Everyone had high hopes that things would settle down in 2022: there were predictions just weeks ago that home prices would normalize, supply chain issues would gradually disappear, and the labor market would stabilize. The main concern for 2022 was inflation. Depending on how the war in Ukraine develops, 2022 could make 2020 look like a walk in the park.
In January, Redfin and Zillow adjusted their home value forecast from a predicted 5% increase to 20+% in 2022. These adjustments are driven by the continued lack of home inventory, ongoing supply chain issues for builders, and the market reacting to mortgage interest rate increases.
Let’s start with February real estate numbers provided by the Pikes Peak Association of Realtors:
Important aspects to note when you zoom in on the details behind these numbers:
- The number of homes for sale is just a snapshot of a single day. This number reflects the number of homes for sale on the last day of a given month. So, on February 28, there were 487 homes for sale. Keep in mind that it has become standard practice for many agents to list new homes on Thursdays, then review offers, and go under contract on Mondays. This means if the last day of a month falls on a Thursday, it would show many more homes available for sale than if the last day of the month was on a Wednesday.
- The number of homes for sale decreases by about 50% when you filter the active listings to include only existing homes in the greater Colorado Springs area. This means there is actually a very small number of homes for sale at any given time.
- Did you know that around 20% of sales in our area are cash sales?
- 52% of listings in that closed in January closed above list price. That number jumped to 62% in February.
- 66% of homes listed under $800,000 had multiple offers and sold above list price.
- Homes are selling for an average of 4% above list price. This is a vital stat because it lets buyers know how high they have to come in swinging in order to have a chance to get a home. Based on this stat, a home listed at $500,000 will sell (on average) for $520,000. It is imperative to have a one of our knowledgeable real estate agents helping you navigate these offers. They will be able to analyze the current market dynamics and give you the information you need to submit competitive offers.
Since at least 2018, I have said the same thing at nearly every market update:
- Fewer listings
- Higher prices
- More sales
- Less days on market
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The real estate market reacted to predicted interest rate hikes before they even happened. Rates recently increased to 4% and resulted in a drastic decrease in refinance and mortgage applications. Any interest rate below 5% is considered a “good deal” and the average interest rate for the past 43 years was roughly 8%. Nevertheless, it’s a bitter pill to swallow for buyers who are pushing as hard as they can to pay whatever gets them into a home.
The general rule of thumb is that a 1% interest rate increase translates into a 10% decrease in buying power. But we have other economic levers in play: supply and demand. One day this week we had just 158 existing single family homes for sale in the greater Colorado Springs area. With such low inventory, an interest hike of 1% will not make the price needle move.
Related Reading: Steps to Buy a Home
An unpredictable factor is the geopolitical situation that we are currently facing with the invasion of Ukraine. This situation has already significantly impacted energy prices and it will ripple down to home prices when home construction becomes even more expensive.
Inflation is picking up speed with the Consumer Price Index hitting another high at 7.9% year over year for the February time frame. The jump was spurred by the war overseas and general supply shortages. The Federal Reserve will have to walk a fine line trying to control inflation without stifling the economy. The good news is that inflation was expected for February, and year over year.
It would have been nice to just focus on reducing supply shortages coming out of the pandemic. But shortages are now exasperated by the current geopolitical issues. Last year there were products but most shortages occurred because transit was the challenge. Now products are just not available which is very precarious.
What should consumers do?
*The current economic situation dictates that consumers, buyers or sellers, should be deliberate about their spending as prices will continue to increase.
*Buyers should be careful with committing to buying a new construction home. You should steer clear from dirt starts at this point. Only buy when homes are close to completion, and even then, you should still expect delays. Pay special attention to any kind of clauses in your contract that allow your builder to increase the sales price. This is one of many reasons to make sure you hire a real estate agent when you buy a new construction home.
*Modular and manufactured homes were an option at one point but now have completion times 18-21 months out.
*Ask friends and neighbors if they are selling and strike a deal before their property goes on the market.
*Interest rates will increase: can you get a side hustle or find another source of additional source of income to bolster your savings and increase your buying power? Also, consider house hacking (at least in the short term) once you are in your house.
*Selling your home is as good as it has ever been: the best strategy is to sell and move to a more affordable area in the country.
Related Reading: Steps to Sell Your Home