Sometimes in both life and business, there are milestones that you know you’ll remember and recount for decades to come. For a majority of us, I think we’re all feeling like this season is one of those times, at least from a business perspective. The 3% interest rates, skyrocketing real estate values, and a very bullish stock market have come to an end. For some folks, this has been the best of times; for others not so much, as they’ve seen their dreams of home ownership pushed out of reach and their paycheck not going nearly as far as it used to.

As a home builder, I’m at the tip of the spear economically speaking. When rates are low, retirement portfolios are strong, and confidence is high, our biggest challenge is keeping up with demand and performing on our contracts in a timely fashion. When rates are up, portfolios are weakening, and confidence is struggling, we see the impact immediately.

How Is The Building Marketing Looking For 2023?

Needless to say, in the last few quarters, we’ve moved from the former to the latter. In general, the Colorado Springs home building industry is still very busy; you could reasonably expect that most builders have a year’s worth of work under contract and in progress, but that their pipelines are slowing down and that they do not have a significant backlog of work beyond what’s currently under contract. Of course, this is a huge generalization, but overall it’s not a secret that home starts, home sales, mortgage lending, and all things real estate are slowing down significantly.

As a potential custom home buyer, what’s the best strategy for this new season? How do you manipulate and leverage these new market conditions to your best advantage? What’s the smart play?

Buy Land To Build On… Right Now!

There is one thing they’re absolutely, positively not making any more of: land. Custom lots in the Colorado Springs area are increasingly more difficult to find; in my opinion, it’s the hardest part of the custom build process. Do not expect the prices of lots to drop by much if any, as we head into a recession. In 2008 – 2010 we did not see lot prices decline in value to any measurable degree; the owners know the value, and the vast majority of them are not leveraged heavily, if at all, so the carrying costs are not a factor. You likely won’t find a “fire sale” on a lot, and at this juncture of the development of El Paso and surrounding counties, just finding a good lot is a huge win.

Get A Soils Test Before Buying

Before you buy land, we’re more than happy to meet with you on a lot you might be considering, give you our opinion of the lot, and coordinate a soils test to make sure the soils are acceptable; this is an issue in Colorado that has a significant cost to it if not identified on the front end prior to closing. If you remember anything from reading this, do NOT buy a lot without a soils test and having a professional builder render his or her expert opinion on it; there are things you just don’t know unless you’re a home builder and have the experience to know a good lot from a bad one.

Once you’ve secured your lot, you can either wait to develop your plans, or develop them in the near term, knowing that you do not have to pull the trigger on the build right away; we currently have a number of folks that have fully engineered, completed plans ready to go, and they’re just waiting for market conditions (i.e. interest rates and material/labor costs) to line up a bit better than where they are now. This is a very advantageous place to be, in that when conditions are right, they’re ready to move and take advantage of the market.

When Will Building Costs Decrease?

This naturally leads us to the next logical question – when will costs, both materials, and labor, decline? Will they decline, or will current pricing become the new norm? This is of course a massively complicated question that no one can accurately predict, but it’s a safe bet it won’t be this year; economies just don’t move that quickly, and they tend to respond like glaciers – slowly, but with a lot of inertia. Over time, costs and appraisals will balance out, as they always do, so keep your eye on the 30,000 foot picture.

Overall, what’s my take on the 30,000-foot picture? Unbelievably bullish. People want to live here; the demographics are unequivocal on that; it’s the primary reason Front Range housing went sky high these last years; huge demand, very low supply. Our winters are mild compared to the East Coast and Midwest, our falls and summer are flat-out amazing. Business is booming, the schools generally are quite good, and traffic is barely a thing. All sorts of recreation are less than an hour away; fishing, golfing, hiking, hunting, skiing, off-road sports, you name it. I left Southern California 20 years ago for all of those reasons, and I can’t imagine living anywhere else.

Thanks for reading this, please don’t hesitate to reach out to me if you have any questions or if I can be of any assistance to you.