As average 30-year fixed mortgage rates continue to hover around 6%, there’s an expectation that prices of homes for sale will fall. It’s only been 10 days since the Fed increased interest rates so it’s too soon to see the impact.
Or is it?
So begins week two of What’s Working’s focus on housing (Missed the first issue? Check it out). There’s still job news below, so scroll down if local housing costs aren’t a concern. See below for … robot jobs!
On Monday, the average list price for a house for sale in Denver was $742,773. Three days later it dropped 2.9% to $721,517, according to multiple listing data provided by Opendoor. Meanwhile, during the same three days, the median closing price fell $26,000, or 4%, to $619,000.
But pay close attention homeowners: The $619,000 price tag in June is still 13.6% higher than median closing prices a year ago in June. And, added a spokesperson for Opendoor, “It’s important to note that the median price hasn’t changed.”
Things are moving so quickly, said Nicole Bachaud, a senior economist at housing site Zillow.
“We had this huge acceleration, this huge boost in spring of 2020 that continued into 2021 that was the strongest year for housing that we’ve really ever seen,” Bachaud said. “Now we’re coming to this period where things are going to cool down really fast as well. And that’s going to look like whiplash for a lot of buyers and sellers in the market.”
However, she added, “the markets are not going to crash, we’re not going to see this huge drop in home values across the board. But it’s gonna look very different than it did in December of 2021.”
And why is that? There’s still demand from consumers to buy a house. Also the number of new homes getting started has dropped off. “What we really need in order to curb this home-price growth is more homes,” she said. “And (would-be) sellers are feeling locked into their current interest rate. If you refinanced at 3%, selling and buying at a 6% rate doesn’t seem like such a good deal right now.”
Price cuts in for-sale houses have been happening for weeks, months and even years in Colorado, according to Zillow data. Even when sales were the strongest last year, there were still houses that cut their price for one reason or another, likely because they were asking too much.
Zillow data for the Colorado Springs, Denver and Fort Collins markets do show that there’s been a sharp increase in the number of houses that cut the list price within the past month. The chart below shows that in early June, 9.17% of the homes for sale in Denver dropped their price in the past month, while 9.1% did in Colorado Springs and 3.37% did in Fort Collins:
Those price discounts in Denver rose to a median of $19,000 in early June, nearly double the amount in January. Colorado Springs price cuts weren’t as sharp and had dropped to $11,050 in early June, while Fort Collins hit $19,201.
Consider it an interest rate silver lining for house hunters forced to save their money after getting outbid on every house in the past year. But it’s not like house prices are falling. They’re just not growing as fast as last year and the real estate industry already expects that the days of multiple offers on a house are over for now.
6%? Bah! Interest rates have been higher
“My first house mortgage was at 14%,” Craig Aberle, a reader who wrote this week in response to last week’s story that renting is cheaper than buying. “It was still a good deal financially.”
Aberle, who lives in Denver, pointed out the many benefits of owning a house today even as interest rates rise. There are tax deductions, equity and loan refinancing when rates do fall, as they did last year when they dipped below 3%.
“Rates at 5% or 6% are modest,” he said.
This isn’t the first time in recent history that mortgage rates hit 6%.
A notable period for mortgage rates were the 1980s, when rates were super high — in the teens, according to the Federal Reserve economic data. The peak of 16.64% in 1981 makes today’s 6% a bargain. For people who bought homes in 2018 or earlier, current interest rates are just a return to earlier times.
However, new budgets and increasing housing prices make buying homes for new homeowners nonetheless inaccessible. Housing prices have gone way up in the past five decades.
“Homes were a lot cheaper back then. So a 16% interest rate was maybe the difference of tens or hundreds of dollars a month, and not thousands of dollars a month,” Bachaud said. “A home is a very different type of purchase than it was decades ago.”
The typical Colorado home value of $126,900 in the 1980s is drastically different from the typical home value of $604,065 reported in May Zillow data. That’s a 376% increase. After running it through a quick inflation calculator, that $126,900 home would be roughly $408,057 now considering recent inflation — a relative steal in a housing market seeing prices upward of $700,000.
Historic developments in homeownership add another dimension to the story. In the years after the hike in interest rates in the 80s, homeownership rates in Colorado dipped to a historic low of 58.6%. That’s little more than half of tracked Colorodans living and owning a home according to U.S. Census data.
The most recent data show homeownership rates slowly rising to a rate 64.9% in 2020. With how volatile the housing market has been recently, and as many communities are unable to catch up with zooming home prices, we’ll see how homeownership rates change in coming months.
The benefits of owning are certainly more than what the monthly mortgage payment is. But buyers may not see those for several years, said Bachaud, with Zillow.
“If you’re going to buy something or rent something for two years, the cost of purchasing and selling real estate is pretty high. You’re dealing with transfer taxes, real estate taxes, closing costs and buyer and seller commissions. All of those things make it really expensive,” she said. “For the short term, renting is cheaper.”
But wait. Housing prices are still high. Affordability is low
Workers are being priced out of their homes, according to a recent report by the Regional Economic Development Institute at Colorado State University, which measured workers’ abilities to afford two-bedroom apartments without becoming rent burdened. That’s when individuals need to spend more than a third of their income to pay for rent. Thanks to Kendall Stephenson, one of the authors of the report, for sending this along!
Workers in Fort Collins, a city with a population of around 170,000, have become increasingly rent burdened over the past decade. In 2010, 36% of all occupations could not afford fair market rent. Now, as of 2020, it’s 52%.
In particular, food preparation and serving occupations face one of the greatest disparities in keeping up with fair market rent. Waiters and waitresses in Fort Collins have a median hourly wage of $12.01. If they wanted to afford rent at fair market prices, they’d need to make almost double their current wages, or $23.92 per hour. Conversely, in 2010 waiters and waitresses would have needed only an hourly increase of about $2 to afford fair market rent.
Health care support occupations are another group that saw a hit at housing affordability. Not only that, but women are disproportionately impacted. Over 70% of people within these jobs are female, and employees would need to see raises of about 50% to be able to afford fair market rent in Fort Collins.
Fort Collins workers’ wages are not keeping up with the increase in fair market rent, and as a result many low-wage earners are forced to commute into Fort Collins for work, the REDI report showed. Although workers are able to save on housing, skyrocketing fuel prices take a toll on their expenses.
Inflation watch: Gas tax relief?
If staying the same is a sign that inflation is deflating, Colorado gas prices didn’t budge this week, ending at an average of $4.905 for a gallon of regular on Friday. U.S. prices fell back below last week’s $5 mark, which was a national record, according to AAA. The price of crude oil — which is refined and made into gasoline for cars — declined, due to “concern regarding the potential for economic growth,” AAA said.
But the per-gallon price is still higher than a month ago, when it was $4.166.
On Wednesday, President Joe Biden asked Congress to suspend the federal gas tax for 90 days. That would reduce the cost of a fuel by 18 cents on a gallon of regular gas and 24 cents on diesel.
If Colorado paused its own gas taxes, which Biden asked all states to do, that could save drivers another 22 cents a gallon.
Gov. Jared Polis doesn’t appear to be considering doing this, at least not yet.
“If gas prices are still high on the global market when the state legislature returns he would be supportive of additional gas fee relief as long as road funding is backfilled from other sources, but the federal relief is larger and … can immediately save 18-24 cents a gallon for consumers,” Conor Cahill, a spokesman for the governor’s office, wrote in an email.
Cahill also pointed out that Polis backed the delay of a new 2-cent gas fee plus an $11.30 reduction in vehicle registration fees this year.
“There is no one silver bullet to help Coloradans during this time of rising costs but the governor has led the way on saving people money and is thrilled Washington, D.C., is finally going to act and of course the governor would be open to additional ways to save people money including suspending gas fees and taxes so long as the state legislature didn’t take the money from needed road repairs,” Cahill wrote.
→ Who saves money on a gas tax pause? Not 100% of savings were passed to consumers, according to a University of Pennsylvania Wharton School study, Politico reported. When Maryland, Georgia and Connecticut paused their gas tax, the tax savings passed to customers was between 58% to 87%. Also: If the federal gas tax was suspended from March to December, researchers concluded that the average person would save $16 and $47 on gas while lowering federal tax revenue by $20 billion. >> Politico, Wharton study
More on inflation:
→ Post office box price hike: In Buena Vista, the U.S. Postal Service doesn’t deliver mail to homes and you have to pay for a post office box. And the price just doubled, reports Shannon Najmabadi. >> Read
→ $750-$1,500 on the way to Colorado taxpayers: The state’s economy is cooling, but legislative economists don’t believe a recession is next, reports Jesse Paul. >> Read
→ Inflation culprit: The ocean-shipping industry, says report. Propublica journalists dug into the backed-up pandemic supply chain of bananas and home furnishings and discovered that prices rose not just because of demand, but because of excessive fees charged by shippers to truckers who didn’t return shipping containers. Problem was, shippers like Hapag-Lloyd, wouldn’t accept the containers but charged late fees anyways. The “demurrage” fees made were passed on to customers as companies from Bed Bath & Beyond to Vita Coco raised prices. >> Read
→ Why bread prices may rise: Drought. The war in Ukraine was already pushing up wheat prices because the country had difficulty getting wheat out to countries that relied on it. Now there’s an expected 30% drop in Kansas’ wheat harvest because of the drought in the heartland, NPR reports. Earlier from The Sun: Colorado wheat farmers battle drought — and insects. >> Listen
→ Spare 2￠and take our inflation poll: cosun.co/ww-inflation
The (makers of) robots need help!
The artificially intelligent lawn-cutting company Scythe Robotics in Boulder is hoping its zero-emissions approach to landscaping (i.e.: the lawn mowers are electric) will change an industry.
And it’s hiring.
But not lawn crews. The 4-year-old startup needs software test engineers, mobile developers and, less specific, people who “Love robots? Reach out!” Scythe recently added talent from Space X.
The half-ton Scythe M.52 autonomous lawn mowers, scheduled to roll out this year, were developed to be smart enough to tackle slopes, avoid obstacles and react to grass thickness on the spot. But the reason the company already has 5,000 orders is likely due to the labor shortage in landscape workers, said Jack Morrison, who met his fellow cofounders Davis Foster and Isaac Roberts while working on computer vision and 3D-scanning technologies at Replica Labs.
“One day while I was mowing my lawn, the idea struck me, ‘Why am I still doing this?’ Mowing is pretty dull and dirty, and with the new technologies that were emerging at the time, it’s something a robot could do,” Morrison said in an email. “As we looked into it, we found that the landscaping industry has been plagued by a massive labor shortage that robotic mowers could help alleviate. We also learned how polluting gas-powered landscaping equipment is, so we built ours with electric power so that as landscapers maintain more green spaces with M.52, they can also do so more sustainably.”
The venture-backed business, which has raised $18.6 million from investors to date, targets commercial landscaping businesses allowing a novel approach to how much it charges for the machines. There’s not a per-mower cost. Rather, it charges per acre mowed, so more like a lease.
That may be key to getting a new robot mower to gain an audience of legacy landscapers who are spared from an upfront investment in artificial intelligence. The usage-based pricing model, according to Scythe, “is saving customers 40% on their mowing costs.”
Scythe employs 40 people but is apparently planning to hire much more. One of its newest hires is Jen Mongeois as head of talent acquisition. At her old company, she hired 500 people in five years.
Speaking of working with robots…
→ Educational toy robotics developer Sphero in Boulder needs help. And all the jobs listed are based remotely.
→ 5 more robotics companies in Colorado, as updated by Built In Colorado
Other working bits
→ King Soopers union back in the news: Two King Soopers workers in Highlands Ranch filed an unfair labor charge against United Food and Commercial Workers Local 7. The union had fined Nick Hall $812 and Marcelo Ruybal $3,799 for crossing the picket lines. Lawyers for the two employees said they had resigned from the union before returning to their job. >> Colorado Sun
→ Denver’s looking for cannabis entrepreneurs: The Denver Economic Development & Opportunity partnered with The Color of Cannabis to help aspiring cannabis business owners succeed. The 10-week program, funded with $500,000 of city’s retail marijuana special sales tax revenues, is open to social equity applicants or individuals disproportionately impacted by marijuana prohibition and enforcement. Deadline to register is July 15. >> Details
There is just so much to write about when it comes to the economy. Help us focus on Colorado or your local community by sharing your inflation, housing and job stories with What’s Working at cosun.co/heyww. See you next week! ~ marvis, brammhi & tamara