Year-end numbers underscore what many homebuilders and real estate agents already knew: 2023 was a tough year for the Colorado Springs-area housing market.

“We expected a downturn in 2023, but the downturn was quite a bit more than we anticipated,” said Ed Gonzalez, executive vice president of Campbell Homes, one of the Springs’ oldest locally owned homebuilders.

Two new housing industry reports show the pace of home construction declined to its lowest level in just over a decade, while sales on the resale side of the market fell to a nine-year low.

Those numbers didn’t plunge to Great Recession levels. Still, many buyers struggled to afford homes after long-term mortgage rates began 2023 above 6% and spiked to over 7% in late summer. They eventually drifted back below 6% over the final two months of the year.

“It was a challenge with the interest rate increases, and homes became much less affordable,” said Gordon Dean, a real estate agent with Re/Max Advantage in Colorado Springs and this year’s Pikes Peak Association of Realtors board chairman. “Those changes created a lack of inventory. People that were living in homes they could have sold chose not to sell because they couldn’t afford to move to something else.”

With 2023 in the books, what’s ahead this year? Here’s a look back and a peek ahead at the Colorado Springs-area housing market in 2024:

• A red-hot market gave way to slow going in 2023.

Historically low mortgage rates that fell to around 3%, and even lower, for 30-year, fixed rate loans fueled a home-buying spree for several years in Colorado Springs and nationwide that drove up prices, triggered bidding wars among buyers and led to multiple, top-dollar offers for sellers.

When the Federal Reserve hiked interest rates to tamp down inflation in early 2022, however, mortgage rates also soared to beyond 6% that year and remained solidly above that mark in 2023.

Many buyers were priced out of the market and, as a result, sales stalled.

Some existing homeowners, meanwhile, declined to sell because they didn’t want to swap their low mortgage rates for much higher borrowing costs if they moved. As a result, inventories of resale homes remained tight, which kept prices high even as demand slowed.

At the same time, some builders saw traffic dwindle in their showrooms and production slow in the field.   

• What did homebuilding numbers say?

For 2023, the Pikes Peak Regional Building Department issued 2,259 permits for the construction of single-family, detached homes, according to an agency report this week.

The 2023 total fell 26.4% from 3,070 permits issued in 2022 and sank nearly 50% from 4,497 permits in 2020. Last year also saw the fewest number of permits for any year since 2,216 in 2012, Regional Building Department reports show.

“It was a year of transition,” said Tom Hennessy, president and CEO of Springs-based Challenger Homes. “We went from a very strong housing market in, certainly ’21 and most of ’22. In ’23, it was a transition from still being relatively stable and good and then as mortgage rates increased, it became more challenging.”

Challenger still had a good year — probably its second or third strongest in terms of completed sales over the last decade, Hennessy said. 

But to get there, Challenger — like other builders — dusted off and implemented incentive programs that hadn’t been used since the Great Recession years.

One of the most popular programs: mortgage buydowns, in which builders help reduce, or buy down, a mortgage rate for a loan’s first few years to help buyers afford monthly payments and get them into a new home.

“That was really the name of the game in the last half of the year,” Hennessy said of buydowns.

Gonzalez, of Campbell Homes, said the builder’s completed sales for 2023 fell by roughly 50% to around 45.

Many buyers gravitated away from the company’s higher-priced homes to lower-priced products, while Campbell also saw more cancellations than it had in the previous four to five years after customers couldn’t qualify for the same loan a few months after going under contract, he said.

Because of the sales slowdown, Campbell laid off some workers and didn’t fill open positions among its administrative, construction and sales staffs, Gonzalez said.

“That’s one of those years you’re glad to see in the rearview mirror, no doubt,” he said. “The first part of the year was pretty grim. And then it seemed to pick up as the year went along, especially about the halfway point — May, June. It started to pick up a bit and has been a little bit of a roller coaster, but much better than the first few months of the year.

“So many buyers were just used to the fact that we had 2% and 3% and sometimes 4% mortgage rates,” Gonzalez added. “And then all of a sudden, we were close to double that, if not higher in some cases. I think there was definitely a shock and a pullback on the part of the customer’s side.”

• What about numbers on the resale side of the housing market?

A Pikes Peak Association of Realtors report this week showed home sales totaled 777 in December, an 8.7% decrease on a year-over-year basis and the 19th consecutive monthly decline. 

Sales for all of 2023 totaled 11,742, which was down 23% from 15,259 in 2022. Last year’s sales total also was the lowest since 11,197 in 2014, according to Gazette historical data that’s pulled from past Realtors Association reports.

“It was off compared to the prior three or four years that we had of craziness,” Joe Clement, broker/owner of Re/Max Properties in Colorado Springs, said in reference to the bidding wars and multiple offers of the last few years.

The median price of homes that sold in December, however, rose to $455,000, a 3.2% increase from the same month in 2022, the latest Realtors Association report shows. It was the fourth straight month that prices increased on a year-over-basis after seven months of declines.

Prices climbed, in part, because there’s still a demand for housing, but the inventory of properties for sale has remained historically low, real estate agents have said. At the end of December, there were 1,891 homes on the market, down 0.9% from the same month in 2022; in pre-Great Recession years, December inventories often were near or above 3,000, according to Gazette historical data. 

In some neighborhoods where homes in certain price ranges were in short supply, sellers still received multiple offers at competitive prices, Clement said.

“All of a sudden they had two or three offers or maybe more and the people ended up seeing more money than they were asking,” he said. “But that wasn’t like it was two or three years prior when it (multiple offer scenarios) was almost everyday.” 

Dean, of Re/Max Advantage, said homes that were priced appropriately to reflect comparable sales in their neighborhoods continued to be in demand among buyers. 

“It’s inventory, it’s supply and demand,” Dean said. “Houses priced correctly and in really good condition still sold. People who were challenged with low equity or they were forced to move, they got beat up in this market. But those who were positioned correctly did fine.” 

• What does 2024 hold for the housing market?

Better times, some real estate experts say.

Mortgage rates will continue to be a key, and they’ve tumbled over the last several weeks.

On Oct. 26, 30-year, fixed-rate mortgages averaged 7.79% nationally, which was a high point for 2023, according to mortgage buyer Freddie Mac. Since then, long-term rates have fallen every week and reached 6.61% on Dec. 28.

Builders and real estate agents are optimistic that rates will continue to slide.

Gonzalez expects a slow and steady drop in rates, which would translate to an uptick in homebuilding at Campbell Homes in 2024, though perhaps only a minor one that would add four to five sales and boost his company’s sales volume to about 50 this year.

“Not as bad as some of the previous recessions,” Gonzalez said of the 2023 housing slowdown. “It feels like we’re already kind of starting to rebound from that. I think we would be happy with, as far as a projection for 2024, to somewhere close to where we ended up the year in 2023 and maybe a little bit more.”

Challenger Homes’ Hennessy also predicts a slow decline in mortgage rates over the next two years, which will translate to a better homebuilding market starting in 2024. Many local residents still want to buy homes and newcomers who are relocating to the area are joining them, he said.

“We’ll look back at late 2023 and early 2024 as being kind of the bottom,” Hennessy said.  

On the resale side of the housing market, if 30-year mortgages fall to the low 6% range and below, Dean expects a robust first quarter for home sales.

Likewise, Clement said rates of 5% and even 4% will drive many buyers back into the market.

“I think they’ll realize that’s not maybe the (historical) bottom, but it’s certainly down there where it’s more comfortable for them with that payment,” he said.

Colorado Springs’ economy also will help drive the housing market, Clement said. Business and civic leaders have announced several employer expansions in Colorado Springs over the last year that would add roughly 3,000 jobs in the area, including some positions that will pay six-figure wages. 

“Those people, they want to buy houses,” Clement said. “We’ve got people that are in these beautiful apartments that have been built because they couldn’t get a house, because they tried and they kept losing their bids and finally they said, ‘I surrender,’ and rented a two-bedroom apartment for $2,500 a month and they’re stuck on a lease. But those people want a house and they want homeownership.”  

Clement and Dean expect the inventory of homes on the market to increase and give buyers more selection, though Clement added he doesn’t anticipate a flood of listings.

As lower interest rates stimulate demand, and unless inventory increases significantly and returns to historical norms not seen for the past several years, home prices could continue to rise in 2024.

Historically, the Colorado Springs area has seen prices appreciate by about 4% a year, Dean said. He expects at least a similar increase in 2024. 

As mortgage rates drop, some homebuyers will face a choice: purchase now or wait to see if rates fall further later in the year.

Since prices also might rise, and because there’s still an element of uncertainty about what could happen to mortgages as the Federal Reserve adjusts interest rates, Dean suggests buyers should purchase now rather than wait. 

“You know what you know today,” Dean said he tells clients. “You know what the payment is. You know what your house is going to cost. If you know what you know today, and you’re comfortable with that, buy the house. Lock the rate and buy the house.

“I’m a guy that likes to see the stats in front of me,” he added. “Guessing will get you in trouble. I don’t like to play poker with interest rates, and I don’t know what cards the Fed is holding right now. But if I like what it looks like to me, and I can afford it and I’m comfortable with it, I do it now.”

Construction crews worked Tuesday on homes being built in the Banning Lewis Ranch area on Colorado Springs’ east side. The pace of home construction in 2023 fell to its lowest level in more than a decade, but housing industry members are optimistic about a rebound for the market in 2024. 

JERILEE BENNETT, THE GAZETTE