Friday Update March 19, 2021
287 single family homes on the market today as we try to salvage some sort of a Spring listing season out of this mess.
Of those we have 51 homes with 3+ bedrooms, 2+ baths, 2+ car garage priced for under $400,000 in the Colorado Springs area. Needless to say that houses like those go very quickly with escalation clauses and appraisal gaps with 5-50 offers.
Interest rates have gotten pretty volatile since the middle of February and continue to be volatile with a steep trend line up. We started the year at .9% for the 10 year treasury bond yields. Today we're sitting around 1.75%. This has caused a similar increase in mortgage rates. I'm sure this will frustrate a lot of buyers who will say stuff like "well my friend just bought a house and her interest rate is 2.25%". That's a cool story and it's probably true, however it's important to remember that interest rates change daily, sometimes many times a day depending on the debt market. So the 2.25% VA loans that I personally closed in the last 45 days would probably be more like 3-3.25% today.
These rates are still insanely low, however home pricing isn't. Let's do a little side by side of the last time that interest rates were at this level which was in the long, long ago. Before the pandemic. In the old normal. It was in January of 2020. 10 year yields and corresponding mortgage rates we're roughly where they are today. The median house price in our area was $336,795. Today it is closer to $400,000. So all other things being equal which they pretty much are, ie taxes and insurance, the monthly payment for buying a house today vs 14 months ago is about 16% higher. I'm sure this will push some buyers to the sidelines but not enough to shift the market in the buyers' favor.
The lack of inventory in large part is due to this same problem. We have multiple agents at our office that share the same story of sellers who want to sell, but can't. They can't find a suitable replacement for their home that makes sense to them financially. Sellers are worried about not being able to find a good replacement home. Used to be that sellers would worry about having to sell their house to be able to find a nice new home. Now it's the opposite, there is no worry about selling any house really on the Front Range, its all about finding a replacement. So people are stuck, and so is our inventory.
Also 2020 brought with it not just Covid and a barrage of social media bigotry but the lowest mortgage rates ever. So all of the homeowners that were paying attention refinanced their existing mortages. This means that now with rates on the rise they have even less incentive to leave their current homes. This is putting a lot of pressure on our inventory and from personal experience many of the sellers I've worked with are either selling off investment properties or moving out of state. There are still people selling and buying a replacement locally but it's a lot less than before due to the scarcity of replacement housing.
The last time we had a decent spike in interest rates was late 2018. Buying activity slowed, homes sat on the market a little longer but prices did not drop. The stock market took a steep drop on the slowed economic activity and the Fed took action by steeply lowering the Fed funds rate. Then the pandemic started and the funds rate went to 0%. Now that rate is still at 0% yet bond yields are rising which means the cost of borrowing is rising, and quickly. The stock market isn't necessarily loving it and I would not be surprised to see a healthy stock market correction followed by some type of yield curve control action from the Fed.
Let's see what next week brings. For now seller's market through and through with buyers paying way more than they should probably, appraisal gaps left and right, and steeply rising interest rates in anticipation of rising inflation.