The Colorado real estate market experiencing an unprecedented shift that affects sellers and buyers alike. While real estate prices are leveling out as a result of rising interest rates, inventory is still low and demand is still high.
Let’s look at the data. The median sale price of homes in Colorado is down only 1.8% YOY. However, the number of homes sold is down a staggering 42.1%. This significant drop can mostly be attributed to rising interest rates, which at roughly 7.8%, are higher than they have been in 20 years.
Historically, when home prices drop, buyers have all the market power, but that’s not necessarily what we’re observing in Colorado. Buyers certainly have more market power than they did a couple of years ago, but the low housing inventory and steady demand give sellers an upper hand too. Right now is a good time to buy AND sell real estate. Here’s why.
Inventory is Low
The supply of homes on the Colorado real estate market is low. According to NAR research, the inventory of existing homes stands at 3.2 months. This means that, at the current rate of home sales, the existing homes on the market would only sustain it for 3.2 months, assuming no new homes were listed for sale.
This is critical for buyers and sellers to understand. Low inventory and high demand mean higher home prices because people are willing to pay. Buyers shouldn’t be intimidated by these rising prices, however, because as long as they continue rising, whatever they buy now will appreciate.
Demand Increases as Interest Rates Rise
Interest rates are another factor that influences demand. Buyers became accustomed to the historically low interest rates we experienced in 2020 and 2021, so when they started to rise they price many buyers out of the market.
As interest rates get higher, home prices get lower. Unfortunately for buyers, this means they can afford less house now than they could have two years ago for the same monthly payment. Normally, this relationship would cause the real estate market to slow down, but since demand is still high, the Colorado real estate market isn’t necessarily following suit.
What This Means For Buyers and Sellers
Many people wonder whether the Colorado real estate market is in a housing bubble. By definition, a housing bubble occurs when excessive demand drastically increases home prices, causing exuberant spending to the point of collapse. A housing bubble bursts when demand decreases and supply increases. However, what’s unique about the 2023 Colorado real estate market is that supply isn’t necessarily increasing.
As long as the inventory of homes on the market remains low, our real estate market remains healthy for buyers and sellers. It’s a great time to sell your property because there’s high demand and low competition, and the price is sure to have appreciated since you purchased it. On the other hand, it can also be a great time to buy real estate because prices are only going to continue increasing.
Especially in a market like this, I always advise my clients that the best time to buy or sell real estate is when they’re ready. At the end of the day, real estate is a long-term investment, and market conditions will only have a short-term effect on long-term profitability. If you’re looking for a fix-and-flip opportunity, you might want to wait for interest rates to drop. But, we never truly know how the market will change, so if you’re considering buying or selling, give your local real estate broker a call.