Colorado Springs' white-hot housing market finally is cooling off, as higher mortgage rates, breakneck inflation and shaky consumer confidence have combined to stall home sales, price hikes and new construction, industry experts say.
A Pikes Peak Association of Realtors market trends report shows that sales of Springs-area single-family and patio homes totaled 1,403 in July, down almost 24% compared with a year earlier. It was the second straight month that sales declined on a year-over-year basis.
The number of homes listed for sale at month's end, meanwhile, soared to 2,551 — the most for any month since 2,660 homes were available in August 2016, the Realtors Association report and Gazette historical data showed.
Prices are still climbing: The median price of homes sold in July climbed to $482,500, or 7.2% higher on a year-over-year basis, according to the report.
But with fewer properties being sold amid a greater supply, last month's price increase was the smallest in two years on a percentage basis and the first time prices appreciated at less than a double-digit rate since June 2020.
"We're actually going through a transition period now," said Patrick Muldoon, broker-owner of Muldoon Associates in Colorado Springs. "I do think we're going to see a slowing of appreciation and I think if this continues down this road, you will actually start to look back at this time period as a period where we started to pull back on some of our prices for the first time."
Until now, home prices had set multiple record highs in recent years; since the start of 2019, median prices have zoomed by about $179,000 or nearly 60%. Prices and sales have boomed amid a shortage of homes available for purchase — conditions found in many cities nationwide.
Mortgage rates are a big reason for the Springs' market slowdown. Last week, 30-year, fixed-rate loans averaged 5.3% nationally — nearly double the 2.8% rate during the same time last year, according to mortgage buyer Freddie Mac.
Beyond higher borrowing costs, Muldoon said weaker consumer confidence is a major reason for the market's slowdown.
The market began to slow around Memorial Day weekend and some buyers remain skittish about committing to major purchases — especially at a time when the nation appears to be in a recession, he said.
"The consumer," he said, "is not confident in the economy."
The market slowdown has meant a turnaround in buying and selling trends, Muldoon said.
For at least the last two years, many home sellers fielded offers above their asking prices and received multiple bids. Now, Muldoon said, some sellers are cutting list prices, while buyers now wait days, instead of hours, to look at a home or make an offer.
Muldoon said he represents a seller who originally listed a home at $465,000, but now has cut the asking price to $450,000 after an initial deal fell through and there were no additional offers.
Based on his check of the Springs-area Multiple Listing Service, Muldoon said he saw 483 homes listed for sale in El Paso County whose sellers had cut their asking prices over the last seven days — something that's been unheard of in recent years.
But it's not just the resale side of the market that's seeing a shift.
The Pikes Peak Regional Building Department reported this week that it issued just 184 permits in July for the construction of single-family, detached homes in El Paso County.
That's a nearly 56% decline from the same month last year and the fewest number of single-family, detached permits — excluding townhomes, condos and apartments — for any month since 159 in January 2019, according to Gazette records.
Co-owner Grace Covington of Covington Homes in Colorado Springs said her company began to see a decline in the demand for new homes starting late last year when construction costs spiraled for builders and, as a result, prices soared for buyers.
Home sales began to slow even more this year as mortgage rates climbed, Covington said. Builders typically don't pull permits until a few months after they sell a home; as a result, July's decline in building permits actually reflects slower home sales from this spring, she said.
Last year, Covington Homes sold 187 single-family houses, Grace Covington said. This year, the company estimates its sales will fall to about 120, she said.
Covington Homes has seen its homebuilding costs skyrocket by about 40% over the last two years, Covington said.
That increase includes soaring costs for construction materials, building supplies, transportation, fuel, appliances and almost anything else related to homebuilding — though not labor.
Higher land costs and a lack of available home sites upon which to build also have contributed to increasing home prices.
Muldoon and Covington differ on what's ahead for their respective segments of the housing market.
Muldoon fears that a national recession, job cuts and a spike in the nation's unemployment rate will lead to a housing downturn, not just a cooling of the market. Instead of a slowdown in the rate of home appreciation, he said an actual decline in prices could hit Colorado Springs next year.
Covington, meanwhile, believes that after a few months of a slowdown, new-home sales will rebound this year. The market, however, won't be hot as in 2020 and 2021 and instead will be at a more realistic level, she said.
Homebuyers who were shocked by the rise in mortgage rates, Covington said, will become more accustomed to long-term borrowing costs around 5%, which still are relatively low by historical standards.
At the same time, the demand for housing remains very strong in Colorado Springs and the supply of new and resale homes is still tight. As a result, she said she expects many people will re-enter the new home market.
She also hopes that supply chain issues will improve and, as a result, suppliers will reduce their prices that they pass on to builders.
"I'm optimistic and I'm thinking it's only going to be a few months," Covington said of the slowdown in new-home activity. "The demand is so high and the supply is so low. I'm not expecting some sort of a 15%, 20% unemployment rate, right? We're still at 3% to 4% unemployment. People will eventually figure out a way to buy a home."