what’s working: here’s how the front range housing market slowed over a few weeks as interest rates rose
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By Tamara Chuang | Published on July 16, 2022
A month after interest rates inched up, area real estate agents who help people sell their houses or assist in buying one say that yes, the housing market slowed in the past month.
Houses for sale in June lingered a bit longer on the market than in May — by one day more in Colorado and Denver. Fewer homes sold in June, compared with May and a year ago June. But sellers keep putting more houses on the market, as if they feared buyers would disappear. (Spoiler: Buyers haven’t disappeared.)
That meant June looked something like this in Denver and Colorado:
Other county data is available from the Colorado Association of Realtors (right here), but we pulled out Denver and Colorado because what happens in Denver impacts the Front Range. That’s according to Patrick Muldoon, broker owner and president of Muldoon Associates in Colorado Springs. When Denver housing prices skyrocketed in the past few years, interest in Colorado Springs and Pueblo increased too. But now, a pullback in Denver, along with higher interest rates, inflation and economic nervousness (more on that below) are keeping local markets local with fewer out-of-the-area shoppers looking around.
“When Denver was picking up, they had escalation clauses and we hadn’t heard of those. And boy, they had these weird things called appraisal gaps and we hadn’t heard of that. Then the Springs and then Pueblo followed suit. Much of that reverses when the market starts to cool in Denver,” Muldoon said. “I feel like most of the buyers we’re working with locally now are actually local buyers because the Denver market is also slowing. We’re starting to see that into Pueblo. Those commuters at $5 a gallon can’t really justify a house price change.”
(Note: An escalation clause is when prospective buyers commit to raising their offer if the seller gets a higher bid from someone else. An appraisal gap is when a home’s appraised value is lower than the purchase price, requiring buyers to come up with the cash to cover the difference.)
That could be good news for buyers who can afford to spend a little more on a monthly mortgage due to higher interest rates, he added.
“If you’re in Denver, you might have some inventory free up and be able to stay in Denver. If you’re in Colorado Springs, you might actually find houses closer to work,” he said. “You don’t have to move to Pueblo.”
But what about my home appreciation?
In a down market, homeowners are asking how much will this impact appreciation? That’s probably the wrong question because if you already own, even if you purchased in the past year, your home’s valuation has likely gone up.
Prices have always rebounded, said Matt Leprino, head of real estate brokerage Remingo in Denver. In June, median sale prices in Denver were up 12.8% from last June. While that’s less than the prior year’s 29% appreciation experienced in June 2021, a house in Denver bought last year has still appreciated by double digits.
“The analogy that really conveys to us what’s happening is just that we’ve hit the summit,” Leprino said. “We’ve climbed to the top of the mountain and we’re hanging out there. It’s not as though we’ve started a freefall back in the other direction. And just because you’ve reached the top of a mountain doesn’t mean you need to go back down. The historical perspective is that prices always go up, even when they decline in the way they did in ’09, ’10, ’11, ’12 and ’13. They very quickly rebounded back to the levels they would have been had the Great Recession never happened.”
Here’s how much housing prices recovered during the down times, according to the S&P/Case-Shiller U.S. National Home Price Index (and shared by the Federal Reserve Bank of St. Louis). The shaded bars show U.S. recessions and the blue line is home prices. It took about 10 years for homeowners who purchased at the 2006 peak to recover that value.
Leprino projects that a single-family home in Denver could reach an average sales price of $1 million someday. That’s what the trajectory of housing price growth showed earlier this year. That changed after the Federal Reserve upped the interest rates a few times, including by a three-quarter point last month.
While houses in Denver are sitting longer on the market — there was 1.4 months of inventory in June, compared with 0.7 of a month a year ago — “we’d have to get closer to the multiples of months before we switch from being a seller’s market to a buyer’s market,” Leprino said. “As long as that’s the case and inventory is still that low, I don’t see any possibility of prices decreasing on any type of large scale.”
Housing sale prices did not fall in June, at least compared to a year ago. In El Paso County, home to Colorado Springs, last month’s median and average sales prices are still more than 10% higher than they were in June 2021. Pueblo’s median and average sales prices are still up 9% and 7.7% respectively from a year ago June. But they did fall or were flat between May and June.
David Anderson, with Re/Max of Pueblo, said that in the past two to three years, his region has seen a 15% to 20% housing appreciation, but this year it’ll probably be 5% to 6%.
“Will housing prices keep going up? Yes, they will but at a slower rate. Interest rates do have something to do with it,” Anderson said. “People get panicked about interest rates. But this is the time to buy a house because they’ll be cheaper now than later.”
Inventory has tripled in the past month or so, he added. But that means it went to 170 homes for sale in Pueblo West from 60 to 70. He still feels like there’s not enough housing available though, and “it’s going to be that way for a long time.”
Muldoon, from Colorado Springs, said it’s actually a more relaxing time to buy a house since you’re not dealing with bidding wars, especially if you plan to stay in the home for five years or so, because home valuations have always gone up over time. Fear of missing out, or FOMO, may have moved to sellers.
“If you compare it to five years ago, yeah, we’re better,” he said. “But I think we’re in a shift, for sure. … Our days on market are increasing in the Colorado Springs area. Inventory is increasing weekly in the Colorado Springs and Front Range area. You’re not getting the amount of offers you were. You’re not seeing the highest and best. … It is like buyer FOMO has left the building and now you almost have a little sense of seller FOMO … where they’re like, ‘Oh no, we’ve missed the top. How are we going to make our house sell?’”