If you are like most people you have been at least hearing about the real estate slow down happening all over the Nation. Fortunately we are slightly more insulated than most in Colorado Springs - can't say the same for Denver though. In the industry we can almost physically feel the compression, with prices declining 10% in just a matter of months. 

BUT...

This is not a doom and gloom post. Firstly, the market has been historically overvalued in the past two years so a shift was inevitable. Where we stand now is a market looking towards balance and some health. We still have low inventory, but the rate increases have created a strange occurrence that has not happened this way before.

According to Nerdwallet the average interest rate on a 30-year fixed mortgage in October of 2022 is 6.507% (6.5%). We will use this as a baseline, but obviously this rate depends on a few factors, namely: credit, down payment, and bank.

Let's now take a brief look at calculating a mortgage in Colorado Springs given the current numbers. For the numbers we are going to take the average sales price in September 2022 in El Paso County. This was $530,282. We can also assume a 1% property tax rate, and an average insurance rate of $2500 a year. This insurance rate has been going up and down case by case. Let's also assume that the property has a monthly HOA of $65. Pretty typical for the median home. 

The Best Mortgage Calculator

To do the math I'm going to use technology. There are literally thousands of options for a mortgage calculator out there, but I love to use the one from Guaranteed Rate. No sign up and no information needed about you - just the numbers. Find it HERE.

Let's evaluate two options, Conventional and VA. 

Mortgage Calculation Number One

Loan Type: Conventional 30-year fixed

Purchase Price: $530,282

Down Payment: $106,056

Interest Rate: 6.5%

PMI: $0 because 80/20 LTV

HOA: $65

Total Payment: $3395

If a 15 year-fixed: $4344

Mortgage Calculation Number Two

Loan Type: VA 30-year fixed

Purchase Price: $530,282

Down Payment: $0

Interest Rate: 6.5%

PMI: $0 because VA loan

HOA: $65

Total Payment: $4065

If a 15 year-fixed: $5333

The Meaning

As you can see this monthly payment is out of reach for a lot of people, and this is exactly why we have decreased in prices (along with rental prices finally decreasing). This has also created unique opportunities for many Buyers who didn't have luck over the past year or so, Sellers are freaking out (preemptively) and taking offers that are akin to catching a falling knife. Most people in the industry expect rates to subvert and then settle to about 5-5.5% by the end of 2023, but until then we have new normal. Morgan Stanley has just announced they still expect a 3% appreciation of property based of the simple economies of supply and demand. I'm inclined to agree, especially in a market that's as insulated as Colorado Springs (thanks Uncle Sam). Also, who doesn't want to live in a place like this?

Bottom line, in my opinion, don't stress if you're thinking about buying, there are great options and great opportunity. Many people are settling for 7/1 ARMs, or 2/1 Buydowns. Rates can't stay up forever!

If you want to see how far $500k gets you, check out this link.