The biggest inflation news this week erupted Wednesday as the Federal Reserve announced the largest interest rate increase since 1994.
While expected, that doesn’t make it any easier for those hunting for a new house, especially in Colorado, and realizing the monthly cost may have gone up hundreds of dollars in one week.
But don’t panic all ye house hunters, said Matt Leprino, a Realtor and head of real estate brokerage Remingo in Denver. Some of the Fed’s three-quarter point increase was already priced into lenders’ rates, which went above 6% before the Fed announcement. The mortgage rate even declined a smidge a day later. It actually may be easier to buy a house for those shut out in the past two years because they were getting outbid.
“I would say that the conversations are more on the seller side, quite frankly, because as these changes occur, the buyers are more in the driver’s seat,” said Leprino, who helps sellers set their sales price. “Setting the expectation that the house probably won’t sell on day one. You probably won’t get 12 offers. We should not be pricing at market plus 3%.”
Of course with the rate increase, it’s more expensive to get a loan for the same-priced house today than it was last month. If the plan was to flip a property for profit, that’s ending. But for those buying a house for the long term, “it’s still as sound an investment as it ever was,” Leprino said.
This kicks off our What’s Working mini series on housing in Colorado. Thanks to additional reporting and data help from Colorado Sun summer interns Marvis Gutierrez and Brammhi Balarajan, we’ll spend the next few weeks digging into what the data is saying about the Colorado housing market — from rents to home sales to, well, whatever we find interesting. We’ll also check out tips from readers. Email us!
Getting back to mortgage rates …
The average 30-year fixed mortgage rate is now 6.05%, up from last week’s 5.55%, according to Mortgage News Daily. Leprino did some math on how much a monthly payment has increased. On a $750,000 house (or $25,000 less than May’s average sale price in metro Denver), the monthly payment, including taxes and fees, was $5,529 in June 2021 at a 3.75% interest rate.
Here’s what that means for the buyers:
- +$628 — At last week’s rate of 5.5%, the monthly payment for the same-priced house is $6,157
- +$818 — At this week’s 6%, the monthly payment is $6,347
- +$1,213 — At 7%, the monthly payment is $6,742
While the under-3% mortgage rates seem like they’re long gone, the changes between last week’s 5.5% and this week’s 6% are still stark. That’s a difference of $190 more per month for buying the same house today compared with last week, according to Leprino’s data.
Fed rate increases are meant to cool down inflation because, well, less demand equals discounts until sellers can find buyers.
“The Federal Reserve is racing to catch up to economic events,” Mike Fratantoni, chief economist at Mortgage Bankers Association, said in a statement. “The housing market has slowed considerably over the past month as rate increases have taken hold. We expect that this slower pace will remain through the summer, but buyers could return later this year if the Fed’s plans are better understood by the market and lead to less rate volatility.”
And let’s not forget, the Fed interest rate increase doesn’t affect just mortgages. It impacts consumer loans, car loans and credit card interest so consumers in those markets will be paying more than before. On the flipside, savings accounts will start earning more interest.
“We kind of hit a brick wall last month, quite honestly, with this pricing,” Leprino said. “I mean, if what people can afford went down last month, oh my God it’s really gonna go down this month. So I think you will see an almost immediate stop to price increases. Nobody’s going to be bidding up anymore.”
Better to be a renter?
Feel like there’s no chance you can buy a house? You may be better off renting anyway. With national average mortgage payments of $2,576.39, that’s above average rent of $1,589 in Colorado, according to ApartmentList. Owning a home now costs $987 more per month than renting.
And while it’s overall better to rent right now with rising mortgage rates, some cities’ average rental prices are way above the rest. Superior, Highlands Ranch and Castle Rock are among the most expensive cities to live in for renters, with the average rent in Superior through May at $2,399, perhaps because many homes were burned or damaged by smoke in the Marshall fire. That’s $810 above Colorado’s average and $1,056 above the national average.
In contrast, Greeley, Englewood and Colorado Springs are among the cities with the lowest rent prices.
If you’re a renter in Denver, you might want to stay that way. Despite being one of the state’s hottest real estate markets, Denver is one of the least expensive cities in Colorado in terms of rent pricing. The city has an average monthly rent of $1,572, below Colorado’s average.
In comparison, Denver’s median housing listing price is $695,000 and the average monthly mortgage payment is $2,540 as of January. Being a homeowner costs $968 more monthly than living as a renter in Denver.
But … evictions?
As we approach a year since the eviction moratorium expired, eviction filings — for the most part — have stayed below pre-pandemic numbers. Although we’ve seen a gradual climb in evictions since early 2021, eviction numbers have stayed below the 2019 numbers, pre-pandemic numbers and the 20-year average.
March was the sole month, which saw a jump in eviction filings, with 3,667, in a return to pre-pandemic numbers.
While evictions have been steadily increasing since the moratorium expired July 31, evictions declined in April and May, both in the Denver area and Colorado as a whole.
Henry Eisler from the Colorado Apartment Association expressed confidence in the strength of the housing market, noting Coloradans have been able to make rent at high rates.
“The uptick in March didn’t reflect a dramatic increase — just a return to the pre-pandemic, statewide average, as Colorado’s rental market recovered from the pandemic and 14-month moratorium,” Eisler said. “The subsequent decline in eviction filings during April and May is a strong positive indicator for the health of Colorado’s multifamily housing market.”
More on housing
→ Norwood’s new fixed-rate homeowner program — A total of 24 single-family homes under development by Rural Homes in Norwood, about 40 minutes west of Telluride, are part of a project to provide affordable housing in San Miguel County. Developers of Pinion Park Norwood neighborhood are working with First Southwest Bank and Impact Development Fund to provide low-interest, fixed-rate mortgages to buyers who earn no more than 120% of the county’s area median income. For a family of four, that’s $102,600. To top it off, eligible buyers may also qualify for $25,000 in down payment assistance through a state program. Home prices will range between $225,000 and $400,000. Erica Madison, with IDF, said they can’t share mortgage rates due to regulations that prevent advertising. But she added, “The rates are set. They are extremely affordable. And yes, (they’re) lower than 6%.” >> More details
→ Adios, Denver! More renters want to move out of Denver than in, according to a new migration report from Rent.com. That ranked Colorado as the second highest rate of rent queries going out of the state on the rental housing site. New York topped the list at 17.75% and Colorado at 16.13%. While many Colorado renters are looking to move to other mountain states or the Midwest, Los Angeles, oddly, was the second most popular search destination. Jon Leckie, a Rent.com data journalist, said it’s “evidence that Denver is competing with LA for people and talent. Denver is no longer just a mountain city, it’s competing with the biggest cities in the nation, sending some and stealing others, but the point is Denver is in the game.” >> Rent.com Migration Report
→ Still need a car? Bankrate offers tips on saving money on car loans, including buying an electric vehicle. While EVs typically cost more, they can be less expensive over their lifetime (40% less, according to MotorTrend), plus you may qualify for tax credits (here’s what’s available in Colorado). >> Save on car loans
ICYMI: Colorado Sun housing stories
- Colorado high country commissioners blast Airbnb report that disconnects short-term rentals from housing crisis
- A tale of two Colorado counties: One the fastest growing, one the fastest shrinking
- After 50 years, homeownership gap between white and Latino Coloradans narrows. But for Black Coloradans, it’s widened.
Colorado jobs report
Meanwhile, Colorado’s economy continues to add jobs. In Friday’s jobs report, the state’s unemployment rate fell to 3.5% in May, from 3.6% in April. That was thanks to 15,400 people added to the labor force, be it seasonal summer help, new residents or just folks who are looking for work again.
That raised the state’s labor force participation rate to 69.4%, which counts people who are working or looking for work.
But one notable concern that state Department of Labor and Employment economist Ryan Gedney pointed out: Retail lost jobs — 4,800 jobs were shed in May.
“Typically,” Gedney said, “we would see gains in May and we did see losses primarily focused on trade and in general merchandise. So, think about your big-box stores like Home Depot or Lowe’s or your Walmarts or your dollar stores and things of that nature.”
He said it’s too soon to know if this is a trend or whether jobs lost in retail are due to workers finding better opportunities in non-retail companies or retailers relying on efficiencies, like self-checkout, so they are operating on a smaller staff.
“It’s possible that (the Great Reallocation of) of labor resources would impact food services just as much as retail but we continue to see leisure and hospitality and food services continue to grow workers,” he said.
The leisure and hospitality sector added 1,000 payroll jobs in May.
The state has recovered 109.6% of the jobs lost in the early days of COVID disruptions. We’re now at 2,855,400 jobs. The U.S. recovery rate is 96.3%.
Good to know:
- Thriving industries: The professional, scientific and technical sector not only recovered its lost jobs, it gained 38,300 for a 456% recovery rate. The finance and insurance sector has it beat, though, with a 1,500% recovery rate thanks to the addition of 4,500 jobs.
- Greeley still down: The only metro area still at a job loss is the Greeley MSA, which has recovered just 58% of jobs lost in the pandemic. Losses are blamed on the downturn in the oil and gas sector.
- Wages up $2.86 an hour: Colorado’s average hourly wage growth hit 9% in May, rising to $34.62. Coincidentally, the rest of the nation earns about what Coloradans averaged last year, or approximately $31.95 an hour.
What a turnout! What’s Working inflation poll attracted nearly three-times more respondents than last week, or roughly 100 people total.
In reading responses, we can all commiserate with rising prices and (mostly) underwhelming pay raises in the past year, if you got one at all. I’ll be publishing comments in an upcoming column so if you haven’t had a chance to participate, here you go: cosun.co/ww-inflation
→ Gas prices: A gallon of regular gas averaged $4.908 on Friday, up 7 cents from last week, according to AAA. The national average is at an even $5. Ever since What’s Working reported that Colorado had the fourth lowest gas prices in the nation (credit lower gas taxes), the price trajectory went straight up. Colorado now has the 24th lowest gas prices — or 26th highest! >> AAA gas tracker
→ Demand on food banks: CBS4 reports that the Weld Food Bank in Weld County has seen a 25% increase in demand for their services as food and gas prices have increased. “It is absolutely a double-edged sword. We are seeing our costs go up. At the same time, we are seeing the amount of people in need go up,” Chief Development Officer Stephanie Gaush told CBS4. >> Story
→ When will inflation level off? “It’s not going to happen next month, I can say that for sure,” said Stephan Weiler, an economics professor at Colorado State University and co-director of CSU’s Regional Economic Development Institute. “I like to believe that by the end of the year we’re going to see turning points in the economy.” >> Read CSU’s Q&A with Weiler
Other working bits
→ Small business pessimism: The latest survey of small business owners by the National Federation of Independent Businesses puts its Optimism Index at 93.1, down 54% in six months and the lowest level in its 48-year-old survey. “About the only bright spot Colorado small-business owners can see is that our legislature is done for the year and the governor’s period to sign or veto bills has passed, so for a while at least, no more damage can be done,” said Tony Gagliardi, Colorado NFIB state director. >> More results
→ The other SBA COVID loan: Some $390 billion in the lesser-known COVID Economic Injury Disaster Loan, or EIDLs, were disbursed to about 4 million small businesses and nonprofits nationwide, according to the U.S. Small Business Administration. Approximately 60,398 small businesses in Colorado received one, for a group total of $6.02 billion. >> See totals
Who knew there’d be so much housing news? Well, we did. We just don’t have the staff to regularly report on this. But this summer, we’ll give it a go. So if you’ve got feedback for myself, Brammhi or Marvis, let us know. And keep us organized by submitting your requests, tips and comments through this form at cosun.co/heyww. Stay cool!~brammhi, marvis & tamara