit ends, homes will still be affordable.  But that still doesn’t mean everyone should buy.  It still needs to be a careful decision.

For those who can’t buy yet, investors are buying foreclosure and short sale homes and renting them out, so renters will find more choices available to them.  Investors will be part of the solution as well.  So there is light at the end of the tunnel.  Now is the perfect time to put money aside and plan to one day be a homeowner or get that 2nd home or move up to a bigger home.  With planning they are all great choices.  If you are in a position to act now, congratulations!  This will prove to be one of the greatest opportunities of the 21st century.

Did you ever want to be an astronaut?  Do you get feeds from the NASA website regularly?  Are you a space geek?  Then get to the Fine Arts Center soon to see the current exhibit on the history of NASA.  I love looking at Hubble photos and have used them as inspiration for ATCs (artist trading cards).

I read articles on several real estate websites weekly and found an article I read today a great synopsis of what has happened over the past few years.  We started noticing the impact of the real estate meltdown in Colorado Springs the beginning of 2007.  There were hints things were changing in 2006, but prices didn’t start really changing until the foreclosure activity started increasing in 2007.  Here’s the article from Broker Agent Social if you’d like to learn more.

I just love Google streetview!  Here’s the link to the streetview of a home I just listed.  It was built in 1909 and is near the Stratton Open Space so a sweet location.  It needs work but is a gem for someone who wants to turn this little treasure into their own piece of Cheyenne Canyon.  Here’s the link: Cheyenne Blvd home

In an effort to help my clients understand the real estate market, which is changing constantly, I send them statistics and updates on a weekly basis.  It helps people make decisions that move them toward their goals with real estate.

I decided it would be a good idea to let you, cohomesgateway readers, in on this information as well.  You may not be in the Colorado Springs market, or you may be just browsing the web trying to decide if the time is right to buy or sell, andyou may find this information useful.  I’m happy to elaborate on any points if you want to contact me directly.

So what is going on with Colorado Springs and Pikes Peak Region real estate?  Teller County was hit hard when gas prices rose to $4 a gallon levels.  All of a sudden the drive into Colorado Springs to work while living in the mountains seemed like a huge investment of resources so people working in the Springs have been choosing to buy homes closer to their work.  The mountains have an appeal for many though, so gas prices dropping by 2/3rds will probably help that area once again.  There are always buyers who want the mountain and smaller community life in Woodland Park, Divide, Florissant, and other mountain towns.  After all, it’s closer to the ski resorts!

In Colorado Springs and points east, we have hit a low in sales over the past 4 years.  Less than 500 homes sold in November and again in December, 2008.  This is a time of year when we would expect sales to be closer to 600-700 per month.  This has caused a lot of sellers to abandon the market and sit on the sidelines, thus reducing inventory 15% since June, which is an excellent step towards market recovery.  This is not the time for sellers to “play real estate”.  There are no profits to be had and real estate professionals are not inclined to let sellers test the market with their limited marketing funds in this tough market.  Sellers have to be motivated to sell and understand that means competing with 34% of sales going to foreclosures and short sale properties locally.  Price is the key because the bargain shoppers are those in the real estate market, just as they are in the malls looking for the after Christmas steals.  Weren’t you there?  I was.

The median price for the Pikes Peak MLS has stayed in a 20% range over the past 4 years with the high being $225,000 in mid-2006 and the low $187,000 for November, 2008.  We never had the go-go market of other areas such as Phoenix, Las Vegas, and Florida, but sales happened a lot more quickly from 2004-2006 than they are now.  We have 10 months of inventory without anything new coming on the market, even with a reduction in inventory since June, 2008 of 15%.

Only homeowners who are 100% committed to selling should have their homes on the market now and the more limited inventory will help us move to a seller’s market as the economy improves.  Nothing ever stays the same.  A change will come and buyers who sat on the sidelines fearfully while prices and rates are low will be scrambling to make attractive offers on the most desirable properties to encourage sellers to take their offer over others.  The best homes always sell.  It’s just a matter of what buyers will willingly pay because the biggest fear is to overpay.  Too many people have experienced that in rising markets and are now looking at being part of that 34% of distressed sales.  Or 70-80% distressed sales as is happening in other markets.

So what’s a person to do?  If you are considering buying, but thinking about renting, look at your goals.  How long do you plan to be in the house?  Can you still save money and pay a mortgage?  Remember that the tax breaks of owning a home are a form of savings over renting.  If this is a 2nd home or investment purchase, can you withstand vacancies or managing multiple mortgages if your income changed?  Would owning real estate make you sleep better or worse?  If you think renting is better, have you considered the 6-12 months of rent you would be throwing away to pay someone else’s mortgage?  Have you saved money for a down payment, for home repairs, for an emergency fund?  Have you tried setting aside the difference between your current rent/mortgage payment and the new payment amount for a few months to see if it fits (the side effect is you are saving your down payment!)?  Would you be comfortable and still have money for fun activities or would you be house poor?

I could fill a book with questions to ask yourself, but you get the picture.  Make sure you have goals.  Seek the help of experts.  Then have fun making a purchase or selling and moving to the next town or bigger or newer home that you desire.  There are some great deals out there.  It’s a fun process.  Make the right decisions so you can enjoy it and smile when those new keys are put in your hand.  You’ll know you are taking the right step!