Is a Denver real estate correction inevitable? Nationally, home sales have already dropped from a 2020 high. That’s even with low mortgage interest rates. If inflation accelerates so will rates and home affordability.
Get ready for the inevitable Denver real estate market correction. Unfortunately, this change is not likely to help buyers find more homes for sale or sellers continue to sell at record prices.
Federal reserve minutes released this week reveal it will raise interest rates higher and sooner if inflation persists. In turn, rising mortgage interest rates could create lower supply of homes for sale and damage home buyers’ ability to qualify for higher mortgage payments.
Current Low Inventory of Homes For Sale
So, if the Fed raises rates and cuts purchases of mortgage-backed securities faster, higher home loan rates could disrupt the Denver real estate market and lower the number of homes on the market.
First, already record-low inventory of homes for sale could decline further. How when will more c homes come onto the market with current interest rates? Lon Welsh, owner of Your Castle Real Estate recently posted this video.
Former All Denver Real Estate Blogger, Lon Welsh.
Lon’s analysis is spot on. But, he recorded this video before the October Fed minutes were released. So, he couldn’t factor in what happens in inflation continues to soar persistently.
So far, mortgage interest rates have only increased modestly in the last month. Most likely, that’s due to Fed just beginning in November to reduce the purchase of mortgage-backed securities. If those pesky mortage interest rates continue to rise at a even faster rate, Sellers would most-likely become even more reluctant to sell.
What If Morgage Interest Rates Rise
You see, when mortgage interest rates rise significantly, Sellers become more reluctant to move. Why? Because they will have replaced the current low mortgage interest rate with a higher one if they taper bond pirchases more dramtically. So, more and potential, discretionary sellers would likely just stay where they are. That would leave potential buyers with even few homes to find.
And, here’s the double whammy! More and more potential buyers would also stay put. Why? Because even if prices level or drop, monthly home payments would increase from the newer, higher home loan rates. They might still want to move. But,affordability goes down with higher rates even if prices become attractive. Remember, they still have to qualify for higher payments.
My conclusion is obvious. Especially Sellers should move as soon as possible. And buyers also might want to buy before the inevitable correction in the Denver real estate market.
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