Strategies For Moving Up – The ‘Buy Before You Sell’ Option

·         Mortgage Rates¹ – Last week, I said that “We will likely give back some of the gains”… and I guess the market was listening.  Despite a very quite week for economic data, the markets moved against us on the heels of Chairman Powell’s 60 Minutes interview that aired on Sunday, Feb 4^th.  The point that he made in the interview (which was recorded on Thursday, Feb 1^st), was that while we have made good progress, the Fed was still looking to see more data before cutting rates… indicating to the market that there is virtually no chance of a rate cut at the March meeting, and future rate cuts may be a little further out on the calendar.  The MBS market did not respond favorably to this news (not to mention the unusual forum), and our benchmark rate gave up ground, rising back up to 6.500% (6.545% APR).

·         Weekly Market Data² – As we gear up for the season, we would normally like to see total Active Listings starting to edge higher, but we have been disappointed so far – not so much for lack of activity, but with contracts pretty much keeping pace with new listings, the water level isn’t rising.  In our view, that just means making sure that you know what homes are currently available, and that your buyers are diligently monitoring new listings as they come onto the market.  The shift in the mix of homes going under contract that we noted a couple of weeks ago is now starting to show up in the data, with Median Days on Market dropping substantially – from 42 days to 32 days.  (Source REColorado, all DMAR counties, this past week – Thursday to Wednesday).

·         Columbine Team Insight – It was our third solid week of activity across the team with 75% of offers being accepted.  The average accepted offer was 1% under the list price and we did still have a couple of homes with seller concessions.  We also had a couple lose out to significant (5% over list) bidding.  Lean on your realtor to provide information about the home you are interested in and to gauge competition and what will be a winning offer.

·         Market Trends – As competition heats up this spring, there are several challenges unique to “move-up” buyers.  One of the biggest can be the desire (or even the “need”) to be able to make a non-contingent offer when competing for a new home.  Making a non-contingent offer involves two major hurdles:  (1) having enough income to qualify for two mortgages (your existing mortgage and the new one), and (2) accessing the funds for a down payment, a significant source of which could be the equity that is locked up in their current home.  To get past these hurdles, the traditional solution might be to list your current home for sale and wait to get under contract before making a contingent (albeit stronger contingent) offer.  This could involve moving twice, and almost certainly adds additional time pressure to what can already be a stressful search process.  The more contemporary alternative involves a “Buy Before You Sell” program.  In summary, this kind of program provides the buyer with a guaranteed offer to purchase their existing home, as well as an “equity advance” to be used for the downpayment on the new home.  The guaranteed offer and equity advance address both issues by enabling a lender to exclude the current mortgage payment from the borrower’s Debt-To-Income ratio and by also providing the cash necessary to close on the purchase transaction.  There are incremental fees associated with the sale of the existing home which need to be considered, but it is always a good option to understand and keep in your back pocket for those certain situations.

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 6.500%, and a P&I payment of $3,034.  The Annual Percentage Rate (APR) is 6.545%, which reflects a discount fee of 0.234% ($1,123).  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 02/08/2024 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 02/01/2024 to 02/07/2024.   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.