Navigating Rising Interest Rates in Colorado Springs Real Estate

How Do Rising Interest Rates Affect Home Affordability?

Rising interest rates have dramatically transformed the Colorado Springs real estate landscape, but contrary to what many believe, this shift brings unexpected advantages for savvy homebuyers. After enduring a frenzied seller's market with multiple offers and prices soaring well above appraisals, we've now entered a more balanced environment where buyers can breathe, think, and negotiate.

As we explore in this episode, today's buyers face a fascinating trade-off: higher monthly payments but significantly less competition. The old real estate wisdom "marry the house, date the rate" has never been more relevant – especially for military families using VA loans who can access streamlined refinancing options when rates eventually decrease. We break down how new construction incentives like 2-1 buydowns work, potentially lowering your rate by 2% the first year and 1% the second year before settling at the market rate. This structure aligns perfectly with expected BAH increases or career advancements many military families experience.

Colorado Springs holds a special place in military assignments, ranking second only to Hawaii in desirability. This creates unique investment opportunities as many service members choose to keep their properties when transferred, establishing rental income streams with plans to return upon retirement. We examine the complete financial picture beyond just the interest rate – including how property taxes differ between new and established neighborhoods, additional costs in new construction that model homes don't reveal, and the importance of maintaining financial flexibility after purchasing. Remember, most homeowners stay in their properties just 5-7 years, not the full 30-year mortgage term, making the right property at a manageable payment far more important than waiting for "perfect" interest rates. 

Ready to explore your options? Contact Lori, your lifetime realtor who's been guiding Colorado Springs homebuyers through interest rate cycles for over 40 years.

To learn more about RE/MAX Properties Inc. visit:
https://www.LoriThompson.REMAX.com
RE/MAX Properties Inc.
Colorado Springs
719-332-1807

Episode Transcript

Speaker 1 (00:04):
Welcome to your Colorado Springs life and home,
where real estate meets realtalk and maybe a little too much
coffee.
Hosted by REMAX Properties,licensed realtor, broker and top
producer Lori Thompson, a locallegend who's been helping
military families and civiliansbuy and sell homes for over 40
years.
Whether you're PCSing, upsizing, downsizing or just daydreaming

(00:28):
, lori's got you covered.
Why?
Because she's your lifetimerealtor and she actually answers
her phone.

Speaker 3 (00:36):
Imagine that interest rates climbing, many buyers are
wondering how does this impacttheir ability to afford a home?
We're breaking down what risingrates mean for mortgages and
monthly payments and overallbuying power.
Welcome back everyone.

(00:57):
I'm millie m, co-host producerin the studio with remax
properties, licensed realtor andbroker laurie Hi Lori how are
you?

Speaker 2 (01:06):
Oh, I'm doing good today.
How are you doing?

Speaker 3 (01:08):
I'm doing amazing, so excited to talk about this
topic.
Interest rates has been a hottopic lately and I can't wait to
hear your insights on howthey're affecting today's market
.
So how do rising interest ratesaffect home affordability?

Speaker 2 (01:21):
You know, it's kind of interesting because it's a
mixed bag.
When the interest rates weresuper low, it became such a
competitive market that itpushed a lot of buyers out of
the market because we would getmultiple offers with ridiculous
things added to them, like hey,if the appraisal comes in low,
we'll pay up to $15,000, $20,000above appraisal.

(01:42):
Now keep in mind, especially ifyou're using a VA loan, the VA
will loan you up to the purchaseprice as long as it appraises.
If the appraisal comes in lower, you've got to come out of
pocket.
So we had buyers whose parentsand grandparents were helping
them or else they'd have todrain their savings.
And it was a market I actuallydid not enjoy, only because you

(02:05):
had to look at a house, make aninstant decision, submit an
offer and compete against 10other people, and that's too
much pressure for that big of adecision.
So now we're in an interestingscenario where it's kind of
shifting.
Before it was the seller'smarket and now it is far more
balanced.
So now we have higher interestrates, which makes the payments

(02:25):
higher, which means you qualifyfor less house.
However, there's some pluses tothat, although you wouldn't
think so.
Number one is that you don'thave that crazy competition.
You could look around andthere's an old real estate
saying you know, marry the houseand date the rate.
If the rates come back down,especially for a VA loan, you

(02:48):
could do something called anEARL, which is an interest rate
reduction loan, which is astreamlined process.
There's also something weweren't seeing back then, where
you can try to negotiateconcessions in the purchase to
buy down the interest rate orcover some of your closing costs
and you might have to plan onbuying a slightly smaller home

(03:11):
than what was happening before.
So what really gets interestinghere is we have a lot of new
home builders and they'reoffering incentives to buy down
the rates in a couple of ways.
One is a permanent interestrate reduction, the other one is
a 2-1 buy-down.
So let me kind of give you anidea.
So with a 2-1 buy-down, let'ssay the interest rate is right

(03:33):
now 6.5%.
Okay, a 2-1 buy-down.
Your first year you'll bepaying as if the interest rate
were 4.5%.
The next year the interest ratewould be 5.5%.
In years three through 30, therate is 6.5%, and so it kind of

(03:53):
gives you.
They try to tie it in withincreases.
That can happen with the basichousing allowance, which is
called BAH, or with theirhopefully their promotions.
And what makes that kind ofinteresting is new construction
has much higher property taxes,and so people go oh, this is

(04:15):
brand new, I like this.
There's no toenail clippings inthe carpet.
But you have to balance that bylooking and this is one thing I
try to guide my clients throughis oh, it's exciting, you know,
just be careful.
You're.
You know, are you buying thesizzle or the steak?
Because they take the newmodels and they make them really
beautiful and they load themwith tens of thousands of

(04:38):
dollars worth of upgrades.
You walk in, you fall in love,but the actual home may not look
like that.
You may not get landscaping forthe backyard, you have to
install the window coverings.
So I really try to walk themthrough.
Okay, this one has a betterinterest rate, but the taxes
might be higher.
Here's an older home that hasbetter taxes.

(04:59):
The interest rate might behigher, but let's kind of
balance out the payments,because the bottom line is I
want my clients, after they buya home, to be able to take a
vacation, to be able to go outto eat, to be able to put money
aside.
So there's a lot of differentpressures and challenges, but

(05:20):
luckily, after doing this for 40years, I can walk them through
some of those issues.

Speaker 3 (05:28):
A lot to think about, a lot to consider.
Do you have a preference or isit just basically based on the
needs of your client?
Do you have a preference of thehigher interest rate and the
lower taxes, or the lowerinterest rate, the higher taxes?
Which, have you seen, benefitsyour clients more, or is that a

(05:50):
case by case basis?

Speaker 2 (05:51):
Yeah, that's definitely case by case and it
really depends on what theyprefer.
I just want them to have all ofthe information, and so I think
you make better choices whenyou have all of the information
and if it's worth it for you tohave the brand new home which
some people prefer.
That's one group of people, andif other people are looking at

(06:12):
long-term ownership costs,that's a different group of
people, and so a lot of it comesabout through conversation, and
I want them to have theknowledge to make an informed
decision.
I am not interested in a quicksale and a quick commission.
I am interested in a lifetimeclient that feels like I
educated them well and treatedthem well.

Speaker 3 (06:33):
That's wonderful to hear, because there's nothing
worse than getting into a homeand I've had this experience and
you look back and there arethings you wish you knew,
different choices you would havemade based on that.
Do you have any strategies thatbuyers can use to offset the
effects of rising rates?

Speaker 2 (06:51):
You know, the best thing they can do is to look at
the whole picture, save up moneyfor incidentals.
So most of the time it's, andit's kind of when you look at
the historical perspective.
When I got my license in 1985,the interest rate was 13.5
percent.

Speaker 3 (07:09):
That always blows my mind when you say that.

Speaker 2 (07:12):
Yeah, but keep in mind the average price of a
house back then was $79,000.
So you have to look at it andif it exceeds your BAH, which is
the allotment the militarygives active duties towards
housing, then you have to lookat.
Okay, my principal balance willbe going down each month and I

(07:33):
get to write off.
Hopefully, depending on theirtax structure, they get to write
off the property taxes and theyget to write off the interest
they pay on that mortgage andyou kind of balance that out
with an ownership cost and aninvestment cost.
So what's kind of interestinghere is we are the second most
requested military assignment.

(07:53):
We come in right behind Hawaiiand after Hawaii, after they've
been through some island fever,they can't wait to get here
because we have Cracker Barrel.
We just have more choices forthem to go, or the things they
may have missed.
Choices for them to go or thethings they may have missed.
And then a lot of veteranschoose to retire here.

(08:14):
So some of my clients, let'ssay they buy here and then they
know they're receiving orders tomove somewhere else.
A lot of them choose to keepthe house here and to rent it
out with the goal of coming backsomeday for retirement or just
as an investment, because of ourfour military bases.

Speaker 3 (08:32):
It's really, really smart.
And then, even going back towhat you said earlier about the
crazy COVID time where peoplewere overpaying for homes, and
it's one of those things youwere talking about, the math and
having things balance out andit's like if you have a 2.5%
interest rate but you'veoverpaid for the house, you're
probably more likely to overpaythe total of the loan versus

(08:52):
having a slightly higherinterest rate and paying fair
market value for that.
Exactly.

Speaker 2 (08:57):
So there's six of one , half dozen of the other.
Nobody knows what the rateswill be in the future, but if
you find a house you like with apayment that you're comfortable
with when the rates go down,you win, because you're not in
that competitive.
Oh, I've got to submit an offerright away and I've got to do
all these bells and whistles andI have to overpay.
If you buy the house now, youcan refinance it.

(09:20):
If you wait for the rates todrop, you may or may not be able
to get the house.
So it's just kind of looking atthe whole picture and I would
rather inform someone to thebest of my ability and have them
decide that buying right nowmay not fit for them, rather
than ever pressuring anyonewhich isn't really my nature to

(09:42):
do something that could bedetrimental to them later on.

Speaker 3 (09:47):
Absolutely, and what I've noticed is that most people
are only in their homes five,seven, maybe 10 years and
they're concerned about aninterest rate that lasts 30
years.
So a lot of their trepidationis for not because they won't
even be in that home.
Long term life changes, we allknow that, but by now, don't
wait, laura.
Your expertise is invaluable.

(10:07):
Thank you for helping usunderstand how to navigate
rising rates to our listeners.
We'll see you next time formore insights on real estate in
Colorado Springs.
Thanks, thank you.

Speaker 1 (10:23):
That's a wrap for this episode of your Colorado
Springs Life and Home.
Got questions, need advice?
Just want to talk aboutinterest rates and granite
countertops?
Call or text Lori at719-332-1807.
Yes, she'll really respond.
Or visit lorithompsonremaxcomto get started with your

(10:46):
lifetime realtor, because whenit comes to Colorado real estate
, lori doesn't just know themarket, she is the market.