Hey look we made it through July! The month where almost every day was over 90 degrees and the weather either tried to kill you by roasting or by hail. But we did it gang, we made it!
Here in the Colorado Springs metro area and El Paso County as a whole we have 1,320 single family existing homes for sale today. That’s about 100 more than a month ago and represents something like 1.3 months worth of supply. Historically speaking 1.3 months of supply is not enough and suggests a very seller friendly market. However as mortgage rates remain at the highest levels in about 20 years we are starting to see inventory pile up a bit. And the other thing we’re seeing that’s very different from the last many years is a lack of showings. It’s as if the majority of the real estate that’s available right now is overpriced, buyers don’t want to look at it, and sellers don’t want to be the first to drop the price…
Who do you think is going to blink first? The sellers that need to sell to move on with their lives or the buyers who can not qualify for or afford the monthly payment? Hmmmmmm.
But that’s all negative Nancy talk up there so we need to focus a little bit on the numbers and how little sense they truly make. For July we had just over 1,000 closed sales in our MLS, down from around 1,400 last year. Not an insignificant drop in sales volume and just a little better than our sales volume in 2012, worse than 2013. However the median price point on solds remains right at $470,000, down just $12,000 since last year.
Let’s think about the significance of that. Median price mid July last year of 482k, average mortgage rate of 5.5% we’re rocking a PI payment of $2,736/month. Same house today at $470,000 at around a 7% rate yields $3,126. Then add to that the property tax and insurance increases and you easily have a $500/month higher payment than just a year ago when rates were already heading up. Compare this to July 2021 with a median sold price of $450,000 and an interest rate of about 2.8% (I’m using Fed data for all these references) you get a PI portion of $1,849.
Let’s just even it out on the 450k price. 2 years ago it was $1,849 a month for principal and interest. Today it’s $2,993. So here in lies the problem. Most buyers in our market can not afford to pay 50% more monthly than they would have 2 years ago. And there are really only 2 options that can help. Lower rates or lower prices.
Rates over the last week have gone sharply up until retreating substantially today due to a miss on the non farm payroll numbers. We’ve been going back and forth this year on whether or not good news is good or bad, and whether or not bad news is good or bad, and so on. So today the debt market interpreted the jobs miss as a reason to buy bonds, which drove the yield and rates down. But at the same time the unemployment rate went down, as did the hours worked in an average work week. So there’s somehow less jobs, less hours worked, and less unemployment. I wish I could say I get it but I don’t.
In a nutshell though government loans finished the week in the high 6% range and conventional loans are chilling comfortably in the 7s. Two graphs I want to leave you with.
Notice how normal this graph of 10 year bond yield would look without the thing that happened in 2020 that I can’t mention as it limits the reach of my posts. It would be like a gradual 3 year long uptick in rates to where we are today. If that was allowed to happen we would have certainly had a recession, like an actual one, but more importantly would have avoided this.
We probably would have had a market that would have corrected some and then resumed its slight upward drift. But now, thanks to the crisis response that was completely unnecessary and totally unwarranted, we get to blow off this top.
In my opinion, and for what it’s worth I’ve been wrong a lot, I feel like we partied extra hard since 2020 and the hangover is about to be the kind that makes you want to never drink again.