Rising Denver Mortgage Rates Affect Affordability
When it comes to the cost to buy a Denver home, there are many factors that contribute to a monthly home mortgage payment. Some experts suggest that we are going to see Denver home prices in the Denver Metro Area real estate market level off or go down over the next couple years. But, price is only one factor in the decision to wait to buy a Denver home.
It’s like cooking a frog slowly in cold water. We hardly notice. But, mortgage interest rates have actually increased a wh0le percentage point in the last year.So, now we sit around 5% for a loan that would have cost 4% last year.
However, it’s most likely that Denver mortgage interest rates are going to increase in 2019. By the end of next year, the mortgage rates could be 6% for a 30-year conventional mortgage. And with that, the cost of waiting to buy a Denver home is going to increase dramatically as we see interest rates continue to rise.
Denver Mortgage Interest Rates
Let’s take a look at what you can afford today at 5% and what you can afford at 6% if rates continue to rise. For this exercise, the conventional loan has 20% down so Mortgage Insurance isn’t a consideration. If today you are comfortable with a monthly mortgage payment on a mortgage of $400,000*, in 1 year you will only be able to afford a mortgage of $317,500. That is if the interest rate rises to 6% in one year.
So, for a $500,000 home, putting 20% down at 5% is equal to a $395,000 home, putting 20% down in 1 year due to a 1% rise in interest rates. That’s a bit astounding, right? All in all, this could cost you big bucks in the long run. Give your local mortgage broker, like George Bain or Rebecca Hansen, a call and find out how much this could cost you to wait.
The Denver metro area is one of the most booming real estate markets in the country. Prices for homes are still on the rise. Although, they are not increasing as quickly as they have in the past few years. Also, housing inventory has risen from 2 weeks supply of inventory ,which was previously unheard of, to 2.33 months of inventory. Even this is still considered to be a Seller’s Market.
Months of Inventory Still Favors Sellers
To give some perspective, a balanced market has 3-6 months of inventory. So, even though the inventory is up, it’s still not high enough to create a buyer’s market. This means the supply and demand are still not equal. That means we aren’t going to see home prices drop significantly anytime soon.
Waiting To Buy A Denver Home May Be Expensive
Therefore, with rising home values and rising interest rates, the longer you wait to buy a home, the more expensive payments could be. The cost of waiting to buy a Denver home increases every time the mortgage rates increase. And, the Fed decisons on the 10 year note rates eventually lead to higher Denver mortgage interest rates.
*This model would not include any increase in property tax.