Have times changed for military homeowners?

News  /  Military

By Amanda Miller Luciano

Buying a home has been a solid wealth-building opportunity for military personnel relocating to Colorado Springs over the last three to five years. A servicemember could buy a home with a VA loan without putting any money down, use the tax-free Basic Allowance for Housing to cover most of the mortgage, and sell at a $200,000 or better profit three years later. But that may not be the case anymore.

“I can’t promise someone they’ll make all their money back in three years,” says Realtor Susanna Haynie, broker/owner of CO-RE Group.

Haynie, who has made her own moves as a military spouse over the years, represents a lot of relocating military personnel. While she has never promised anyone they could make their money back in three years, she confirms most military homeowners probably have over the last few years, and that the market has slowed dramatically since interest rates nearly doubled from below 3 percent at the end of 2021 to a high of more than 7 percent in November. Instead of selling over a weekend with multiple offers at tens of thousands over the asking price, homes are lingering on the market for weeks to months in some cases and there have been substantial price reductions on many listings in recent months.

Haynie says a specialist in the Army or Air Force will likely have a BAH of $2,400 to $2,800 per month.

“That’s not going to get the house the size they need with today’s interest rates,” Haynie says. “If I’m telling the truth — and I hate saying this — renting could be cheaper. I think it’s really important to have a real estate agent who is going to be honest about it and really look at the numbers.”

The principal and interest payments on a $450,000 house with 10 percent down at a 3 percent interest would be around $1,875 per month. At a 7 percent interest rate, the principal and interest payments would be around $2,860. That’s almost $1,000 a month more. And $450,000 bought a lot more house two years ago than it does now. Those payments don’t include homeowners insurance premiums and property taxes, which are usually rolled into monthly payments. Those costs will typically add $300 to $600 per month to the payments, depending on where a home is located. Rent for a 4-bedroom single-family home ranges from $2,000 to $3,000 on listings sites, with several options in the middle.

If service members are not planning to stay long term or imagine retiring here later, Haynie says she will help them honestly weigh the financial advantages of renting over buying in the current environment, she says.

“I actually think rents might be coming down a bit,” Haynie says.

Statistically, they are. Zillow provided Sixty35 with Colorado Springs rental market data back to 2019, which shows that asking rents have fallen month-over-month every month since July 2022. That’s especially meaningful given that asking rents were up 13.1 percent year-over-year in April 2022 and are now up just 5.4 percent year-over-year.

Alex Lacter, senior communications specialist with Zillow, says the company can’t accurately track inventory or days on market because of the way landlords list properties on the site. Some large apartment complexes leave units listed as available constantly. But local property managers say the rental market is soft.

“One hundred percent,” says Justin Hermes, a Realtor and property manager with the Hermes Group at Re/Max Properties. “Our inventory has doubled year-over-year.”

He says properties that used to rent for $2,100 per month in a weekend are lingering a month at $1,900 per month.

Of course, the rental market has historically softened beginning in the fall through winter. The pandemic years were an exception to that rule. Still, Hermes says he believes this is more than seasonal.

The reason for the glut in the rental market is murky. Headlines just a few months ago highlighted a national housing shortfall of 5 million units. So, why would demand for homes to purchase and for homes to rent fall simultaneously? It seems if buyers couldn’t afford to buy with current interest rates, they would be renters.

It could be that there is a ton of new rental inventory from small investors.

“We did 100 sales in 2021 and at least 40 percent of them were investors,” Hermes says. “When rates were low, investors were snapping houses up.”

With low mortgage rates and surging rents, investors — both the big institutional ones making headlines and ordinary people buying a house or two for their retirements — could make a decent return by buying a home with a loan and renting it out. That added a lot of rental inventory.

On top of that, there has been a tremendous amount of new multifamily construction in Colorado Springs over the last few years.

So, more inventory could have shifted the supply and demand dynamic for rental properties.

That could be another problem for military homeowners.

Haynie says renting a home out has historically been a solid backup plan for military homeowners who bought into a market that ends up trending downward during the few years of their ownership. If they won’t get their money back when they sell, they can rent the house out and have someone else cover the mortgage payment while they rent or buy at their next post or base. It can also be a good wealth-building strategy for service members.

“We did it when we left Washington state,” she says.

They bought their home in 2006. When they moved in 2010 after the housing collapse, they couldn’t sell it for as much as they paid.

“We became involuntary landlords,” she says. “It was so inconvenient and a pain, but eventually we found a good property manager, we refinanced, and it was a good investment. But I have empathy for someone who doesn’t want to be a landlord.”

With rents also trending downward now, it could make that trusty backup plan for service members trickier.

If military members bought in the last 10 months and have to move earlier than expected or if they refinanced and borrowed against their equity, they may not be able to sell without negotiating a short sale with the bank, Hermes says. In that case, their payments could also be higher than the going rents.

“I expect when people start PCSing, we’ll see a big uptick in accidental landlords,” Hermes says. “And I imagine some of them could decide to rent out and be losing $400 a month.”

Of course, this is all a pessimistic view of what’s to come in the housing market. Mortgage interest rates have already fallen to under 6 percent, perhaps foreshadowing another boom.

There’s no certainty in predicting the market, Haynie says.

“I really think it’s important to sit down with the service member and look at every aspect of their situation to see what their priorities are and what their wealth-building plans are,” Haynie says.

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