DENVER (KDVR) — As the Federal Reserve progressively turns up the dial on interest rates, Denver-area realtors are seeing something that hasn’t happened in nearly a decade: the market is starting to cool off.

In an effort to combat rising inflation, the Fed raised its target for the federal funds rate by 0.25%, or one-quarter of a percentage point. As the federal rate rises, so do mortgage rates offered by lenders across Colorado.

“We’ve seen them inching up almost daily,” said Kelly Moye with Compass Real Estate. “In January we started in the high threes and low fours, and we are now in the fives.”

Moye said she is noticing the rise in rates is having the intended effect: people may be having second thoughts about buying at a higher cost, and may have to lower their standards in the market.

“I think the demand is as high, the problem is the purchasing power is not as high,” Moye said.

Moye said “we are on the cusp” of the pendulum swinging back towards the buyers in the Denver housing market, but there are certainly signs the market is becoming “healthier.”

“The number of showings we’re seeing on our listings is down,” Moye said. “So where we would see maybe 30 showings on a weekend, now we see 12 or 15. Instead of 10 offers, we may see four or five. So it’s still competitive, I wouldn’t say the pendulum has swung, but the writing is on the wall that the pendulum will likely swing.”

Sunny Banka with the Colorado Association of Realtors has been working in the Denver Metro market for more than 40 years and is seeing the same thing.

She works in the southeast side of the metro and said the rising rates are going to hit the bottom segment of the market first, where homes come in between $450,000 and $600,000.

“Real estate can take three steps forward and one step back,” Banka said when describing the industry. “It will trickle up, but it’s going to hit the lower end first.”

Banka has already seen this materialize with a ranch she listed for a client in Aurora. Weeks ago, Banka said she would expect more than 30 showings for the $600,000 home with five to six offers. Now, they only had a couple of showing and actually lowered the listing price to drive up more interest.

Part of the slowing demand is the real cost of monthly payments going up with rates, which could mean roughly $150 more per month in payments.

“The reality of it is to qualify for that extra payment, you are going to need three to four times that in discretionary income available,” Banka said.

Banka said with the rates rising, serious buyers may be able to get a home at the asking price or even write in a lower offer to get under contract, a reversal of the bidding-war battle buyers have faced in the Denver metro for years now.

Moye said she’s not seeing that as much, but said the “reach” of how much higher potential buyers are going over the asking price is getting shorter.

“What will eventually happen is sellers will realize that they shouldn’t expect 20% over, and they might list at a more responsible price,” Moye said.

Moye said that we’re seeing the beginning of a trend that will slow a market that saw “unsustainable growth” over the past two years. Regardless, she stands firm in believing real estate is a smart investment in the Denver metro right now, and the market won’t reverse, but rather plateau.

But for a long-term outlook on the Denver metro, Banka and Moye both believe this cooldown is only relative to the big picture.

“Prices may drop a little bit, but people want to live in Colorado,” Banka said.