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Real estate transactions fall but prices stay high in ‘22

While political attention locally and at the state level has been focused on a possible increase in property taxes next year due to rising property valuations, it is crucial to take a moment to look at the condition of the local real estate market and what effect high prices are having on the community. According to data from the Custer County Assessor’s Office, the number of real estate sales in 2022 is off of their highs from 2021, but the lack of sales is also coupled with a lack of housing inventory, which appears to be keeping prices high.

Because of the shortage of properties and homes to purchase both locally and nationally, prices have remained close to their pan- demic highs; and by all measures, property values are still roughly 60% higher than in 2019 before the stimulus packages that came in response to the COVID pandemic. Also, record-low interest rates caused real estate values to inflate dramatically. As the accompanying chart shows, over a decade of Federal Reserve zero percent interest rates since the financial crisis of 2008 have contributed to steadily increasing the number of real estate sales in Custer County. 2020 and 2021 saw the number of real estate transactions explode even higher.

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According to the data compiled by the Assessor’s office, real estate transactions plummeted locally in the 4th quarter of 2021 as the Federal Reserve started to aggressively hike interest rates in response to inflation that was about to touch ten percent per year. The reduction in property sales was half of what it was the prior two years and at the same level as 2018. The first quarter of 2023 (not pictured in the graph) was also slow, with 81 properties sold.

Local real estate companies have commented that while the overall number of transactions is down, sales are still occurring regularly. According to data from the Saint Louis Federal Reserve, nearly 35 percent of real estate transactions are conducted in cash. So, while interest rates have gone from a low of 2.5 percent to over 7 percent for a thirty-year mortgage, real estate values have stayed near their historic highs.

What is different now com- pared to 2021 is that buyers are no longer aggressively driving up prices by placing bids over the asking price, as they were during the pandemic. Even the occasional price cut has taken place. Builders are still reporting they are busy, and many are starting to book into 2024 and 2025 to build custom homes in the Valley. Real estate in Custer County is now moving in lockstep with the rest of the nation, and the uncertainty of the future of real estate prices will make the discussion on property taxes more difficult for property owners and their elected officials.

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While both major political par- ties in Colorado are calling for property tax relief, neither party leaders have addressed that only 67 percent of voting-age residents in Colorado own property. The HH Proposition approved by the legislature is designed to lower property taxes with local government short- falls caused by the lower property taxes to be paid using Taxpayer Bill of Rights funds (TABOR). This reduction in TABOR funds also means those without property will subsidize current property owners. For now, Proposition HH will be in the November election. When asked how giving tax breaks to property owners would impact those who did not own property, Governor Polis stated that the “property tax savings will be passed on to renters.” State Representative Mike Wissman of Aurora and one of the bill’s sponsors echoed this statement from Polis. However, when asked by the Colorado Spring Gazette if he could cite evidence of the effectiveness of this resurrection of “trickle-down” economics, Wissman could not. The HH Proposition also makes the senior homestead exemption portable in Colorado for seniors who want to downsize to smaller homes or condos but fear the tax break they receive from their current property.

A lawsuit brought by 16 Republican counties is questioning the constitutionality of Proposition HH and wants to protect TABOR refunds. However, the Republicans are not pursuing this strategy out of solidarity with non-property owners. Instead, rural counties, including Custer County, are starting to demand that the state pass legislation next January that will simply lower property taxes generally and leave the question of TABOR refunds out of the legislation. Custer County Commissioner Bill Canda wants to see mil levies voluntarily dropped in Custer County by the 13 local taxing districts to protect property owners. But he did not specify how to fill the budget gaps that such a move would make in local government. While mil levies could be dropped with- out voter approval, future increases must go on the ballot. Some citizens have pointed the finger of blame toward the 2020 voter-approved repeal of the Colorado Constitution’s Gallagher Amendment, which they claim kept residential property taxes low. However, the Gallagher Amendment only capped the overall contribution of residential property taxes to 45 percent of all property taxes collected in the state. Real estate inflation hit all sectors of the state and nation, and residential property taxes would have risen regardless. With the amendment’s repeal, the state can entertain adjusting property taxes independently of the former Gallagher Amendment formula.

The lawsuit brought by the 16 Republican counties and supported by Custer County was struck down for lack of district court’s jurisdiction, opening an appeal to the Colorado Supreme Court before the November election.

While the effects of the record- high real estate prices are myriad, the now elevated real estate prices are forcing younger people to move out of the Valley and out of the state in general. The average household income is $60,000, and home prices are $450,000. This matches the national ratio of 7.5 times household price compared to yearly household income. In perspective, the ratio was just 5.5 times income on January 1, 2020.

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State demographer Elizabeth Garner told the Denver Post in January that the state has added the lowest number of people since 1990. The population increased by only 27,000. Throughout the 1990s and early 2000s, the state added over 100,000 people per year. Coloradans have fewer kids, and the state is getting older at a breathtaking pace. Those 65 years and older are the fastest-growing demographic segment of the state’s population despite the death of at least 15,000 additional Coloradans due to COVID since 2020. These numbers include legal and estimated illegal immigrants and are the lowest immigration levels in recorded history. The state may see a decline in population for the first time since records were first kept in 1922. Neighboring Arizona saw its first decline in population in 2021, and it is predicted to continue for the foreseeable future.

The lack of kids and younger staff is hitting the school district particularly hard. During last week’s Custer County School Board meeting, the school said student enrollment was just 317, down from the high of nearly 600 in 2008. The 2022 county census estimates suggest that there are only 535 people here between the ages of 5 and 18. Homeschool and religious schools make up the balance of those children not enrolled in public school. This dropping attendance is a significant budget problem that an inexperienced school board must tackle next year (three of the five members will not be running for election this fall). The state calculates funding on a per-student basis. So, fewer students mean there will be less state money, making up almost half the yearly budget. In addition, many teachers are leaving this summer, citing bad pay, limited housing, and conflicts over maternity leave with school administrators.

– Jordan Hedberg

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