The real estate market is seeing the effects of rising interest rates. What do these changes mean?
Great news! The market is getting just a little bit healthier. As news stories of increasing mortgage rates and palpable changes to the home buying and selling experience continue to spread, it’s important to consider the facts and realities of our current situation. Many people watch the news and are convinced it’s time to panic. While things are certainly changing, plenty of pros remain alongside the cons. Here’s the current reality.
Interest Rates
Interest rates are on the rise, contributing to a more balanced market. In the last few years, demand has far outweighed the number of available homes, leading to bidding wars and hiked prices. One factor in that record-high demand was the fact that interest rates hovered at historic lows.
Now, interest rates are climbing— but not skyrocketing. The average 30 year fixed rate is still well below 6%, slightly higher than before the pandemic hit. This change in interest rate does shift the affordability of buying a home for many households, as the impact on monthly payments is substantial.
As various economic factors take hold, it’s becoming clear that a recession is coming, likely in early 2023, at which point interest rates will come back down and buyers’ budgets will respond as well.
Demand
Although rising interest rates have dampered demand and driven down budgets among some buyers, demand for homes in Colorado has certainly not vanished. Millennials, the largest generation, are still entering the housing market, and young professionals are moving to Colorado and away from pricier coastal cities at impressive rates.
Right now, median days on market for pending sales in Colorado is 7 days, meaning we’re still very much in a seller’s market, but finally coming out of the weekend offer frenzy we saw a year ago. The media, uncertainty, and stock market volatility is putting some buyers on the sideline, making it easier for those still searching to find a great home. Finally, buyers can shop around and make reasonable offers without racing the clock or grossly overbidding. This new level of balance is refreshing and exciting on the buyer's end.
Inventory
Although the competitive frenzy is letting up, there’s still a gap between inventory and demand in Colorado. Housing inventory still remains at record lows, with about 1,100 homes for sale in the Pikes Peak region and 4,000 homes for sale in the Denver metro region. There are still far fewer people selling existing homes than there are hopeful buyers in Colorado.
At the same time, supply chain and labor issues continue to plague home builders, creating an ongoing deficit in new home completion as compared to new household creation. New build schedules are often falling behind, only contributing to that inventory deficit.
Takeaways
This is an excellent time to buy! For buyers, the competition pressure is off just a little bit, but that may not be the case in a matter of months once interest rates stabilize and start to fall. This is the time to take advantage of the tiny shift in the market and the pause in many people’s buying plans.
For sellers, it’s time to adjust expectations to a slightly cooler market. Prices are stable, but they’re not rising as quickly as we’ve seen over the last few years. Pricing strategy is more important than ever as buyers have time to step back and make more calculated decisions about their offers. Time on market is up slightly, but that doesn’t mean a home will not sell for a great price as long as we’re intentional about staging, marketing, and pricing. This is far from a typical market, which usually lands sellers with 90-120 days on market – it is still an amazing time to sell.
I’m an optimist by nature, but the numbers don’t lie — this is not a time for panic on either the buyer or seller end of the Colorado real estate market. Please don’t hesitate to reach out with questions at 719-337-7254 or 720-498-9592.
