Rising Interest Rates Push Potential Home Buyers Out Of The Market In Colorado

FORT COLLINS, Colo. (CBS4) – As the Federal Reserve continues to combat record-breaking inflation through steady increases of interest rates, many Coloradans are now being forced to reevaluate whether or not they want, or can afford, to purchase a home. Colorado's housing market has been hot for nearly a decade now with homes selling at higher prices than ever before.

However, with interest rates more than double that of what they were a year ago, many buyers are reconsidering whether or not purchasing is the best financial option for them.

"Buyers right now are second-guessing themselves. 'Is this the time? Will I be able to afford this house?' Interest rates are going up so quickly that what they qualified for yesterday they don't now," said Jon Holsten, a realtor with Windermere Real Estate in northern Colorado.

For months, the economy has been on a rollercoaster as Americans try and navigate inflated prices on everyday purchases from gas to milk and even their homes. In an effort to try and slow spending, and to also avoid a recession, the federal government has been increasing interest rates.

"So, that has people scared. You hear ¾%, and people think that means that translates to ¾% on their home mortgage. That's not the case," Holsten told CBS4's Dillon Thomas.

Federal interest rates and mortgage rates don't mirror each other. However, new borrowers should still expect to pay higher rates on purchases that require loans. Because of that, buyers have been asking their advisors many questions on the status of the market.

"(They are asking,) 'Do I need to bring my price point down because of all my other expenses?' I think it is a very legitimate concern people have, and I think that is why we are seeing a lot of hesitation," Holsten said. "I, myself, am buying a house right now. And, as a real estate agent, it is a very concerning thing to watch rates go up."

Holsten said many homebuyers are now reconsidering buying at this time in hope that interest rates, home prices or both will drop in the coming months. However, without a way to predict the future, Holsten advised against potential wishful thinking if the buyer has the budget to take the plunge now.

"People who are going to wait for the market to settle down, and for prices to come down, it is a very risky game. There's a chance it isn't going to happen," Holsten said.

Holsten wouldn't have encouraged his clients to use an adjustable-rate mortgage, or ARM just a few months ago. They are designed to have lower interest rates for a short period of time at the start of the loan, with a set date of when they jump to a significantly higher percentage. ARMs often allow buyers on more restricted spending levels to purchase a home at an affordable rate in hope that their financial situation at a later date is more expendable.

When interest rates were at record lows, an ARM was said to be a bad investment for many buyers as one day the rate could jump to a number that is higher than the current percentage.

However, now with rates steadily climbing, Holsten said he was considering getting an ARM himself for a purchase in hope that the rates will one day shrink. And, if they are still high, he could just refinance when needed.

Holsten, and several other home-buying experts, said Colorado's housing market is starting to flatten out. While prices are no longer soaring at rates seen before, most of those in the industry have not forecasted any drops of home prices in the foreseeable future.

"That uncertainty makes people go timeout, let me think about this a bit. Is this a smart move right now?" Holsten said. "They're watching interest rates go up very steadily right now, which means their payments are going up. Throw inflation in there and what do we have coming? Nobody really knows."