Rising mortgage rates don’t appear to have slowed the pace of home building in the Colorado Springs area, though some builders say the impact — if any — could still be 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, an increase of nearly 20% from the same month last year , according to a report by the agency.
It was the third straight month in which permits rose year-over-year after seven straight monthly declines, according to data and Regional Building records kept by The Gazette.
In the first five months of 2022, single-family permits totaled 1,907, down 6.6% from the same period in 2021.
May and year-to-date permit numbers are for detached single-family homes and exclude townhouses, condos, duplexes and apartments. Single-family homes represent the majority of residential construction in the region.
The monthly increase in permits comes as 30-year fixed rate mortgages rose steadily in 2022 and are now above 5%. They averaged 5.3% nationally in mid-May, according to mortgage buyer Freddie Mac; they have been slipping lately, and last week they averaged 5.1%.
Joe Loidolt, who oversees home construction for longtime local builder Classic Homes, said it was too early to tell if higher rates had any effect on the business.
For one, Classic has seen home sales slow recently, though overall demand has been strong, Loidolt said.
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 vacation, Loidolt said.
At the same time, Classic only withdraws building permits a few months after a home is sold, Loidolt said. As a result, the permits Classic withdrew in May reflected the homes buyers had agreed to buy in March and April, when long-term rates were rising, but still below 5%.
“So sales have slowed down, but some of it is seasonal,” he said. “We just finished talking about it yesterday internally. It’s slowed; is it a regular seasonal slowdown? How much is seasonal, how much is due to interest rates? We don’t know yet. We’ll find out in the future. next month to two months if interest rates have really slowed things down.”
Additionally, Classic’s sales may have slowed because it has completed construction of part – or depot – of a residential development, but has no ready-to-sell home sites in the area. next in this project.
“We have that and all of those combinations going on,” Loidolt said. “As I said, we probably won’t know until 60 days, with respect to Classic, how much is due to us running out of stock in some areas, how much interest rate and the part that is seasonal.
Tom Hennessy, president of Challenger Homes in Colorado Springs, said he doesn’t expect rising mortgage rates to impact home sales and building permit activity this year.
Yes, rising rates and rising housing costs have pushed some buyers out of the market and others will take a wait-and-see stance on lower long-term borrowing costs, Hennessy said.
But even if some buyers forgo a sale, Challenger has a roster of others ready to step in and is able to resell a home “pretty 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 are not going to see, in 2022, an impact on our total number of sales, closures and permits,” he said. “It’s partly because there’s enough pent-up demand, there’s enough demand and there’s low supply for us to be able to reach our production capacities. … The number of houses we had planned to start, build and close is not going to change.”