(Here’s my favorite mortgage lender Jimmy Kinley, writing about the 2018 Denver real estate market – Dennis Martin, Coldwell Banker Real Estate.)
As we reflect on another crazy 2017 real estate market in Colorado, I find myself scrubbing thru data with wide eyes surprised by things that I thought I already knew. For example, many homes sold with multiple offers. Obviously, the Denver real estate market drives many things. And, I must explain the real estate market before fully getting into the mortgage side and rate trends for 2018.
2018 Denver Real Estate Market
The Denver Metro area real estate market is crazy. Now, it is has now pretty much spread all the thru Fort Collins and the Colorado Springs market is now shooting up. My stats will focus on the Denver metro area so I don’t bore you with too much data. We know the market has been on fire for half of a decade now. It has been appreciating at a rate of 10+% year over year. Many have tried to say that could come crashing back down, but I firmly disagree. This is simply supply and demand. And, people want to live here.
I do believe it will level off at some point and simply go back to normal appreciation. Here is some raw data that may surprise you too. Last year 39% of homes went under contract above list price. There are many buyers but that isn’t the biggest reason. The biggest reason is the inventory, or lack thereof! Inventory levels have been low for years now. However, the Denver Metro Association of Realtors showed a decrease in inventory from December 2016 to December 2017 of almost 40%. WOW!!! Inventory dropped nationally by 9% in the same time frame.
We are just on a totally different pace in Colorado. The bottom line is that property values will continue to jump up as longs and the demand stays way higher than the supply. That doesn’t seem to be changing any time soon.
Mortgage guidelines are starting to get a little more flexible for buyers. Lenders are still not using common sense and mortgages in the same sentence. Although, they have backed off from some of the guidelines that where making it hard for people to qualify. Mainly student loans and debt ratio consideration have eased a bit.
If you are self-employed, you still must prove that you qualify off of your taxable income (not gross income) with two years tax returns in most cases. There are some new guidelines for 1 years returns if you can prove the business has existed for the last five years (like from the Secretary of State’s website). This one likely will not change due to the Ability to Repay Act.
Although things are easing here, you still need to be prepared to document everything when buying a home or refinancing. You see, the pendulum has swung too far the other way after the old days of fogging the mirror and signing, should we really complain? After all, you are typically asking to borrow hundreds of thousands of dollars.
The government has also done a better job of upping those loan limits to keep pace with increased home prices. This is a good thing because Jumbo rates can get pricey and real pricey if you don’t have a full 20% down. The maximum loan limit for the whole country is now up to $453,100 and even higher in high costs areas. For example, the Denver Metro conforming loan limit is now $529,000 and Boulder is up to $578,450.
Mortgage Interest Rates
Rates, rates, rates!! They are still awesome, but the trend is up. It’s not fast, but it has been slowly moving up. The average for a 30-year fixed conforming loan is 4.04%. This is the only true index that surveys lenders in the US to see what they locked in the last week. So, those rates are real. Those rates are not just what they say they are offering. This is up from 3.44% in January of 2016.
The average last year finished at 3.99% with people paying an average of half of a point to get it. You must keep in mind that this is still half of the 46 year average which is slightly over 8%. In fact, mortgage rates have spent only 6 years below 5%, 27 years between 5-10%, 10 years between 10-15%, and 2 years above 15%. In conclusion, rates are moving higher than they have been. But, they are still amazing!
Tax Considerations for Real Estate
Tax changes have been a roller coaster ride of bad Intel from the news around the holidays this year. It was so much I had to walk away and wait for a reputable source to decipher the code. The National Association of Realtors did just that for us. Here is a link to the PDF that they put out. http://narfocus.com/billdatabase/clientfiles/172/19/3062.pdf
bill final left the rules for the amount of time you need to own your primary residence to avoid paying taxes on the appreciation at 2 years. They had tried to move this to 5 years. Instead, the bill reduced the maximum interest write off to $750,000 for new loans, but grandfathered in old loans up to 1 million. That means that if you buy a new home this year and have a million-dollar loan, you only get to write off the interest for the first $750,000. They have a fancy calculator for that if you have a loan that big.
That final tax bill did remove the ability to write off interest on a Home Equity Line of Credit unless you can prove that the money was used to “substantially improve the property”. It didn’t grandfather in old HELOC’s. That means if you don’t have all the receipts or proof that you used the money on “substantially improving the property”, you will lose the write off.
My advice would be to refinance your 1st and 2nd mortgage into a new 1st mortgage while rates are still low to ensure you don’t lose the write off. Plus, rates are estimated to go up between .5% and .75% on HELOC’s this year if the FED does what they say they will do. Also, if you are looking to take money out of your home for home improvements or to pay off debt, you would probably be better off to refinance now and get that money on a 1st mortgage while rates are still low. Most experts are saying rates will be north of 4.5% by the end of the 2018 Denver real estate market.
There was much bad press that they were doing away with interest write offs on 2nd homes/ vacation homes, but that didn’t happen either. They did cap the maximum write off for property taxes at 10K, but that will not affect most people. As you can see, the changes are not nearly as dramatic as the press made them sound.
In summary, rates are still great, the 2018 Denver real estate market is only going up with regards to value, the mortgage guidelines are getting slightly better, and the tax laws really didn’t change that much. If you are thinking of buying or refinancing, now is the time. Prices typically go up on the more expensive home at the same rate as the home you may be selling. That means you might as well take advantage of the lower rates.
If you are a 1st time home buyer, unfortunately it is only getting more expensive by the day. I hope this article helps clarify most of the big-ticket items in our current Colorado market. Please let me know if I can ever do anything to help you. And, thanks for taking the time to read this!
Senior Mortgage Originator/ Highlands Ranch Branch Manager
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