COLORADO SPRINGS — Home sales have dropped nationally for the fifth consecutive month. Economic expert Tatiana Bailey explains the reasons behind the trend, and what it means for the economy moving forward.
Bailey says the most obvious reason is because interest rates are significantly higher than this time last year. Interest rates currently sit at 6% for a 30-year mortgage, versus 3% in 2021. For a $600,000 home, that translates to about $1,000 more per month, says Bailey.
Bailey says another reason for the cool down is home prices – they are still fairly high. Sellers are curbing their expectations for the sale price of their homes, or even reducing them. However, those price adjustments take time.
Bailey says in addition, a lot of people who have no choice but to move to a new home, either because of an expanding family or relocation, are now hurrying up to buy a home. That equates to essential demand.
Where does this leave us? Given that the Federal Reserve is so aggressively raising interest rates and home prices are up 20% or more in many markets, Bailey doesn’t see any way that home prices are not going to either moderate or even decline in many “frothy” markets – a “frothy market” describing conditions where stock prices artificially increase based on market sentiment, not business fundamentals.
Colorado Springs is one of these markets, making national news recently as one of the most overvalued markets in America. According to Bailey, the average home prices in Colorado Springs have declined for the past two months because of how overvalued it was.
This doesn’t change the fact that the average home price in June was $551,000, a full $50,000 more than it was in June of last year.
The median price does continue to increase; however, and the average is so much higher because it’s getting pulled up by the expensive million dollar and up homes.
Based on these trends, Bailey doesn’t believe this will lead to a sudden housing price crash in our region, seeing as people are still moving to Colorado, and more specifically, Colorado Springs. She does believe that prices will moderate or drop soon, which is desired so young workers can move into the region and keep the city as affordable as possible.