Editor's note: This is part two of a two-part series. To read part one, click here.
A few decades ago, Jeff Keehfuss was reading an article that stated, “Who’s going to build the last hotel room in Las Vegas?” At the time, the Sin City was known for paving the way for newer buildings, imploding older hotels.
Las Vegas was eventually coined the “Implosion Capital of the World.” From 1993 — 2007, there were 15 implosions on the strip. In with the new, out with the old, a cycle of reinvention in a place where there’s plenty of infrastructure, but much of which dried up and blew away.
Today, of course, the Las Vegas Strip is vibrant, a hotel and casino practically sitting on every street corner.
Before then, the question was asked. “Who’s going to build the last hotel room in Las Vegas?” And now Montrose, faced with a housing issue where prices rise, in both the house and rental markets, Keehfuss, a Montrose real estate agent and broker/owner at Berkshire Hathaway HomeServices Western Colorado Properties, posed the question: “Who’s going to build the last home in Montrose?”
There’s reasoning behind the question. With building and infrastructure costs nothing to sneeze at, and taxes on unapproved lots at 28%, the risk for developers to build homes here only increases, considering those searching often don’t have the financial means to do so. (It’s no help that Montrose lost a large industry employer, Russell Stover, which employed nearly 400 seasonal and full-time workers.)
Building costs are through the roof. The cost of lumber, one of the biggest factors of construction, year-to-date is up 200%, said Brad Yeager, owner of Ridgeline Homes, LLC, a custom home builder based in Montrose. (Brad and Stephanie Yeager build homes in Bear Creek, Waterfall Canyon and at the Promontory at English Gardens). Also, the 7/16 inch sheathing for exterior walls went up $9 a sheet in four weeks, as part of the lumber pack.
On a smaller, 1,300 square foot home, due to the price increases, in one month, $5,000 has been tacked on to the total cost of lumber for single home construction.
“I don’t remember a time where it was this bad, as far as supply,” said Yeager, who’s owned Ridgeline Homes for four years and has been in out and out construction all his life.
He isn’t sure what’s forcing the material price increases, whether it’s just short supply, fires in Oregon or price gouging from lumber companies. It doesn’t help that lead time is leading to supply chain issues — currently, garage doors are three months out, and windows and exterior doors two-and-a-half months out, to name a few.
Traditionally, year-to-date price increases on materials is just 3%. But one item, furnaces, saw a 15% increase, Yeager said, and manufacturers have said to expect 6 — 15% price increases on various other items in the coming months. Concrete, too, has seen a rise in pricing.
Though building costs are going up, leading to higher prices for starter homes, Keehfuss said he doesn’t think the “sky is falling,” as the current market doesn’t compare to the 2008 housing crash, when homes were selling for less than what the buyer paid for and buyers did interest only loans with the idea of never paying them back. “It was an absolute nightmare,” Keehfuss said.
Today, people have a lot of “good” home equity, leaving themselves in a much better financial position. If anything, people that purchased a home a few years ago are welcoming the rise of the home’s value, and in some cases, the home’s price is double than what they originally paid for, Keehfuss said. And, the current percent of list price received (the asking price a person receives on a home that’s selling) statewide is 101.4%, meaning people are receiving over asking price.
“I’ve never seen this before,” Keehfuss said as he looked over a report showing the statewide and local statistics.
In Montrose, that percentage, for February, was 99.3%, according to a report from the Colorado Association of Realtors, a 1.8% increase from the year prior. Montrose usually sits around 92 — 95%, Keehfuss said.
A seller’s market? It’s complicated
High home prices means the perfect time to sell, right? Well, though selling isn’t traditionally straightforward, it’s gotten even messier as of late, Keehfuss said, due to a number of potential sales falling through. That’s because appraisals are, at times, falling short, pushing the value of homes lower than the asking price. And if a buyer isn’t willing to meet that price, after the appraisal, and the seller won’t budge, the deal is off. (If a seller lists a home at $600,000, and the home comes under contract at $550,000, but the appraiser values the home at $500,000, the seller can either agree at $500,000 or negotiate. Lately, in Montrose, deals falling through are “happening a lot,” Keehfuss said, muddling the waters only further for buyers and sellers. It’s possible buyers can become unqualified for the home during the process, and also possible that a seller shoots for the moon and lists the property at too high a price.)
If the interest rate goes up, it also hurts the buyer, as the home becomes unaffordable and comparable homes, too, don’t come in under budget. The buyer goes back to square one after an exhaustive process, and the seller looks for another suitor. Also, due to the rise in interest rate, buyers might not qualify for the same home they were going to purchase the month prior. “Not everyone has cash to purchase a home,” Keehfuss said.
It’s why, Yeager said, appraisers need to consider the rise in building costs when appraising a home. With prices increasing for builders, the value of the home is higher, a note appraisers need to keep in mind, he said.
Either way, financially, people have to pony up. So far this year in Montrose County, there have been 36 homes that sold. Of those 36, 20 sold in the $300,000 to $400,000 range. But homes listed under $200,000? Only eight sold in that price range, and the living conditions in those homes aren’t what they used to be.
“At what point are people going to say, “I went to Montrose, and ended up somewhere else, or I’m going to look at other places,’” Keehfuss said.
Dennis Bailey of Coldwell Banker Distinctive Properties has 50 years in the real estate industry and has been in Montrose since 1978. He said he isn’t experiencing deals fall through, but rather the most competitive market he’s seen in Montrose. “This is the first time I’ve seen a market place as tight as it is with the low inventory and multi-offers on properties,” he said.
Interest rates are driving the market right now, he added, ranging anywhere from 3 — 4%. In fact, it’s extremely competitive in the lower price range, especially with inventory low and demand high.
“We’re in the opposite of a crisis,” he said. “Never in Montrose have I seen it as strong as it is.” He added that Montrose is currently experiencing a strong seller’s market with inventory ranging from $210,000 to $700,000.
It’s also competitive right now, especially for families who want to buy a home. If they don’t have $295,000 in cash for a $300,000 home, the seller is going to likely take the cash offer, even if the family offers at or above asking price. (Terms tend to be better on cash offers.)
Bailey said some homes have two to four offers at a time. One client had four offers out at once, he said, but didn’t close on any of them.
Too little to choose from
One strategy buyers have used and continue to explore is purchasing a lot to build their own home. But in Montrose, even that, as of late, has not only proved costly, but akin to finding a needle in a haystack.
“They are very, very scarce, especially for entry level,” said industry veteran Matt Miles, founder and owner of Leadership Circle LLC, a real estate development company. Available lots to build a starter home in English Gardens sold out last month, and later sold out in Bear Creek. People can purchase lots at the Bridges or Browns Ranch, he said, but that’s going to prove costly due to restrictions such as square footage, architectural requirements, homeowners dues and more. All prices, however, can vary as some homes might have more custom finishes, leading to a big price jump.
With locals looking for their next home, and big city residents ready to move to rural areas, being on top of every detail and the latest listing has become the new norm.
“You better be on your toes and you better be ready to spend $310,000 for an entry-level house now,” he said.
Miles, who provides lots at what’s considered a more affordable price range, says those are snatched up quickly. People today, he said, won’t even visit Montrose before taking the plunge, keen on closing as soon as it’s available.
“I’ve never seen that before,” Miles said. “But we seem to get people who come here because we have a housing product that suits their needs.”
The overall shortage, though, isn’t purposeful.
“I can only supply as fast as I build,” Yeager said. “There is a greater demand than year-to-date, and nationally, the demand for homes has doubled and supply has decreased by half. There is a huge appetite for homes. I can’t even keep up with demand.”
Currently, Yeager said his team typically has 12 to 14 homes under construction at a time, and the company is getting to a point where homes are completed in 10 to 12 weeks (turnaround time varies). Now, due to an efficient production line, they can finish a home a week, but those are bought before they’re completed, he said.
“Supply is constrained, because the whole west, every town like Montrose, every place with a clean environment and good internet is exploding in population,” Miles said. “There’s a secular change now where people decided they have had enough of cities and the urban environment.
“From $200,000 to $450,000, a buyer better be prepared to pay full price or get into a bidding contest,” Bailey said.
What the future holdsThere’s no predicting when material prices might decrease, Yeager said. If those prices stay the same, keeping building costs high, it only means home prices will continue to rise, with builders bringing those homes to market as economically as they can. And considering, in the past 12 years, a bare bones starter home has gone from $250,000 to $310,000, it’s likely to hover around that higher range for the foreseeable future.
“It’s not like these builders are trying to just get rich,” Keehfuss said. “I don’t think they are cutting a fat hog. Building costs are just so high.”
“We get different answers when trying to find out the reason why it is skyrocketing,” Yeager said on the price of lumber. He said some in the industry predict there could be some stabilization throughout the year, or price reduction to lumber, but there’s no concrete answer.
It’s possible that, once “normalcy” returns, people could finally have the financial wherewithal to purchase a home, or sell a home, Keehfuss said (many sellers haven’t sold not only because of the pandemic, but once they sell, they need to have somewhere to go, and with low inventory, there’s no easy find).
And if people adopt the mentality that finding a place to reside in Montrose is too hard, and decide to move elsewhere, so, too, could developers choose to take their operations to another place, especially if lots sit unoccupied and taxes on those lots pile up.
“There is hope for inventory,” Keehfuss said. “... People are working diligently to get us inventory.
“... We have a lot of healing to do, in the economy and the nation, and with what we just went through in 2020… we’ve got some big, critical issues, financial issues that need to be taken care of.”
Josue Perez is a staff writer for the Montrose Daily Press