Colorado housing market could slow down with higher interest rates in 2022

Home for sale in thornton, colo, home for sale in thornton
David Zalubowski/AP
A for sale sign stands outside a home in the north Denver suburb of Thornton, Colo.

The U.S. central bank says it’s raising interest rates next year – and that could put a damper on the meteoric rise in Colorado’s housing market.

Home prices shot to records across the state throughout the pandemic due to rock-bottom interest rates and a lack of homes for sale. The Federal Reserve recently signaled its intent to raise borrowing rates three times in 2022 in an effort to stem inflation. That means mortgage rates will likely tick higher.

Higher interest rates are a double-edged sword for homebuyers: People have less purchasing power when rates rise. But at the same time, rising rates can clamp down on runaway price gains, making homes more affordable.

One thing that isn’t likely to change anytime soon is the demand for homes far outpacing the supply on the market in the state, according to Bret Weinstein, CEO and founder of real estate company BSW Real Estate. The imbalance should keep prices relatively stable, he said. 

Numerous factors are at play behind the dearth of homes for sale, including a slowdown in residential construction following the financial crisis and older people choosing to stay put rather than downsizing or moving to retirement communities. At the end of November, there were just 2,248 active listings in the Denver metro area, which includes Boulder, according to the Denver Metro Association of Realtors. That’s a 34 percent drop in inventory compared to the same time in 2020. 

“I don’t think we’re seeing a drop off a cliff at the end of 2022 where suddenly this housing market is collapsing,” Weinstein said. “But I think it is very fair to say we will not see another two or three years of 16 to 20 percent appreciation.”

The median price of a single-family home in metro Denver is $543,000, up more than 16 percent from a year ago.