We feel like a broken record, but April was (another) record breaking month here in the Colorado Springs real estate market. Home prices increased significantly again. While the latest numbers from April are important, this post will discuss the very recent changes we are seeing in our market. Keep in mind that real estate professionals “feel” the market long before any trends show up in the statistics. After all, it takes 30+ days for a transaction to close and for those numbers to be reflected.
But first, here are the Colorado Springs real estate activity stats for April:
Key takeaways from April:
- While we had almost double the inventory, we have had the exact same sales compared to a year ago. This is a huge jump in inventory, it brings relief to a market that has been experiencing the lowest inventory in the history of recorded real estate. It’s really just an adjustment headed back toward more normal levels.
- Year over year, the average sales price increased by a staggering 16.6% from April 2021 to April 2022. Average sales prices jumped by an incredible $22,000 over the month of March, making it a total increase of $68,000 between January 2022 and April 2022.
Related Reading: Steps to Buy a Home
Is a shift starting?
The first 10 days of the May 2022 Colorado Springs statistics indicate that we could be heading for an inflection point in the market. While we can’t predict the future, it looks like the average sales price will be dropping in May.
- According to ShowingTime, showings this past week are down by 25% compared to the same week last year. This is surprising since Colorado Springs is in the middle of what is traditionally the most active buying time of the year.
- Inventory is up by nearly double year over year, which is seasonally appropriate. In fact, the lowest number of inventory in our local MLS history was 344 homes on March 1, 2022. On May 9, 2022 there were 805 homes for sale. This is an 134% increase in listings in just over a month, with a 12% increase in “sitting” inventory. This becomes even more interesting when you review this information with the decreased amount of showings mentioned above.
- One could argue that we are still below the ideal number of homes for sale and that Colorado Springs has finally started to rebound to pre-pandemic numbers. Correct. But we have complex economic conditions and influences at work that will shift the real estate market.
Inflection point? Inflection point!
What does this all mean? We are starting to see shifts in the market:
- More inventory
- Decrease of “excess” buyer demand
- More price reductions
- Homes that are not selling within 5 days.
Real estate is a hyper local industry, but the mortgage rate increase of nearly 3% between December and May will have an effect nationwide. Some areas will be affected more than others. When the Federal Reserve announced the interest rate hikes, the market reacted immediately and mortgage interest rates increased before the Federal Reserve even had a chance to actually raise the rates.
Buyers: The mortgage interest rate increase can feel like a gut punch to buyers already dealing with a competitive market. But it’s important to keep things in perspective. Rates have been incredibly low for quite some time and people have forgotten what “regular” interest rates are like. Remember that it’s normal for mortgage interest rates to ebb and flow. Click here for historical mortgage interest rates back to 1971. Some buyers might be reevaluating their financing and housing plans.
Sellers: Sellers have gotten used to a market where they can sell their home in one weekend. This was never a normal situation and was expected to disappear eventually as the market stabilized. According to the National Association of REALTORS®, a balanced real estate market has enough “inventory of homes for sale to be equivalent to about six months of the monthly pace of demand.” Colorado Springs has been (and continues to be) drastically below that mark for years. To put it in perspective, April had the previously mentioned big increase in homes for sale, but it’s still only a 0.7 month supply. In other words, there is still not enough inventory.
Most people knew that the housing market would level off eventually since the fervor in recent months was not sustainable. It looks as though we are at the inflection point where things start to shift and level off. But there is no need to panic. Think of it like our market was running at 200mph and we are downshifting to 100mph. Many people worry that we are in a real estate bubble.
To be clear: this is not a bubble. This is a shift toward leveling off. Our market is in a drastically different place than it was before the 2008 housing crash. Hardly anyone is underwater with their mortgages because of the drastic home value growth from the last few years, large amounts of equity has built up in their homes, and adjustable lending rules are much tighter than they were in the early 2000s.
Related Reading: Steps to Sell a House
2022 Real Estate Timeline
January: Rumors of impending interest rate hikes started to send buyers out looking for a home purchase during what is usually a slow real estate season.
February: Interest rates started to increase, but buyers already in the market had their rates locked in and continued to buy. We also had many buyers from out of state start their home searches for summer moves much earlier than usual because of a few factors:
- They had heard the market here in Colorado Springs was competitive and wanted to get started early so they weren’t in a time crunch.
- They put their current homes up for sale much earlier than usual because the lease back option has become so common. They could essentially sell their house and live in it after closing while they house hunt for a home in Colorado Springs.
March: In February/March many buyers were thinking “I may as well get into the game before rates go even higher and I can’t afford a home at all.”
April: February/March buyers then closed in March/April which is why we have continuously seen high prices.
May: We seem to be approaching or have hit the peak.
- Buyers with low interest rates from earlier in the year have already purchased.
- Buyers who jumped in at the last minute closed in March/April and are no longer in the market.
- Even with military buyers coming into the market for their summer moving season, buyer demand is decreasing while inventory starts to build.
- We are seeing the decreased buyer demand reflected in the fact that mortgage applications have decreased by more than 50%.
- Inventory will continue to build, resulting in increased days on market and more “sitting” inventory.
June: Price reductions will become more common as sellers adjust to these shifting market conditions.
July: Keep in mind that the media will start picking up on price reductions and create fear for sellers. Sellers could be tempted to throw their houses on the market as soon as possible to avoid losing out. This could further increase inventory and is something to pay attention to. Increased inventory and decreased demand could mean further price decreases.
Related Reading: How to Price Your Home to Sell
The bottom line:
Buyers: Later this year, but particularly the 4th Quarter when our busiest selling season is over, could have some good purchase opportunities for buyers regardless of the interest rates. This is the first time in years that these words have been uttered in Colorado Springs real estate.
Sellers: The shifting market dynamics mean it’s vital to have an experienced real estate professional on your side. It will be important to prepare your home for market and price it strategically as buyer demand decreases. Are you curious about what your strategy should be? Reach out to us to book a complimentary, no pressure listing consultation.
Everyone: it’s normal for real estate prices to go up and down. The market adjusts to the factors that influence it. Remember, unless you actually sell your house, there is not a gain or a loss financially. Our team is always here to answer questions and provide expert insight about what is happening in our local market.