Mortgage rates plunge just as home prices set another record

Mortgage rates are sinking as markets contend with the ramifications of Russia’s attack on Ukraine, and that means home prices are likely to continue surging.

The average rate on the popular 30-year fixed mortgage had risen close to a full percentage point from the start of this year up until last Friday, when it hit 4.18%, according to Mortgage News Daily. It then fell to 4.04% Monday and 3.9% on Tuesday. That is the largest two-day drop since March 2020, the start of the pandemic.

This will give homebuyers more purchasing power as the historically busy spring season kicks off. It will also keep record high home prices continuing on their run higher. Prices in January were 19.1% higher year over year, according to a report released Tuesday by CoreLogic. That level of growth is the highest in 45 years, when CoreLogic began tracking prices.

“In December and January, for-sale inventory continued to be the lowest we have seen in a generation,” said Frank Nothaft, chief economist at CoreLogic. “Buyers have continued to bid prices up for the limited supply on the market.”

Nothaft added that the rise in mortgage rates since January eroded buyer affordability, and that price growth should slow in the coming months, but that all depends on how long this drop in rates continues. It could be brief, given the other factors weighing on the mortgage market unrelated to the Ukraine crisis.

Mortgage rates loosely follow the yield of the U.S. 10-year Treasury, which on Tuesday fell to the lowest level since late January. Markets are experiencing volatility because of Russia’s invasion of Ukraine.

For now, the move in Treasurys is causing the pullback in mortgage rates. But mortgage rates are governed more directly by demand for mortgage-backed bonds. Those bonds often mimic the 10-year, but not always, and now is one of those not-always times.

Unlike Treasurys, MBS duration can vary depending on demand for refinancing. A 30-year fixed loan rarely lasts 30 years. If people are refinancing or selling their homes faster, then the bond term doesn’t last as long. Given higher rates now, and more opportunity for refinancing, the current crop of MBS isn’t expected to last much more than five years, according to Matthew Graham, chief operating officer of Mortgage News Daily. 

Over the past three months, 5-year Treasurys have risen 0.10% more than 10-year Treasurys. Because mortgage bonds behave more like the shorter-duration 5-year Treasury note, they’ve had a tougher time keeping pace with the 10-year.

“The outlook for Fed bond buying is also hurting MBS more than Treasuries because the Fed accounts for a larger percentage of total buying demand of new MBS,” Graham said. “So if the Fed leaves (which it is in the process of doing), MBS prices have to fall farther to attract buyers. Lower MBS prices = higher rates, all other things being equal.” 

Given geopolitical tensions now, however, there has been more demand for short-term debt, and so mortgage rates are keeping better pace with the broader bond market. The question is how long will that be the case, and the answer depends on what happens in Ukraine and beyond.

Keep reading.

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Colorado Springs Real Estate Market Report from February 2022

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A flurry of policy experiments in Colorado serves as “regional laboratory” for regulating, limiting short-term rentals

Crackdown on short-term rental properties across Colorado mirrors national effort as communities grapple with escalating home prices and a shrinking workforce.

Winter Park and Breckenridge are offering big incentives to homeowners who convert their short-term rental properties to housing for locals. 

A program called “Short-Term Fix” offers homeowners up to $20,000 for converting their Winter Park vacation homes to housing for locals. 

The Town of Breckenridge and Summit County last week unveiled a similar program. The “Lease to Locals” program offers short-term rental owners up to $27,000 if they ink a year-long lease with local workers. That’s on top of rent they collect from their tenants.

“Just like any industry, there has to be some checks and balances to manage the benefits and minimize the disruptions,” said Tamara Pogue, a commissioner in Summit County, where one-third of homes are rented by vacationers. 

The incentive programs in Winter Park and Breckenridge are the latest strategies deployed by Western Slope communities grappling with a critical lack of housing that is the prime suspect in an equally painful shortage of workers.   The regulatory tinkering with short-term rental growth spans the country as the American tourism economy rebounds with a tsunami of visitors renting private homes. 

It’s hard to find any community in Colorado’s high country that is not yanking levers on short-term rentals. Councils are suspending permits. Capping numbers. Raising taxes and fees. And now offering big dollars to owners of vacation homes willing to pull their properties off the short-term market.

Voters in Avon will weigh special taxes on short-term rentals to fund workforce housing. Crested Butte’s ballot includes a proposal to raise excise taxes on short-term rentals to 7.5% from 5%. Voters in Crested Butte also will consider an annual $2,500 tax on in-town home owners who don’t live full-time in their properties and don’t rent at least half the year to local workers. Ouray also is asking voters to raise taxes on short-term rentals. Frisco voters could see a citizen initiative asking for an outright ban on short-term rentals in homes not occupied by working locals. 

Telluride has two competing ballot questions: A citizen-initiated ordinance — Question 300 — would cap short-term rentals in the town at 400, which would cut more than 300 from the existing stock of homes rented to visitors. A second ballot question proposed by the town council doubles the fee for short-term rental license and freezes vacation home permits at the current level. 

Gregory Craig, a 30-year Telluride local who has crunched historic licensing data on short-term rentals in his valley, said “the pell-mell rush to policy change over STRs is worrisome and that complete lack of data and analysis across the board is frightening.”

“Bad decisions are going to be made in haste and a lot of people may be damaged by it … and governments are going to regret it in the next downturn, if not sooner,” Craig said. 

Craig’s examination found that the backers of Question 300 — which would cut the number of short-term rentals by more than 40% — overstated the problem. They say the number of short-term rental properties has grown by 75% since 2016. Craig says it’s actually up about 31% since 2016 to 2018.

The number of permits can be high because when a property sells, he said, its existing short-term permit remains on the books while the buyer applies for a new permit. And a large hotel that was managed under a single license sold its 45 units in 2019, adding 45 new permits without adding to the number of condos available for vacation rentals. Craig’s analysis of lodging revenue from short-term rental taxes and visitors shows a 40% cut in vacation home rentals would deliver a $48 million loss to Telluride’s town coffers and businesses.

“It will likely blow a self-induced hole in Telluride’s economy, including Telluride and San Miguel County government budgets,” Craig wrote in a report detailing his research.  

A state lawmaker is joining the mountain community movement toward increasing regulation of short-term rentals. Sen. Chris Hansen hopes his plan to shift short-term rental properties from residential taxation to commercial taxation — which would more than triple property tax bills for vacation home owners — will deliver more revenue to schools, libraries, hospitals and other districts that rely on property taxes.    

“If this is something we don’t get ahead of, it’s going to spiral out of control for the state,” Hansen said. 

The website for Airbnb’s Colorado listings as seen on Sept. 27, 2018. Lawmakers have suggested a major tax change for short-term rental properties that could drastically change the industry as it stands in Colorado. (Eric Lubbers, The Colorado Sun)

Ask locals in towns like Breckenridge, Crested Butte, Salida, Steamboat Springs or Telluride and you will likely hear that short-term rentals are already a tornado, wreaking havoc on housing and hiring. 

This is a national issue. Tourist-dependent communities are facing housing and labor crunches. Home prices are spiking, especially in rural resort areas. Second-home owners are moving in full-time. And short-term rental bookings are climbing as the appeal of outdoor recreation grows during the pandemic. So tourist towns are more crowded and working locals are finding fewer places to live. 

Leaders and employers in those towns are increasing spending on affordable housing, but in the near term, they are looking to slow the growth of short-term rentals. There are dozens of approaches to short-term rental regulation underway in Colorado’s mountain communities. Some will work. Some may not.

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Plans for new city park in Colorado Springs unfold, sports fields included

The City of Colorado Springs began creating a master plan for a 70-acre park on the northeast part of the city, the city announced in a release.

Norman "Bulldog" Coleman Community Park, named after a local veteran and philanthropist, is set to be built near the intersection of Tutt Boulevard and Barnes Road, adjacent to Sand Creek; UCHealth Park, home of the Rocky Mountain Vibes baseball team; and Ragain Field, formerly the Switchbacks soccer stadium. The vision of the park is planned to contain sports fields and a playground, the release on Tuesday said.

The inception of the masterplan marks "important first steps" toward building the park, said Karen Palus, the city's Parks, Recreation & Cultural Services director.

The plan includes the design for the park, which will be funded by a ballot measure voters passed in 2019, which dedicated $7 million in excess 2018 TABOR revenue to parks and trails. The total cost for the master plan to be executed is $247,000.

Community forums, feedback on park alternatives and drafts of the park's concept will follow during upcoming months, the release said. The plan is set to be finalized in spring 2023.

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Louisville council favors letting Marshall fire victims 'opt out' of green building codes

The Louisville City Council late Tuesday agreed to find a way to let residents whose homes were destroyed by the Marshall fire opt out of net-zero building code requirements that were implemented just weeks before the deadly Dec. 30 blaze.

Council members listened to more than two hours of emotional testimony from more than 60 residents, and some nonresident interested parties, who begged the council to “show compassion” and not require those who are rebuilding to pay thousands more for the energy-efficient home requirements.

“This isn’t the issue of building green versus not building green,” said Shannon Mihaly, who lost her $855,000 home at 1018 Arapahoe Circle. “You don’t have to sell us on that. We’re not anti-climate and would love to build back as energy efficiently as possible. … We just want to rebuild period.”

Mihaly said she was offended by nonresidents, or those who didn’t lose their homes, urging council members to hold fast to the 2021 building code.

“Whatever the extra cost, it may be the difference between building and not rebuilding at all,” she said. “We just want all of our neighbors to be able to return home. Period.”

The requirements of the new code, dubbed the 2021 International Energy Conservation Code, would require electric-vehicle charging ports, “electric ready” requirements, “solar ready” requirements and stringent insulation standards, among others. The new requirements, compared to the 2018 building code, would account for a “9% energy savings.” The requirements would amount to a 51% energy savings “over the predominate energy code in the early 1990s” — when most of the homes were built, according to a Louisville city staff report.

The estimates of how much extra those requirements would cost varied wildly. The city, using estimates from Group 14 Engineering, estimated it would cost a minimum of $19,867 extra for a 2,200-square-foot home. Mayor Ashley Stolzmann added that they negotiated a $7,500 rebate from Xcel Energy only for those who rebuild to the 2021 standards, among other incentives from things like rebates from heat pump manufacturers.

But several residents mentioned a letter from the Home Builders Association of Metro Denver, sent to builders, fire victims and real estate agents, that showed it would cost an extra $77,000 to build that same size home under the 2021 codes.

About 560 homes in Louisville were destroyed, and about 1,100 in all of Boulder County, by the fast-moving wildfire that charred more than 6,000 acres in a matter of hours.

Colorado Division of Insurance Commissioner Michael Conway talked early in the meeting about the severe under-insurance problem many homeowners are facing — where insurance company estimates of rebuilding costs is much lower than what builders are estimating reconstruction costs to be with the supply-chain issues, and increased costs of construction materials.

Conway said he’s asked those companies for policy limits for total losses, date of policy inception and what software program they’re using to issue policies in the first place, and also to estimate rebuilding costs.

He said they negotiated with companies to waive the onerous inventory reporting requirements for homeowners who lost everything and to advance those policyholders 60% of replacement costs for belongings in the houses.

“They agreed to both,” Conway said.

In the end, council members agreed to “give staff direction to create an opt-out program for the energy efficiency code for a grouping of homes.”

Council member Maxine Most, Ward 2, said she felt uneasy exempting a certain portion of the population from building code standards, no matter how much they deserved it.

“I’m not trying to diminish the trauma that anybody is going through,” Most said. “I’m just very uncomfortable with the idea of segmenting our community into groups of people, and giving different groups of people different standards (of building code).”

For example, if a homeowner lost their home to a “regular” house fire next week, they would be required to build back to the 2021 building code standards, she said.

But Dennis Maloney, mayor pro-tem and Ward 3, said the Marshall fire was an extreme natural disaster, and council should be nimble enough to allow for exceptions in those cases.

“You’re not going to have instances where people have to rebuild entirely from the foundation up,” Maloney said. “Now if another wildfire comes through and takes out 200 homes, yes that’s going to be a problem and we might want to do the same thing we're doing today for that group.”

Council members acknowledged the “fear and anxiety” many face trying to rebuild, and trying to make public policy decisions based on emotion.

“I’ve been called a despicable human being having never taken a position on these codes,” said Kyle Brown, Ward 3. “We all feel the palpable fear and anxiety in our residents. It’s almost as if the facts on paper here almost don’t matter. Despite the fact that we have put together what I believe is the best estimate and the mayor and our partners have gotten the best amount of funding to cover these expenses, folks are scared still.”

Maloney said even though he voted against the 2021 code, he “probably would have voted for it” knowing the cost estimates provided Tuesday.

“It’s hard for someone who’s in this position, who have lost everything, to be patient,” said Chris Leh, Ward 1. “I know that for everyone on this council their heart is broken because of what happened.”

Council member Deborah Fahey, Ward 2, lost her home to the Marshall fire. But she still favored holding to the 2021 codes for everyone.

“We’re paying them to build to the 2021 codes that, in the long run, will save them money,” Fahey said. “I’m also a little concerned about the precedent we're setting.”

Members also gave staff direction to draft an ordinance that would repeal the requirement all new-built homes must have sprinkler systems. Finally, the council ordered staff to seek grants for complying with the wildland urban interface codes for resiliency.

Members did not set a date to vote on the final ordinances and amendments.

Get more updates on The Gazette.

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If there is a home that you would like more information about, if you are considering selling a property, or if you have questions about the housing market in your neighborhood, please reach out. We’re here to help.

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