Saturday, February 1, 2020

Rent growth has slowed in Colorado Springs over the past two years

For the first time in years, I updated the Colorado Springs vacancy and rent graphs.

First, let's look at the vacancy rate for the region.  During the third quarter of 2019,  the Colorado Springs vacancy rate fell to 5.0 percent. That's down from 5.4 percent during the second quarter, and it was down from 5.2 percent as recorded during the third quarter of 2018, one year earlier.

2019's third quarter rate was the lowest vacancy rate recorded since the third quarter of 2016, when the rate was 4.0 percent.

This suggests vacancies are in a downward trend at the moment, but there rate isn't exactly at historical lows. Five percent suggests mostly full units, but I wouldn't describe it as an especially "tight" market.

Not surprisingly, though, this decline in vacancy in the last two years has come with rent growth — but not a lot of rent growth.

From the third quarter of 2017 to the third quarter of 2019, the average rent grew 8.6 percent (or 98 dollars) from $1,113 to $1,231.

This is an average, so is skewed upward by new construction. As noted in October in the Gazette:

Most Colorado Springs-area apartment projects built in recent years have been upscale, amenity-filled communities that command top dollar for rents, said Laura Nelson, the Apartment Association’s executive director.

“The only supply we’re adding is high end,” she said. “So when you add high-end units, then it pulls your average up. That doesn’t necessarily mean than everything is going up that high. But when that’s all that you’re adding in, it throws off the average.”

Though several apartment projects have been built in recent years, the overall supply might not be keeping up with demand.

In the third quarter, only about 2,600 of the area’s supply of 51,142 apartments were available for rent — a 5 percent vacancy rate that was the lowest in three years, the Housing Division and Apartment Association report shows.

Nearly 750 units have been added to the area’s supply in the first three quarters of the year, which is about the same number as during the same period in 2018, according to the report. Even so, an additional 1,178 apartments have been occupied since the start of the year.

If we looked at growth in median rent, the increased would like be smaller, since median numbers are less skewed by new product. I don't have the median numbers yet for the third quarter, but the growth in median rent from the third quarter of 2017 to the second quarter of 2019 actually went down by 10.9 percent. This may have been driven by declines in rents in older and less desirable units.

Year-over-year growth in average rent has slowed over the past two years compared to 2016-2017 when YOY growth frequently topped ten percent.

Friday, January 31, 2020

New Mesa County Foreclosures Hit 12-Year Low in December

Last time, we saw that "releases of deeds of trust" spiked in Mesa County. That suggests some strong demand for for-sale housing in the GJ metro area.

So, not surprisingly, we also find that foreclosures in the area fell to a 12-year low in the area. In fact, these numbers may be lower than anything we've seen in much more than 12 years, but I only have data going back to 2008. In other words, there were fewer new foreclosures in December 2019 than in any other month during which I collected this data.

Specifically,  during December, there were 11 notices of election and demand.  The "NED filing" is the first step in the foreclosure process. That's down from 17 in November 2011, and it's down from December 2018 when 19 NEDs were filed. As the blue line shows below, the NED filings total is even down from where it was in 2008.

The other measure of foreclosure activity "auction sales" has not dropped off quite as much. The "sale" step of the process is the end of the foreclosure process when the property is auctioned off to a new owner.

During December, a total of five properties were foreclosed and sold at auction. That's a low number, but not the lowest we've seen over the past 12 years. Sales totals have been largely flat over the past year, and have returned to what we saw back in early 2008.  Nonetheless, foreclosure auction sales can be said to be at historic lows.

This follows a general statewide trend. Most Colorado counties have seen big decreases in foreclosure activity with combined statewide totals also dipping near 12-year lows.

Moreover, keep in mind the population of both Mesa County and the state have increased over the past decade, so on a per capita basis, foreclosure activity has fallen well below where they were before 2008.

Releases of deeds of trust surge in Mesa County

A release of a deed of trust is an event that occurs when a deed of trust (often referred to as  a mortgage) is paid off, either through refinance, sale, or when all payments have been completed on a home loan. It is a "positive" economic indicator in sense that areas with improving economies tend to generally also report increases in releases of deeds of trust.

Other factors can be important as well. In cases where there is a housing shortage, but other economic indicators are robust, we might also see declining release activity. It's not always easy to know which factors are the key factors in whether or not releases are going up or down. 

We do know, though, that releases tend to go up when interest rates fall. And releases tend to go down when interest rates rise. We've seen this in the combined release data for the state's biggest countries.

Combining the state's big metro counties (plus Broomfield County) we saw that releases headed down in late 2018 as the Federal Reserve began to allow the fed funds rate to rise. The mortgage rate then followed suit, and releases trended downward. During 2019, however, the Fed began to push rates down again, and releases rose again at the same time:

So far, I only have the data for the combined metros through October. 

An odd thing happened in Mesa County during December, though. According to the Mesa County public trustee's latest data, releases spiked to the highest level I've seen since I began keeping track of releases back in 2008. 

Releases have generally been hovering between 600 and 800 per month in the county over the past two years. But in December, the total shot up to 1,253. That's a huge increase. For instance, in December 2018, the total number of releases was 569:

Based on what I have so far for the other metro counties, many counties are experiencing sizable increases — but this increases appears to be significantly larger than the other counties.  I spoke with the Mesa County PT and confirmed this is correct data, and it is not due to an administrative backlog or an artifact of processing. It does appear to be a result of real events in the local economy. It appears many homeowners in Grand Junction had the opportunity to refinance in December, and many took it. 

We'll know more at the end of January if this is a trend, or if just a quick spike that will soon return to normal. But in either case, the surge in releases suggest confidence in the local housing market on the part of lenders and investors in the secondary market. It may also suggest lenders anticipate the Fed will continue to take a dovish view on inflation and interest rates.