Higher mortgage rates don’t appear to have slowed the pace of Colorado Springs-area home construction, though some builders say the impact — if any — still might be a few weeks or months away.
The Pikes Peak Regional Building Department issued 355 permits to builders and individuals in May for the construction of single-family homes in El Paso County, a nearly 20% increase over the same month last year, a report from the agency shows.
It was the third consecutive month in which permits increased on a year-over-year basis after seven straight monthly declines, according to Regional Building data and records maintained by The Gazette.
Through the first five months of 2022, single-family permits totaled 1,907, a 6.6% decline over the same period in 2021.
The May and year-to-date permit figures are for single-family, detached homes and exclude townhomes, condos, duplexes and apartments. Detached homes account for the majority of the area’s residential construction.
The monthly increase in permits comes as 30-year, fixed-rate mortgages have risen steadily in 2022 and now top 5%. They averaged 5.3% nationally in mid-May, according to mortgage buyer Freddie Mac; they’ve slipped of late, and last week averaged 5.1%.
Joe Loidolt, who oversees home construction for longtime local builder Classic Homes, said it’s too early to know if higher rates are having an effect on the company.
On the one hand, Classic has seen home sales slow recently, though overall demand has been strong, said Loidolt.
But Classic’s home sales traditionally slow toward the end of May because potential buyers go on vacation or focus on school graduations and the Memorial Day holiday, Loidolt said.
At the same time, Classic doesn’t pull building permits until a couple months after a home sale, Loidolt said. As a result, permits that Classic pulled in May reflected homes that buyers agreed to purchase in March and April, when long-term rates were rising, but still below 5%.
“So, sales have slowed, but part of it is seasonal,” he said. “We just got done talking about this yesterday internally. It’s slowed down; is it a regular seasonal slowdown? How much of it is seasonal, how much of it is interest rates? We don’t know yet. We’ll know in the next month to two months if interest rates really have slowed things down.”
Also, Classic’s sales might have slowed because it finished construction in one portion — or filing — of a residential development, but doesn’t have home sites ready to sell in the next area of that project.
“We’ve got that and all those combinations going,” Loidolt said. “Like I said, we probably won’t know for 60 days, as far as Classic’s concerned, how much of it is because we ran out of inventory in some areas, how much of it is interest rates and how much of it is seasonal.”
Tom Hennessy, president of Challenger Homes in Colorado Springs, said he doesn’t expect increasing mortgage rates to have an impact this year on home sales and building permit activity.
Yes, rising rates and higher housing costs have priced some buyers out of the market and others will adopt a wait-and-see attitude on whether long-term borrowing costs will drop, Hennessy said.
But even if some homebuyers walk away from a sale, Challenger has a list of others ready to step in and is able to resell a home “fairly quickly,” he said.
The company had forecast sales and closings of more than 500 homes in 2022, and remains on track to meet that goal, Hennessy added.
“We’re not going to see, in 2022, any impact on our total number of sales and closings and permits,” he said. “Part of that is just because there’s enough pent-up demand, there’s enough demand and low supply that we’re going to reach our production capabilities. … The number of homes that we had planned to start and build and close is not going to change.”