- Mortgage Rates1 – This week was “jobs week” where we receive all the employment related reports highlighting job openings, transfers, hiring and unemployment. The three major reports, JOLTS (Job Openings and Labor Turnover Survey), ADP Employment and BLS jobs report all showed a general weakening in the labor markets, which was good for bonds and rates. In addition, Q2 GDP was revised lower from 2.4% to 2.1% also indicating that the economy is slowing down, and that inflation should continue to cool in upcoming months. Overall, it was a good week for rates, and they finally reversed course and started drifting down slightly to 7.125% (APR 7.177%).
- Weekly Market Data2 – We continued to see Active Listings climb and we now have 6,668 in Denver and surrounding counties. Most of the upward movement was due to homes sitting on the market longer rather than a large influx of new listings, of which we only saw 968. This combination pushed Median Days on Market up to 13, the highest we have seen since March 9th. Taking a deeper look at the data we can see that homes that were on the market for 7 days or less went under contract at about 1% over list, those on the market for 8 to 30 days went UC for about 3% under (original) list and those on the market for more than 31 days realized a discount of over 6% from the original list price. If you are having a hard time finding a home that checks all of your boxes, perhaps it is time to revisit some of the homes that have been sitting on the market to see if there is an overlooked opportunity waiting for the ‘right’ offer. (Source: REColorado, all DMAR counties, this past week -Thursday to Wednesday).
- Columbine Team Insight – We are seeing similar data amongst our own team and August has cooled from prior months. Of the offers out, we had 75% accepted at an average of 1% below the list price. However, with Labor Day directly in front of us and the summer beginning to fade, those focused on vacation will most likely turn their attention back to home buying to get into their new home before year end. If rates behave and continue to drift down, this should fuel the fire and we would expect to see an uptick in activity in the next couple of months.
- Market Trends – It is common practice for lenders with higher rates to quote rates that include discount points to focus the conversation on a lower rate, while minimizing the discussion around the actual cost of that lower rate. While this strategy is clearly one of the many available options, it is not always the best option for the borrower. Deciding when it makes sense to “buy down” the rate depends on a several factors that should be analyzed together. The first step to making a smart financial decision is to understand the amount you are paying for the discount upfront (at the closing table) and the amount your payment will drop due to the lower interest rate. Once you have these two numbers, an easy way to assess the opportunity is to divide the upfront cost by the monthly cash flow savings to determine the “payback”, or how soon you will break even on your initial investment. Armed with the amount of time it will take to achieve break even you should then decide 1) if you’ll own the home that long, and then 2) if you will have the mortgage that long. If you believe rates will decline within that time period and the chances of you refinancing or selling are high, then you should not buy down the rate since you might not fully recover your upfront cash outlay.
NOTES:
(1) The mortgage loan scenario presented assumes the purchase of a primary residence, excellent credit, an 80% loan-to-value (LTV), a loan amount of $480,000, a 30-year fixed interest rate of 7.125%, and a P&I payment of $3,234. The Annual Percentage Rate (APR) is 7.177% with a 0.123% discount fee ($590). Monthly principal and interest payments, which will continue for the stated term until paid in full, do not include mortgage insurance, property taxes or homeowners’ insurance premiums and actual monthly payments may be higher. Interest rates are current as of 08/31/2023 and are subject to change at any time without notice. All loans are subject to credit approval. Other terms and conditions may apply. Not all loans or products are available in all states. Regulated by the Colorado Department of Regulatory Agencies, Division of Real Estate.
(2) Source: REColorado®, Inc for the period 08/24/2023 to 08/30/2023. Data for Adams, Arapahoe, Boulder, Broomfield, Clear Creek, Denver, Douglas, Elbert, Gilpin, Jefferson, and Park counties. This representation is based in whole or in part on content supplied by REColorado®, Inc. and REColorado®, Inc. does not guarantee nor is it in any way responsible for its accuracy. Content maintained by REColorado®, Inc. may not reflect all real estate activity in the market.
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