Has the First Domino Finally Fallen?

Fed Chairman Kevin Warsh Says Inflation Will Soon Be "A Thing of the Past." Could This Mark the Beginning of Colorado's Housing Recovery?

For nearly five years, one word has dominated nearly every conversation about the economy: Inflation. It has quietly become the hidden tax affecting every Colorado household. It increased the cost of groceries.

Fuel. Utilities. Insurance. Construction materials. Property taxes. Mortgage payments.

Even a simple trip to the hardware store costs dramatically more than it did just a few years ago.

For many Colorado families, inflation didn't just make life more expensive—it delayed dreams of homeownership altogether. Last week, however, something changed.

During his first Semiannual Monetary Policy Report before Congress, newly appointed Federal Reserve Chairman Kevin Warsh made perhaps the strongest statement Americans have heard from a Fed Chairman in years.

"High inflation will soon be a thing of the past."

While that may sound like another Washington headline, it could ultimately become one of the most important turning points for Colorado's housing market in years. Not because mortgage rates are about to suddenly collapse. But because inflation is often the first domino in a much larger economic chain reaction.

Inflation Is Falling... But Mortgage Rates Aren't

One of the biggest misconceptions among consumers is believing that lower inflation automatically means lower mortgage rates. Unfortunately, it doesn't work that way. The Federal Reserve does not set mortgage rates. Instead, mortgage rates are primarily influenced by:

• The 10-Year U.S. Treasury Yield
• Inflation expectations
• Federal Reserve policy
• Bond market confidence
• Federal deficit spending
• Global demand for U.S. Treasury securities

Even if inflation continues cooling, mortgage rates may remain elevated until investors become convinced inflation has truly been defeated—not just for one month, but for many months. Warsh emphasized that the Fed has "no tolerance" for persistently elevated inflation and cautioned against declaring victory based on a single encouraging CPI report.

Warsh Says The Fed Made A Major Mistake

One of the strongest moments of Chairman Warsh's testimony came when he openly criticized the Federal Reserve's 2020 policy known as Flexible Average Inflation Targeting (FAIT). That policy intentionally allowed inflation to run above 2% for periods of time.

The idea was simple: Allow inflation to run "a little hot" in order to maximize employment.

According to Warsh... That experiment failed. Instead of modest inflation... America experienced nearly five years of elevated prices affecting everything from groceries to gasoline, insurance, automobiles and housing.

Warsh told Congress the Federal Reserve intends to return to one clear priority: Price Stability First.

He also indicated the Fed will rely more heavily on real-time economic data and less on long-range guidance when making future policy decisions.

Why This Matters To Colorado Homeowners

Colorado has become one of America's most expensive housing markets. Over the past several years we've experienced:

• Explosive home appreciation
• Mortgage rates more than doubling
• Record homeowners insurance increases
• Rising HOA dues
• Higher property taxes
• Higher utility costs
• Increased construction costs

Combined, these factors have created one of the worst affordability environments Colorado has ever experienced. Monthly ownership costs—not just purchase prices—have become the biggest obstacle for buyers.

Mortgage Rates Are Only Half The Story

Many buyers continue waiting for mortgage rates to fall. But affordability depends upon three major factors:

1. Mortgage Interest Rates: Lower rates reduce monthly payments.

2. Home Prices: Colorado home prices have begun correcting in many Front Range communities after several years of extraordinary appreciation.

3. Household Expenses: Insurance. Taxes. HOA dues. Utilities. Maintenance.

All of these determine whether a family can truly afford a home. Even if mortgage rates decline 1%, rapidly increasing insurance premiums or HOA fees can erase much of that monthly savings.

Colorado Is Already Beginning To Adjust

Unlike the frenzy of 2021-2022... Today's Colorado market has shifted dramatically. Across much of the Front Range we're seeing:

✔ More inventory

✔ Longer days on market

✔ Seller concessions

✔ Interest rate buydowns

✔ Price reductions

✔ More negotiating power for buyers

Ironically... These changing market conditions may improve affordability even before mortgage rates experience meaningful declines.

When Could Mortgage Rates Actually Fall?

The answer depends upon several developments occurring simultaneously. Mortgage rates typically begin falling when:

✓ Inflation remains consistently low

✓ The Fed gains confidence inflation won't return

✓ Treasury yields decline

✓ Bond investors regain confidence

✓ Economic growth moderates

Most economists believe meaningful improvement will likely occur gradually rather than suddenly. That means buyers hoping for 3% mortgage rates anytime soon may be disappointed.

However... Rates in the mid-to-low 5% range over the next couple years are far more realistic if inflation continues cooling and financial markets cooperate.

Colorado Buyers Shouldn't Wait For "Perfect"

History shows attempting to perfectly time either mortgage rates or home prices rarely works. Instead... Smart buyers focus on finding the right home at the right price while taking advantage of today's improved negotiating environment. Many Colorado sellers are now offering:

• Closing cost assistance
• Rate buydowns
• Price reductions
• Home warranties
• Repair credits

Those concessions can often offset a portion of today's higher interest rates. If rates fall later... Most homeowners always have the opportunity to refinance. You can refinance your mortgage. You cannot refinance the price you paid for your home.

PrimeTime Insider Takeaway

Don't wait for perfect conditions. Watch for improving conditions.

Housing markets don't improve all at once. They improve one economic indicator at a time. 

Inflation slowing. Consumer confidence rising. Inventory growing. Builders building. Mortgage markets stabilizing. Those are the early signs of recovery.

Colorado isn't there yet. But for the first time in years... The pieces may finally be starting to move in the right direction.