(Here’s my favorite lender’s forecast for the 2019 Denver Mortgage rates. – Dennis Martin, Coldwell Banker Residential Realty)
By Jimmy Kinley
What in the world could 2019 have in store for Denver home loans??? If you listen to the media or read the news feeds online, you might think that buying a home is a pointless risky investment. I have heard so much negative press that is literally spinning the truth. I can only assume that’s to drive people to their websites and sell advertising. For some reason, people can’t pass up a negative article. So, I need to share some facts and real time experience from my day to day business with you.
Is the Housing Market Dying?
No! I see articles that constantly talk about pending homes sales being down and appreciation being down. Let’s talk appreciation. When you see all these articles speaking about appreciation dropping again to 4-year lows, you have to put that into perspective. We are coming out of one the hottest 5-year appreciation runs this country has ever seen. Its not going to crash. Its just going back to normal appreciation. The numbers still show appreciation month to month as a positive number and year over years is still over 5%. A modest 3-4% is considered normal appreciation.
Is appreciation lower that it was? Yes. Is that a good thing? Yes!! We cannot sustain 10% year over year appreciation forever. Are pending home sales down? Sure. Same concept as before. So, why is all this happening. First, things had to slow down at some point. Secondly, this one would be good ole fashion fear. In the 4th quarter of last year we saw an election. Shifting balance of power always slows the market because it freaks people out. So, Denver Mortgage interest rates bounced over 5% for the first time since early 2011. And, and the stock market took a 20% dive.
Let’s say you where thinking about buying a home with all this happening. Would you hit the pause button until you had a chance to see how it all shakes out? Then, you compound the ordeal with the fact that houses are not flying off the market. And, sellers can no longer ask any price they want and get it. Now, the typical buyer is seeing price reductions on listings simply because they were overpriced initially. See where the typical consumer would pull back the reins a bit?
I will not go into why the market isn’t crashing. Here is an article about that if you want to read about why that IS NOT happening.
Fast Forward to 2019
I can only tell you what I see so far with boots on the ground. My applications are thru the roof. I have probably pre-approved more people in the last few weeks than I did in the last 2 months of 2018. I am guessing there is a back log of people who wanted to buy and now the fear has subsided. And, Denver Mortgage interest rates are back down a bit. Yes, you will still see negative news for a bit. The reports and media releases are usually working with data that is a month or more old. And, these pre-approved buyers aren’t all even under contract yet. So, they haven’t closed as a sold sale yet.
Do I think 2019 will be a barn burner? No. I think we are simply transitioning back into a NORMAL market. A normal market is a good thing. That means normal appreciation and no crash. That means less stress for buyers and sellers because there are plenty of houses and plenty of buyers. Yes, if you’re a buyer you don’t get to lowball the price and get the house. Yes, if you’re a seller you cannot get any price you want. It’s the same end result without the stress.
When you can sell your house high, that means the new one you are buying is high too. The only difference is that you can get a contingent offer accepted and you don’t have to worry about being homeless because you sold your home and can’t find another. Sure, you may not get as much for the house your selling., But, you also don’t have to pay as much for the house your buying. If you’re a first-time home buyer, you can save up that money and not freak out because the houses are going up 10% in value every year.
Rates, Buying Power, and Payments
It’s time to talk about the elephant in the room. Denver Mortgage interest rates are the only x factor and the odds of them going lower are not good. I mentioned rates hit 5% last year. They have dropped back down due to a lack of inflation fears (thanks to the FED’s rate hikes) and due to a 20% stock market slide.
Time to bore you with economics. When the stock market is falling, that creates fear. People move money out of the market and put it into safe places like Mortgage Backed Securities. This is a safe place to park the money and get a solid ,yet low, rate of return while you do it. This causes the MBS indexes to go higher which makes a fixed mortgage rate go lower. That is what happened in the 4th quarter of 2018.
Here is the problem. If the stock market rebounds and starts to get rolling in an upward direction, those same people will pull that money back out of MBS and put it back in the market. That makes the MBS indexes go down and rates will in turn go up. When this happens, it usually happens quickly. Take last year for example. We started the year in the high 3’s for Denver mortgage interest rates. By April, we were at 4.58. And, by November we hit 5%. Most experts say we will see 5.5% in 2019. I think it will be less dramatic than 2018. But who really knows.
What if Denver Interest Rates Go Up?
What does 5.5% mean to you?? Let’s assume the going rate is 4.75% now. It’s a little lower but using quarters of a point is easier. If your maximum qualification is $250,000, then every .25% that rates go up, you lose $7,ooo in purchasing power. So, if rates jump from 4.75% to 5.5%, you will drop you maximum pre-approval from $250,000 down to $229,000.
This swing gets bigger as home and income go up. If you are qualified for a $500,000 home at your max, you will lose $13,500 for every .25% that interest rates go up. That means if rates jump to 5.5%, your max pre-approval would go from $500,000 down to just under $460,000.
Let’s say you’re not buying at the top of your qualification so none of that matters. For every .25% that rates go up on a $250,000 loan, you will pay an extra $39 a month. So, Denver mortgage rates jumping to 5.5% means an extra $117 a month for the same house. That is $1404 a year.
Now let’s say you’re doing a $500,000 loan. For every .25% that rates go up on a $500,000 loan, you will pay an extra $78 a month. So, rates jumping to 5.5% means an extra $234 a month for the same house. That is $2808 a year. So, with all other variable being equal, waiting could hurt simply due to rates.
We have all been spoiled for a long time. But, the average for a 30 year fixed over the last 47 years is over 8%. So, where have rates spent most of their time in the past 47 years? 7 years below 5%, 27 years between 5-10%, 10 years between 10-15%, and 2 years above 15%. What!?!?!?
We should only be so lucky to still have rates in the 4’s and starting to creep into the 5’s. As always, thank you for taking the time to read this and please use this form if you have any questions! Or, comment publically below if you like.
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