Many thought when the Denver interest rates rose and the buying frenzy ended, prices would begin to fall, even tumble downward. How can it be that we have interest rates that have more than doubled over the past 18 months, a 28% drop in sales volume and a rise in housing inventory yet, prices in the Denver metro area are not only stable but have risen by 1% since this time last year?
Why Are Denver Home Prices Not Dropping?
It is all about supply and demand! Although Denver mortgage interest rates increased, slowing buyer demand for housing, the volume of homes coming on the market has dropped nearly the perfect amount to meet current demand. So, home prices are more stable. But inventory of resale homes for sale in the Denver and the Denver suburbs has risen 26% since the end of 2022.
Higher Mortage Rates Limits Home Listings
The majority of housing inventory in metropolitan markets, Denver included, comes from people who choose to make a local move. This means placing their home on the market and buying another, typically within several miles of the home they are selling. However, among this group of homeowners, 82% have a current mortgage below 5%, 62% have mortgages below 4% and 23% of homeowners have a mortgage below 3%. When surveyed by Realtor.com, 80% of homeowners said they felt “locked-in” by their existing low-rate mortgage.
This desire to keep their current low interest rate loans has created a low supply of homes coming on the market. Low production by builders and competition from investors has added to the low inventory.
A Buyer’s Market Or A Seller’s Market?
Although it can vary in price range and area, generally we still have a mild Seller’s Market. The result is the 1% rise in housing values since last year at this time. The Denver metro area currently has anywhere from 1.5 months of inventory on the lower end of the market ($400k+) and up to 4 months of inventory in the upper price ranges ($1M+).
For comparison, in the past several years we have had inventories as low as 7 days in the lower price points and no higher than 45 days in the higher price ranges. Buyers now have more homes to choose from and less chance of competing with another buyer for the home they choose.
Sellers do not have the single-sided power in a transaction that they have recently enjoyed. But, Sellers are still selling in a solid market where they are receiving a near historic price for their home. Buyers have become pickier. And, homes needing updates are moving slower than they have been. And still, mild bidding wars still occur for the most saleable homes on the market.
Marry The Home, Date The Rate
The slowing real estate market has produced a window of opportunity for both Buyers and Sellers in the. In the past several years most buyers in the market could not compete and win in the race for a home. If they succeeded, it was usually at a cost well above asking price on a home that they were forced to make a split-second decision on and in the process, relinquish their contractual rights to inspections, appraisals, and other items intended to protect them in a purchase.
Right now, the slower market allows for more housing choices. But even more so, it is allowing for buyers to slow the process of a purchase. So, those home buyers are likely not compete for a home.
Whether you are looking to buy your first home or wanting to sell your current home and buy the next, this is a good scenario for all. What do I mean by, “Marry the Home, Date the Rate”? It is easier to be a buyer in the current market than it has been in many years.
Now is the time to find and marry that home you are wanting. When rates drop, as they are expected to in the next 12 to 18 months, you break up with your interest rate (it wasn’t the right one anyway!) and refinance at a lower interest rate. By taking this approach, you avoid the crazy market that will return simultaneously with the drop in interest rates. Interest rate buydowns have become a common tool in the current market to help lower mortgage interest rates temporarily. We are familiar with lending programs to help!
Mortgage Interest Rates & Denver Home Prices
First, Interest Rates: The federal funds rate has been rising since February of 2022, pulling the 30-year mortgage rate up with it. As the economy slows and the Fed begins to level and then reduce rates, mortgage rates will soon follow. This is a relatively predictable part of the economic cycle. Several economic factors can increase or decrease the level that mortgage rates will eventually fall back to but if history is any guide, the drop will likely be several percent or more.
Recession or near recession is one of the most reliable signs that this downward pressure on rates may be near. A recent report quoted economists from Morningstar, Goldman Sachs, Morgan Stanley, Moody’s Analytics and Fannie Mae. They all estimated an average mortgage rate for 2024 very close to the 7% level.
Second, Home Prices: Demand for homes is only being muted for a short time due to the spike in interest rates. However, the demand for housing is on a long-term upward trend. Because, the demographics for both numbers and education levels of the Millennial generation and Gen Z is telling forecasters there is no end in sight. As we all know, high demand and/or reduced inventories for any product translates to rising prices. Housing is expected to have both of these tail-winds for many years to come.
Opportunity In The Denver Real Estate Market?
A window of opportunity exists with the decreased demand in housing. Buyers can buy in a more reasonable market. Sellers can still sell into a stable market but also have the advantage of buying into an easier market. If you don’t own a home, now is an easier time to buy than any time in the past several years. If you currently own a home and want to sell in order to buy one this is a great time. Once interest rates drop, you can refinance. However, when interest rates drop, nobody will be able to stop the flood of buyers. Again, they will compete for homes, pushing prices up and creating the next rush on housing.