Denver Metro Area Housing Update - October 2023

The latest housing news for October 2023. In our professional opinion, here's what you need to know about today's real estate market conditions--despite what you may have heard:

Mortgage rates have reached 8%, a level not seen in 23 years. While this might be concerning, it's important to note that we've been hovering in the high 7% range recently. The big question on everyone's mind is when will rates start decreasing according to the experts? Many of the local lenders I work with and associate with seem to think that rates are nearing their top. The Federal Reserve, the monetary entity behind all the recent rate hikes wants spending to stop before they slow down rate hikes. 

Fortunately, there is hope for relief in the near future. The latest inflation data suggests that the Federal Reserve's interest rate hikes may be working to combat inflation, which is a positive sign. However, the Fed is not expected to increase the interest rate at the next meeting. The reality is, when trillions are pumped into the system, inflation goes through the roof.

New listings have dropped by 6%, while inventory has increased by 11% to 6,629 listings. We're beginning to see inventory build--inventory currently stands at about 2.4 months of available supply. Notably, the median price continues to climb slightly (up 0.86% year over year), and the close to list price ratio remains strong at around 99%. Many sellers are still achieving their desired prices, with noted concessions, but buyers are becoming more assertive and winning negotiations.

The “5 D's”--those moving out of necessity--is a significant driver of the housing market. While prices haven't dropped significantly yet, increased rates have decreased demand, potentially impacting prices. However, low inventory is a complicating factor in this equation which is currently underpinning values, keeping them from substantially decreasing. We're closely monitoring the situation as inventory is finally increasing…slowly.

Currently, 38% of homes in the U.S. are owned without mortgages, while 62% have mortgages. Importantly, 90% of those with mortgages have rates under 6%, and 80% have rates under 5%. Foreclosures have increased by 34%…but they're coming up from historic lows. The situation is not as extreme as it may seem. National foreclosure rates are at 3%, but in Colorado, they're just 1.7% and forbearances are becoming a thing of the past. Don't let the news tell scare you into thinking the worst, without knowing these facts.

Further expounding on the comments above, the market is supported by a substantial $31 trillion in home equity. Most homeowners have an average of 71% equity, and many have seen their equity grow by 45% in the post-pandemic boom. These facts provide stability and opportunities in our market, despite the current volatility in mortgage rates and perceived tenuous nature of the market.

We are currently experiencing the traditional seasonal slowdown in the market. In some ways, seeing seasonality in the marketplace is welcome because it’s been predictable in the past (pre-pandemic), and always has presented opportunity for homebuyers.  

For today's buyers there is also opportunity. Although there's less inventory of homes from which to choose, there are also fewer buyers to compete with. Historically, we've seen deals and negotiations pick up during this season. 

 

For sellers, we advise pricing properties reasonably and ensuring they're in tip-top shape for listing. Sellers should anticipate that while price reductions aren't always expected, when a property is priced correctly, most buyers who are getting loans will need a mortgage rate buydown (also known as a seller subsidy) to make the montly payment work in today's near-8-percent mortgage rate environment. For more information on mortgage rate buydowns click here.

Despite hitting 8% last week, mortgage rates dropped ever so slightly back into the high 7's recently. That's not much, admittedly, and many buyers are waiting for a more substantial drop, but this may prove costly in the long run. Lower rates are expected to attract more buyers and potentially drive up home prices. An estimated 5.5 million prospective buyers could enter the market if the rates fell by a percent and double that number if rates fell by 2 percentage points. Competition would be beyond fierce if those numbers came to fruition, and if that happens, you've seen what happens to prices. Not to mention, the winter season typically brings more concessions and price drops, making it an excellent time for buyers to make a move in the current market. Ask us how you can get pre-approved with one of our preffered lenders.

In the current market, three prevalent groups are cash buyers, first-time buyers, and circumstantial buyers and sellers (e.g., due to death, divorce, job changes). Cash buyers are not as affected by rising rates, seeing this as an opportunity. First-time buyers recognize the power of real estate as an investment and hedge against inflation. Life circumstances and investors continue to drive transactions.

Amidst the ongoing chatter about rising mortgage rates, it's essential to remember that predictions have often been wrong this year. Pay attention to time in the market rather than trying to time the market. Seek advice from trustworthy individuals with real experiences. Real estate and the stock market have historically been wealth-building assets over time. Quite honestly, if you look at who's positioning themselves in this market, its the investors who are still actively seeking opportunities. So you might ask yourself, what do they know that keeps them buying in today's market that I don't know?

While the market is facing rising mortgage rates, there's always someone finding opportunities. We're here to guide you through these market conditions so you can confidently make informed decisions. 

 

Please don't hesitate to reach out with any questions or for personalized advice--that's precisely why we're here.