3d illustration real estate interest rates
National news about the housing market suggests it’s still surging with regular bidding wars and renewed price jumps that have ended a five-month decline in average home prices. Locally, the market is more nuanced.
“It’s unpredictable,” says Amy Kunce-Martinez, broker owner of The Cutting Edge Realtors.
She recently listed two properties: a house Downtown that she expected would sell quickly with multiple offers, and a tract home in the Pine Creek neighborhood where she told the sellers to expect closer to the 29 average days on market that the Pikes Peak Association of Realtors reported for August.
The home in Pine Creek had multiple offers and sold for $30,000 more than the asking price. The house Downtown took a couple weeks to go under contract.
“This market is harder to predict,” Kunce-Martinez says. “It’s hard to set the right expectations for sellers.”
That is a sentiment echoed by multiple area agents who say historic pricing and days on market data are not as reliable in today’s market.
“There’s little rhyme or reason to it,” says Susanna Haynie, broker owner of Colorado Real Estate Group. “You can have a house that’s priced right and it should sell, and it sits — or the other way around.”
The median home price in August was $480,000. That’s down less than a tenth of a percentage point from $480,592 in August of 2022. However, the average sales price was up 4.4 percent year over year in August from $534,818 to $553,959, according to PPAR.
Median sales prices are considered to be a more accurate indicator as it narrows in on the middle of the market. Average sales prices can be skewed by outlying extreme lows or highs.
“I do think the higher end of the market is moving more than the lower end,” Kunce-Martinez says. “Interest rates have a bigger impact on the lower-end buyers where every penny really counts. At the high end, there is still a lot of cash.”
The 30-year fixed mortgage rate was around 3 percent average in 2021 and surged rapidly to near 7 percent in 2022 before leveling in the mid-6 percent range. It surged again in August to more than 7 percent and was at 7.62 percent average as of Sept. 9, according to Bankrate.com.
“This is the most difficult time in a generation to buy a house,” says Justin Harward, a mortgage broker with Low Cost Mortgage. “Over the last, let’s say five years, the home prices have doubled. Over the last 18 months, mortgage rates have doubled. It’s unaffordable.”
He provided some math for a fictional homebuyer purchasing a $350,000 house.
“First, they would have to find a house,” he says. “Finding something for $350,000 would be a challenge in Colorado Springs.”
There were 77 single-family homes for sale in the city that would allow conventional mortgage financing as of Sept. 9, according to PPAR.
If this buyer were real, he would likely not have 20 percent to put down. So, Harward calculated the purchase with a 10 percent down payment, which would still be $35,000.
With excellent credit, the buyer might qualify for a 7.25 percent interest rate. The mortgage insurance — since the buyer is putting less than 20 percent down — would add $74 a month to the payment. Principal, interest and mortgage insurance would equate to a $2,222 monthly payment. Adding insurance and taxes at an estimated $4,500 a year in the escrow payment makes the monthly mortgage payment $2,597.
In order to qualify for the loan, the buyer would have to make a minimum of $75,000 and have little to no other debt, Harward says.
The median household income in Colorado Springs in 2021 was $71,957, according to United States Census data.
It’s hard to set the right expectations for sellers. — Amy Kunce-Martinez
“When I talk with sellers, I tell them we’re not battling what the house is worth, but what a buyer can afford,” Kunce-Martinez says. “We can have all the comps in the world to support a price, but people have to be able to pay it.”
She and others say sellers are becoming more accommodating. They’re providing concessions to help buyers buy down interest rates or cover closing costs.
“I have a couple buyers who have gotten amazing deals,” Haynie says.
She had one client who had been shopping for more than two years and ended up getting almost $17,000 in concessions on a $325,000 home.
“There is opportunity in this market for buyers,” Kunce-Martinez says. “For the first time in years, buyers can offer less than the asking price, get concessions or buy with a contingent sale.”
If interest rates were to fall below 6 percent without another major economic crisis causing the drop, some agents believe the market would explode with activity again and things would move as swiftly as they did in 2020 and 2021.
The higher interest rates are building pent-up demand. Homeowners with 3 percent interest rates don’t want to sell, as they would have to buy again with a 7 percent rate or higher loan, dramatically limiting their buying power. And buyers who would be able to afford a home at a 5.5 percent interest rate, often just can’t at 7.5 percent.
There were 1,407 new listings in August, down almost 22 percent from 1,801 in August 2022. The number of active listings was down 8.3 percent year over year in August from 2,639 to 2,420. Homes were on the market an average of 29 days before going under contract in August, that’s up dramatically from 17 days in August 2022, according to PPAR.
“We actually had more inventory last year,” Haynie said. “It just wasn’t sitting inventory.”
With the number of sales down almost 22 percent year over year, the market feels more sluggish and homes for sale are lingering longer. But inventory is tight.
“I think it’s going to change next year,” Kunce-Martinez says. “It’s an election year and interest rates usually go down in election years. We could see a replay of the market we had the last couple years before interest rates went up.”