Pueblo, CO...the next Colorado Springs?

Question

As we've all seen, the Colorado Springs RE market has gone crazy the last several years. With new business, tons of building and a highly rated quality of life, it is the place to be. I've even heard some people commute to Denver.

With prices so high north of there (seemingly all the way up to Fort Collins), it used to be a reasonable place to invest. However, that's changing in the current market. So, we need to look elsewhere for cash flow. It appears Pueblo still has some decent deals. Unfortunately, it hasn't yet caught up to the Springs in terms of services and it is still a bit isolated. What are your feelings about Pueblo (including West Pueblo)? Is is primed for development or will the CS market cool in the near future?

Joey Dingman · Answer

@Matt J., Encouraged by your interest in Pueblo.  I’m a native and this is my 2 cents.  While Pueblo has seen incredible price growth, I would caution that the market fundamentals for the area do not keep pace with the rest of urban Colorado.   I would encourage you to think of Pueblo, Colorado as physically on Colorado’s front range, spiritually in the rust belt somewhere around Cleveland, and culturally in northern New Mexico.  We are very proud of a heritage that includes a heavy concentration of diverse global ethic groups with a unifying agricultural and industrial/manufacturing heritage.  Truly a rare bird.   But decades of high unemployment from globalization and the attendant generational welfare dependence and despair have done a lot of trauma to places like ours.  It will take perhaps a full generation of “good times” for that trauma to wear off.

Many of the underlying indicators that investors look for like education, school quality, wages, workforce, and job growth are abysmal. Today's reasonable looking rents are surprisingly unaffordable with the median renter's income, a sad fact you'll encounter every time you lease a property and look at the applications.   I’ll go on record as saying the price growth you are talking about is overflow from points north, not sustainable or based on any endemic economic activity, and won’t continue much longer.  Just as you would probably prefer to buy northward but are looking at Pueblo because it seems reasonable by comparison, retail home buyers are making the same calculation.  What will you and they do in a market correction?

There are bright spots.  The city has some inspired leadership, finally elected a strong mayor with a clear mission, is notably reducing crime, and has proven much more resilient than many of its industrial peer cities where unemployment, generational welfare dependence, opioid abuse, etc. have been worse.  And there is lots of vacant land that can be subdivided with new housing tracts for retirees a la Tucson once Pueblo West fills up.

Crucially, the school district is bad and not improving.  That is the real crux.  This will continue to handicap the area because the high paying 21st century jobs will continue to accrue in places with a workforce suited to their demands.  The number one objection of employers seeking to relocate their firms to Pueblo is the school district.  Places like Pueblo have historically not made the investments they need in workforce development or in schools or culturally prioritized education.  The meritocratic worldview you find in places like Boulder is often treated alternatively with scorn and suspicion.

In sum, Workforce Drives Employment Opportunities Drives Wages Drives price growth.  There's a reason it seems comparably “cheap.”

All that said, if you find a deal in a good area (and there are many great, beautiful areas) that will cash flow And screen your tenants well you Can do OK here and knock off some serious mortgage principle over the years.  Just don’t expect to see any more appreciation.   In fact, I suspect with some inevitable macroeconomic correction that values will soon take a bellyflop.

Sam Dangremond · Answer

Nope.It's aweful here. Out of state investors should definately stay away.(Cough... cough)... or at least until after I buy 40 or 50 more SFHs.  :)

Thadeous Larkin · Answer

@Steve K. - Re: the Correction:  An excellent point.  It's always hard to tell if you're at the beginning of the downward trend or if it's within a range of acceptable variation.  Pick your poison when it comes to statistics on it - month-over-month or year-over-year home sales indicate a slowdown in Denver.  Colorado Springs seems to be about the same as it has been (except that it continues to have a higher price per sqft) meaning its harder for people to start out in the market if you don't have the capital.

Cue the attraction of Pueblo - comparing prices there to the hot, hot markets of Denver and CoSpgs over the past five years makes it seem like an easier start.  There are niche pockets that perform very well there.  Anyone looking from the outside might be tempted to think it's naturally next in line for its turn catching some of that Colorado growth.

However, unless you live in Colorado it's hard to tell the difference between the cities.

In other words - don't just assume that because a place is in Colorado that the popularity of other cities in the same state means that it will translate into EVERY region of the state.

No offense to @Jerry Burns , because you have a lot of great points and fantastic insight into the market, but the growth of Denver and CoSpgs is largely driven by young professionals with high incomes.  Their moving criteria wish-lists are often driven by in no small part by experiences (places to go out, restaurants, etc.), the presence of other young people, and, when they start to have families, good schools.  Pueblo is generally lacking in that kind of option.  Walmarts and Kohls don't draw in millenial money.

Think of Denver/CoSpgs to Pueblo almost like Columbus, OH to Cleveland, OH.  Columbus is exploding, but Cleveland is declining.  The drivers for both are similar.

In sum - I personally consider Pueblo a market prone to speculative investment.  Don't assume that Colorado's magic markets will automatically extend to everywhere in the state.  Find correlative statistics that can help you measure your interest or find a good niche in the market (population/population growth between certain age ranges or income demographics, etc.) rather than relying on market anecdotes.

JD Gunter · Answer

@Jerry Burns brings up a good point that Pueblo West and Pueblo proper are generally viewed by locals as being two different places, with Pueblo West being the more desirable of the two, broadly speaking.

I was at a seminar recently and they made the point that Pueblo has seen the same percentage dramatic price appreciation that Denver and Colorado Springs have seen, Pueblo just started out lower.

Pueblo is booming and has been for some time. The prices are lower, which makes it seem like it hasn't been as crazy.

Steve K. · Answer

Not sure if your Chrystal Ball is correct or not @Joey Dingman, but very well said and thanks for the local insight. After hearing and reading so much about Pueblo over the last year or two, I decided to stop in this spring with my family for lunch on our way back from a ski trip to Taos and check it out in person. What struck me immediately was all the abandoned steel mills and rusting-out factories. The town's metanarrative seems to be that the jobs left and the city population got stuck there with nothing to do and no income, hence the high crime. The River Walk is fancy, but then just steps away in any direction one feels like they're in a film set for RoboCop, with all the trimmings of a post-industrial wasteland. With Denver and C Springs rapidly becoming overpriced for your average investor, everyone is looking for the next affordable place to invest. But if that's all that is driving the buzz: speculative investors being priced out of stronger surrounding markets, I'd be wary of what will happen in the next downturn. Regarding the underlying fundamentals: sustainable employment and population growth, school quality, crime rate etc... none of those metrics look very promising. There aren't any major companies moving to the area that I know of (the largest employer is the hospital followed by the school district, Vestas is building wind turbines there and EVRAZ may be expanding their steel operations which could be good for the town although steel has historically created a volatile boom and bust cycle which has lead to much of the blight and urban decay that is visible throughout the area) and the population is mostly stagnant. Definitely seems like the rust belt of Colorado and I fear that much like other rust belt cities, over-eager outside investors are inflating bubbles right now that will pop the second a downturn arrives.

Like you said there are some bright spots: the river walk is fancy and attracts visitors and the number one draw is affordability. Perhaps with so many people being able to work remotely these days, they will move there for the (comparably) low prices and import their own jobs (although I think that's a stretch as I don't see the town being that attractive for remote workers who can live anywhere they want considering the crime rate, poor quality school system and general rundown character). Or maybe it will turn into the next big retirement area, as baby boomers priced out of FL and AZ look for more affordable places to go. Maybe the state or federal government will make some big investments into the area and overhaul the school system. Maybe some more big prisons or mental health facilities will be built nearby and create more jobs.

The climate is nice; it's the banana belt of CO with 300 days of sunshine and less snow than other major metro areas (pretty darn hot in the summer but that's not slowing Phoenix or Florida down), the mountains aren't too far away and the river flows right through town now that they moved it back which is nice. The existing housing stock is seemingly quite dilapidated for the most part and I understand that about 2,000 houses are within the Superfund site so unable to be financed by banks which is something outside investors need to be aware of, among other pitfalls inherent in places like this like clouded titles due to decades of defaults I'm sure. Most new development and retirement communities seem to be in Pueblo West which is already kind of pricey for what it is and may have already peaked.

I'm sure there are plenty of good deals to be had in the area and locals who know each block and have that hyper-local knowledge plus a good network of tradespeople they can call will make money investing in the right up and coming areas at the right times, and it seems like a good market for local cashflow-focused landlords but I don't see it being the next C Springs or Denver appreciation market as some people are clearly hoping. The broad-level groupthink seems to believe that Denver and C Springs pricing will just expand all the way down to Pueblo, but I see it as a completely different place altogether with much different underlying fundamentals.

The risk is that if/when prices flatten or decline in those metro areas to the north, credit markets tighten and there is less capital floating around, the "dumb money", if that's what it is, will stop coming in and Pueblo could possibly revert to what it was all along; a place in post-industrial decline. Or maybe it's coming back, who knows? If it were closer and I was more desperate for a place to deploy capital I'd be more willing to take that gamble but it's pretty far from Denver, and too different from the rest of the Front Range market that I understand better and have more faith in. I like the overlooked pockets of Denver metro much better for me personally and I still think there are good deals to be had all over the Front Range, but I hope the best for Pueblo. It would be great if it became a market on par with the cities to it's north.

Chris Pasternak · Answer

Lots of good insight here.  Hats off to some of my colleagues and friends here with their great knowledge of Pueblo. I'm from Pittsburgh (big brother steel town) and the university hospital is a large catalyst for that place and they have attracted a tech sector with Uber, Google and having Carnegie Mellon helps.

As for Pueblo I see it as more of a retirement area with amazing climate, dry heat, easy to get around and a slower pace about itself.  Either way enjoying seeing this place explode since I got here.  Good luck to you folks.

Jerry Burns · Answer

I'm a Realtor here in Pueblo West.  Most of my clients are investors from the Denver and the Colorado Springs area.  Your right about some great deals are available down here, but I'm not quite sure what your referring to as "It hasn't yet caught up to the Springs in terms of services".  Pueblo and Pueblo West has three Walmart Stores, Two Hospitals, An Indoor mall and most of the major stores, Bed Bath & Beyond, Knols, and the list go on.  I personally live in Pueblo west and this area is booming.  Pueblo West is located eight miles to the west of Pueblo and is a newer community.  We have a Walmart here and a Park View Emergency Room for health issues that is tied to the Hospital in Pueblo about 10 miles away.  They provide the same services as the main hospital and should a patient require hospitalization they will transport you to the hospital at no costs.  Lake Pueblo is located in Pueblo West which has to Marinas, Camping and miles of riding trails.  Most all of the homes in Pueblo West are newer homes with the oldest homes being built around 1980.  New home construction is at a all time high in Pueblo West.  The Rental market in both Pueblo and Pueblo West is fantastic and usually have multiple applications when rentals are available.

Rick Thomas · Answer

Among the many hats I wear, I represent a builder so I might be a little myopic with my viewpoint. I get to talk to quite a few people that have been moving/planning to move south from Denver area, and Springs residents buying here in Pueblo West and commuting to work in the Springs.

I often hear from empty nesters and they are planning on cashing out in the Denver area and are moving to Pueblo West where they can buy new and pocket the extra from their home sale in Denver, plus get a little acreage to boot.

The deals are always here it really depends on where your sweet spot is and what your goals are?

I also tell potential new residents that the Pueblo area is great because you can get a lot of home for the money and your 2 at most 3 hours to wherever you want to go in Colorado.

Steve K. · Answer

@Matt J. Many people here operating in the Front Range think the correction is already here, as we’re seeing quite a few more price reductions and longer DOM than previous years. Not exactly a buyers market yet but definitely a bit more balanced.

Travis Harden · Answer

@Chris Pasternak I agree, pueblo is a slower pace and many pockets are nice. You really need to know the area and many properties have cash flow potential. Even in the pocket there is a huge mix of properties the potentially just need some minor rehab to make them cash flow. I'm looking to get into a rental in the area if you come across any

Pueblo, CO...the next Colorado Springs?

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