Fort Collins home prices are stabilizing as rising interest rates push buyers away (2024)

Nicholas Cole had his path to homeownership mapped out. He was saving for a down payment, went through first-time homebuyer education classes and thought he'd be able to buy in a year or so.

Then the market shifted.

Interest rates on a 30-year, fixed-rate mortgage have more than doubled from a year ago and rose to 7.08% at the end of October, the highest they'd been in 20 years. A year ago at this time, the 30-year rate averaged 3.09%.

As interest rates rose, Cole had to re-evaluate: continue to pay ever-increasing rent or buy now before interest rates went higher?

"Rents have gone to a very high level ... they're ridiculous at this point," Cole said. "It was scary to be in a position where if interest rates rose much more than they have, I would be locked in to renting."

With the help of Realtor Mike Salza of C3 Real Estate, Cole found a home in south Fort Collins. It passed inspection and now he's waiting for the appraisal to come in. "I looked at places that were a little older, a little smaller than probably I had originally envisioned, just because I had to be concerned about ... my monthly payment."

Shifts in real estateThe US Housing Market was once hot as lava. Is it grinding to a halt?

Rising interest rates cool frenzied Fort Collins housing market

Interest rate hikes have swiftly and dramatically altered the frenzied real estate market in Northern Colorado, bringing to a halt rapid price escalation, concession demands from sellers and multiple offers being thrown out for thousands of dollars beyond a home's list price. In short, the rate hike returned some control to buyers, who can take a breath before deciding to make an offer.

That doesn't mean prices have dropped. In September, the median residential sale price across Larimer County was $585,000, up slightly from $575,000 in August and up 11% from September 2021. In Fort Collins, the median home price in September alone, was $600,000 on 211 closed sales, down slightly from a median $622,000 for the year through September.

Larry Kendall, co-founder of The Group Real Estate in Fort Collins, predicts interest rate hikes will decrease the number of homes sold next year between 25% and 30%, knocking out "quite a few buyers or put them on the sidelines waiting to see."

Renting in Fort Collins:Young renters in Fort Collins caught in cycle of unaffordability as costs rise

"People struggling the most are first-time buyers; they represent about 30% of the market," he said. Twenty percent are investors who, many times, are paying cash. The other 50% is people sitting on huge equity in their existing homes. "They can buy if they want to," Kendall said.

While a return to a more normal market is the good news for buyers, interest rate hikes have made it more expensive to borrow money, pushing potential buyers out of the market and creating a buying poolin which only those with a lot of cash can compete.

The general rule of thumbis thatevery 1% increase in interest rates decreases buying power by about 10%.

In today's market, a buyer purchasing a $450,000 home at 6.5% interest and 10% down will have the same $2,560 mortgage payment as if they had purchased a $550,000 home at 4.7% a few months ago, said Mike Salza, Realtor with C3 Real Estate in Fort Collins.

Market watchers say the last two years of spiking home prices were outliers and the market is now returning to a "normal market" with a drop in the percentage of homes selling for more than list price and an increase in the number of days homes are sitting on the market.

With the exception of Berthoud, the majority of homes sold in September sold at or under list price. In most areas the number of days homes sat for sale increased, according to data from Fort Collins Board of Realtors. A year ago, almost all homes sold for more than list price and were on the market for about a month.

The housing marketWhy the amount of first-time homebuyers is dropping drastically, and what's being done?

In September, days on market increased by five days from August to 52. The supply of homes for sale grew slightly, but the number of new listings, pending sales and sold listings all decreased.

One of the purposes of rate hikes is to slow down housing price appreciation, said Colorado State University economist Martin Shields. "It's doing that. I don't think the Fed wants to keep raising rates, but it will. They are more afraid of inflation than they are of unemployment."

Even if home prices drop, buyers are still paying higher interest rates, which doesn't do anything for housing affordability, Shields said. "Housing has gotten pretty expensive and prices people out of the market, but our population is still growing and that means someone has money or someone is willing to pay whatever it takes to live here. It's discouraging."

Buyers lose buying power but face less competition for homes

Kendall doesn't expect prices to drop, but says the big adjustment will be in the number of homes sold next year, due in part to rate hikes, coupled with the war in Ukraine and other factors that affect consumer confidence.

"Some sellers who have put their sales on hold for awhile, I think they'll be back. Some of the buyers will be as well," he said.

Inventory of homes for sale is coming back, partly due to slowing sales, according to The Group. Locally, July inventory was up 67% in Loveland compared with July 2021, 19% in Fort Collins and 14% in Windsor.

Buyers shouldn't run to the sidelines because there is opportunity in new construction, Kendall said. Nationally, builders have lost 35% of contracts as buyers fell out of the market. That means they're offering "amazing incentives," he said, including buying down interest rates, offering upgrades and helping with closing costs.

The opportunities could last just a couple months, until the end of the year, most likely, as builders sell their available inventory. "They'll be hesitant on how much inventory they'll start next year."

The impacts of the interest hikeFeds' latest rate hike has experts pondering if mortgage rates will drop in 'another year or two'

Sellers are more willing to work with buyers now that the playing field is becoming more even, said Jessica Foster, senior loan officer at NoCo Home Loans. "A lot of clients I'm talking to that want to buy, when I tell them what interest rates are, they don't get too concerned about it," she said. "Buyers are seeing it as having a shot at buying a house even if the payments are higher. They didn't have the opportunity before because they didn't have extra money to go above and beyond to offer a higher price than asking."

The swift market change is also providing opportunities for buyers financing through the Veterans Administration or Federal Housing Authority. In the past, market sellers shied away from looking at those offers because they required appraisals, took longer to close and required lower down payments. Now those same buyers have a chance, Foster said. "This feels good, and people are happy again. They don't have to sit in their car and think for 37 seconds if they can see themselves living here or not."

Sellers who may bemoan not putting their house on the market earlier in the year may not get multiple offers $100,000 over asking, Kendall said, but they won't have to pay $100,000 over list when they go to buy their next home. "In the same market, if you sell high you have to buy high. If you sell low you can buy low."

Fort Collins Realtor Chris Hardy calls the market "shocky."

"If you're a first-time homebuyer facing 7% interest rates for a conventional loan and you have 5% to put down, the money just doesn't go a long way with prices still out of reach from an affordability standpoint," he said. "That has taken most first-time homebuyers out of the market because they don't have a stash of cash."

Sellers haven't escaped the shock, either. "They're actively recalibrating their expectations for what they could sell their houses for," Hardy said. "Sometimes that recalibration doesn't happen fast enough the way the market is changing." That's led to numerous price reductions, something the market hasn't seen in quite some time.

Homes that sold a few months ago for $950,000 in some Loveland neighborhoods are now selling in the mid-$800,000s, Hardy said. "That's the shocky aspect. Facing a stall in price appreciation in the span of just a few months after years of escalation requires stoic acceptance of what is so — not wishful thinking."

Realtor Eric Kronwall said he struggled last year advising clients to offer $100,000 more than list price. "That's not the kind of buyer I am and it's hard for me to advise people to do that," he said. "I had a number of people sitting on the sidelines ... I anticipate they could return to the market."

What homes are still selling well in Fort Collins?

Gone are the days when a home in poor condition could still sell within days for top dollar. With their discretionary cash eaten up by higher interest rates, Hardy said buyers are looking for turnkey properties that won't require more money to fix up. They have a little more latitude to pick and choose the homes with the best floor plans, the best staging, the best landscaping and the best price.

Kendall's advice to sellers is to make sure their homes are in good condition, staged well and priced right. Nationally in August, average days on market was about 28 days, and 30% of homes had multiple offers. "It's still a strong market," Kendall said. "Twenty-eight days used to be two days, that was the outlier. That's not normal."

With the median sales price for a Fort Collins single-family detached home sitting at $622,100 with a 7% interest rate, some buyers are looking at townhomes and condominiums, which come with a much lower sales price. The median sales for a single-family attached home through September was $405,000, up 19.1% from the same time a year ago. "That's because the demand has shifted there," Hardy said. "As single-family detached homes become more unattainable, duplexes, townhomes, even condos, people still want to own their own piece of real estate and we've seen a transition to those kinds of homes."

If your heart is set on a single-family home with a big yard, you're not going to spend the same kind of money for a townhome, he said. "But we will see some (price) escalation there. "Single family might see a dip in price appreciation but the condo market may remain more stable."

The market before the hikes:With '30 buyers for every home,' Fort Collins real estate fetches thousands above asking prices

'We were spoiled by 20 years of cheap money'

Kronwall anticipates interest rates will rise for the next decade or so, with "ups and downs along the way." Still, he remains positive based on changing demographics.

"Millennials have overtaken boomers. Young people have growing families, growing income and demands. They require bigger houses, more stuff; all that fuels an economy that will be growing for the next 10 to 15 years," he said. "Buying in February or buying today makes great sense. It won't be more attractive at this time next year."

The Federal Reserve may slow down the pace of rate increases next month, but it will still be raising rates, predicted Greg McBride, chief financial analyst with Bankrate, in an email. That means odds of a recession continue to grow. "The lagged effect of all these interest rate hikes, coupled with the reverse wealth effect of declining stock and bond prices, means we could see a rapidly slowing economy in 2023," he said. "Unfortunately, the economy will slow much faster than inflation, so we'll feel the pain well before we see any gain."

Salza doesn't see a balanced market quite yet. The pressure on borrowers is so great they aren't able to take advantage of any slowdown in price escalation, he said. "If an average house is $560 a month more expensive now with interest rates ... there's a larger impact on monthly cost than the appreciation was." People who are benefiting the most now are people buying with cash at the expense of those who need a mortgage and those who have the monthly income to afford a mortgage but not cash on hand for a large down payment.

While rising interest rates are causing pain for many buyers, it's important to keep it in perspective, Shields said. The prime rate in December 2006 was 8.24%, and in December 1980 it stood at 21.1%. "Even though we think they're high now, they're still relatively low by historic standards. We have a long way to go until we're there. We were spoiled by 20 years of cheap money."

If all goes well, Cole will close on his new home this month. He's rolling the dice and hoping it's the right move. "I do feel very good that I don't have to worry about trying to find a place to rent next year that is more than the mortgage I'm dealing with, which is really the biggest thing."

How the housing market has changed

From September 2021 to September 2022:

How interest rates have affected mortgage payments

In today's market, a buyer purchasing a $450,000 home at 6.5% interest and 10% down will have the same $2,560 mortgage payment as if they had purchased a $550,000 home at 4.7% a few months ago.

2022 median prices