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Colorado Springs Real Estate Market Update May 2023

Posted by Sarah Steen on June 19, 2023
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There are many variables influencing our local Colorado Springs real estate market which makes it difficult to predict where the market is going for rest of 2023 and beyond. But the headline for the present market? We are in a sellers market.

Let’s start with Pikes Peak MLS sales numbers for the month of May:

infographic of May 2023 Colorado Springs real estate stats including average sales price, average days on market and number of homes for sale

Colorado Springs continues to have one of the strongest real estate markets in the nation. This is thanks to the city’s desirability, military community, and job growth as companies transition their headquarters to Colorado Springs or expand their presence in our city. Colorado Springs is still hopeful that Space Command will keep its headquarters here instead of moving to Huntsville, AL, but the debate is ongoing without a firm decision date.

We have a year over year increase in homes for sale, but our inventory in Colorado Springs is still not enough to meet buyer demand. The average home price has decreased by 3.25% from May 2022. The great news is that this is significantly less than the predicted 10 or 20% drop. While buyer demand has decreased since mortgage interest rates went up, the low inventory has kept home prices high.

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This all means that many sellers in Colorado Springs find themselves with “Golden Handcuffs”: they are reluctant to give up their low interest rate and can’t afford to trade up within our city or a market with a higher cost of living. As a result, potential sellers are choosing to stay put which contributes to our low inventory siutation.

This is probably the last month we will see big year over year changes in real estate numbers for Colorado Springs since our market started shifting last year. The first 5 months of 2023 have been compared to a historically competitive time period in early 2022. Inventory was painfully low and prices were increasing exponentially because multiple offers were standard. So, while it seems like a drastic change to go from 5 to 31 average days on market, we are still very much in a sellers market in Colorado Springs.

Related Reading:
10 Ways to Lower Your Mortgage Payment
Tips for Sellers Navigating a Shifting Market

National Economic May Numbers

Our current economic situation can help us understand where things might be headed. Last week was a big one for economy news to pay attention to:

  • On Tuesday, the May inflation rate of 4.0% was announced. While this is an encouraging cool down, the inflation rate is 5.5% when food and gas categories are removed. This “core inflation” number is decreasing much slower year over year than financial policy makers would like to see.
  • The Federal Reserve Board Meeting met last Wednesday and decided not to increase interest rates for the first time in 15 months. This sounds really great for buyers, but the Reserve Board rates are only indirectly connected with mortgage rates. The market had expected that there would not be a hike, so there was limited movement in the mortgage interest rate markets.
  • On Thursday the weekly unemployment rates were released. They haven’t budged week over week, but have increased since January 2023.

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Are low interest rates the solution?

We often hear people wishing for interest rates to drop back to the 3-4% range. Many people hope lower interest rates will solve the nationwide housing affordability crisis. But will lower interest rates actually make buying a home more affordable? Some important factors to consider:

  • What do lower interest rates mean for the overall economy?
    Interest rates usually decrease because the economy is weak and lower rates help increase consumer spending. If we have a big drop in interest rates, it means the economy is struggling.
  • Rising Home Prices
    Higher interest rates have kept many buyers and sellers out of the housing market. They have been patiently waiting on the sidelines to jump back in when rates drop. Lower interest rates mean a much faster velocity of sales and purchases. The strongest buyers will scoop up the few homes on the market and increase the competition. This demand will drive home prices up quickly.
  • Even Fewer Homes for Sale
    An interest rate drop means we would most likely slip into historically low inventory again. While we would have more sellers willing to join the market and bringing more homes up for sale, many of those same sellers would want to buy a home as well unless they are moving out of Colorado Springs. So, we’d have more homes for sale but buyer demand would also jump up. We’d simply end up with a higher burn and churn rate like we had in early 2022.
  • Spiraling
    The housing market has a strong influence on all other sectors of the economy. Lower interest rates would likely catapult us back into 2021/2022 home buyer craze and that’s simply not sustainable.
  • First Time Buyers
    As Millennials and now Gen Z move toward their home buying years, we will continue to see an increase in buyer demand. A lower interest rate will find these new buyers on top of the existing pool of home buyers waiting for the right time to buy.
  • Affordability
    The greatest take away: if home prices are unaffordable, it does not matter how low interest rates are because many buyers can probably still not afford them. Yes, lower interest rates would help. But if a buyer can’t afford the mortgage, they can’t buy the house regardless of the interest rate. Additionally, the increased competition mentioned above means we could start seeing buyers needing to bring more cash for appraisal gaps, etc.

Related Reading: 
Steps to Buy a Home
Steps to Sell a Home

What should you do?

Optimize Your Finances:

  • Increase your savings. Interest rates for savings or treasury accounts are the highest they’ve been for the last 10 years and more money in the bank means more buying power when you’re ready.
  • Consider opening a Home Equity line of credit for absolute emergencies, once you are in troubled waters, you might not qualify for a “HELOC” anymore.
  • Pay down debt to improve your credit score.
  • Think about starting a side hustle for extra cash to put toward savings and/or paying off debt.

Is it better to buy now instead of waiting?

It depends on your specific situation and preferences. When interest rates go down, home prices and competition will go back up.

Option 1: You buy now with a higher interest rate and get a lower home price. The current market conditions mean you could have an opportunity to negotiate repairs, seller contributions, etc. You could also plan to refinance when interest rates start dipping and enjoy a lower mortgage payment for the duration of your home ownership.

Option 2: You can wait and buy later when interest rates have come down. Most likely you’ll need more cash on hand. Remember lower interest rates mean higher home prices, more competition and fewer homes to choose from – BUT you’ll be able to lock in a lower rate from the time of closing.

Ultimately, the “right” time to buy is when you can afford and it makes sense for your individual situation. We’re happy to consult with you on this decision. We’ll give you honest feedback if we think it’s not a great time for you to buy.

We are dedicated to helping you receive the maximum value for your money when purchasing or selling your home. Give us a call (719-219-9739) or email us (susanna@co-regroup.com) if we can help you navigate your real estate journey. We look forward to hearing from you.