Veteran Realtor Sean Willlcox explains how rising Denver mortgage rates might help the real estate market.
A healthy real estate market exists when Buyers have a reasonable number of listings to choose from and Sellers are getting their homes sold in a reasonable amount of time for a stable dollar amount. Currently, we have a market skewed heavily to the advantage of the Seller.
This sounds great for sellers, until you consider the fact that historically, about 90% of our purchases are locals looking to buy after they sell their homes. This portion of the market has whittled down to primarily local sellers who can afford to buy first and then sell their current home later. So, that eliminates a lot of us!
Can Rising Mortgage Interest Rates Help?
Now, along comes what just may be the Hero in the White Hat. Believe it or not, rising interest rates just might help us out! Take a look at the three charts below. They appear to indicate early signs of a slowdown. That’s largely due to rising mortgage interest rates, coupled with a few other factors.
Denver Metro Market Real Estate Report
To view the latest Denver Metro Area Market Report, please click here. This report includes all properties sold in the Denver Metro area through the end of April. As I view the data, here is the item that pops out at me. In past years, when the inventory starts lower than the previous year, the same trend continues throughout the year. This is the first year in many years that inventory started lower than the previous year but then rose above the previous year’s inventory by March and rose even higher in April.
Why is this? I think it is primarily the rise in interest that is slowing the buyers a bit. Plus, that allows housing inventory to finally make a much-needed recovery. I will talk more about the possible implications below in my wrap-up.
Denver Metro Luxury Market Report
View the latest Denver Luxury Real Estate Market Report here This report includes all properties above $1.5M, sold in the Denver Metro area through the end of April. As you review the Luxury graph, you’ll notice considerably more volatility in these numbers than the above, broader report. That report uses all sales in all price ranges into account. This is normal within the luxury real estate market. The values in this sector are usually slower to rise early in a real estate cycle, then rise at a greater pace as the cycle progresses. The sales in this sector have increased 50% year over year for the months of March and April. This rise in sales stunted a rise in inventory for the same time period.
The chart above shows the last 50+ years of Denver mortgage rates. Currently we are back where interest was in 2019 and still well below the 50-year average of 7.8%.
The Bigger Picture Effects Denver Real Estate Too
Currently, as a nation, we are focused on several unknowns within our economy and our world. These include inflation, fear of recession, war in Ukraine, rising interest rates, a falling stock market, and a historically low inventory of homes across the entire country. Each one of these is an inflection point with questions and consequences associated with each outcome. When we go through this roller coaster of emotions, people tend to hold their breath in anticipation of what is to come.
This trepidation, coupled with rising interest rates, appears to be slowing the broader market, as can be seen in the first chart. This might seem like a negative; however, balance in this market is the healthiest thing that can possibly happen for both Buyers and Sellers alike. Consider the fact that the majority of our Sellers want to become Buyers right after they sell. Like a self-fulfilling prophecy, this fear of selling when the inventory is low is a key factor in keeping the inventory low.
What’s Next for Denver Mortgage Interest Rates
I suspect that several, but not all, of these unknowns will resolve over the next few months, allowing people to take that first big breath after we clear a few hills on the roller coaster. I think we will be left with rising Denver mortgage rates: possibly even into the high 6%, low 7% range. This is the type of change that people will soon put into perspective, relative to the long-term cost of borrowing money. (See mortgage rate chart above.) As the market slows and inventory rises, the local Sellers with strong equity in their homes will begin to sell their current homes and buy the home they have been holding off on for years. The likelihood that the market will slow enough to create an over-supply of Sellers is exceedingly slim, especially when you consider that currently we have 6 to 12 Buyers, depending on price point, for every available home.
Here Is What I’m Hoping For! I think we might be headed to a healthier market, where homeowners who live in Denver, and have wanted to make a local move for a long time, are going to begin to be comfortable with the available inventory and their ability to not only sell, but also buy in the Denver market. When this begins to happen, we know we have arrived at a healthier market for both Buyers and Sellers!
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