· Mortgage Rates1 – It was another rough week in the mortgage markets. Stronger than anticipated January Consumer Price Index (CPI) data pushed mortgage interest rates higher early in the week – a wake up call for the markets and anyone thinking that the inflation discussion was over. That move was followed on Thursday with a rebound, as January Retail Sales data came in much worse than expected – down 0.8% vs expectations of being down 0.1%. The rollercoaster concluded this morning with the January Producer Price Index (PPI) coming in hotter than expected… and another leg down in the market. Our benchmark rate gave up a bit more ground, stepping up to 6.625% (6.683% APR).
· Weekly Market Data2 – The real estate market was pretty much unchanged from last week, with Active Listings continuing to hover below 5,000 and relative balance between the number of new homes being listed (880 this past week) and the number of homes going under contract (817 for the same period). As a buyer in this market, it is important to stay on top of those new listings – because with fewer homes being listed at this time of year, you don’t want the ‘right’ house to slip through the cracks. Median Days on Market registered another substantial drop – from 32 days to 26 days – potentially due to the impact of strategically ‘de-listing’ homes through the holidays and ‘re-listing’ in advance of the spring buying season. (Source REColorado, all DMAR counties, this past week – Thursday to Wednesday).
· Columbine Team Insight – We had 100% of offers accepted this past week as competition dipped slightly. While it was not an official holiday, Super Bowl LVIII no doubt had an impact on the number of buyers who went house hunting on Sunday. Offers were, on average, 1% below list price with no seller concessions.
· Market Trends – As the spring selling season begins to kick into gear, it’s time for Buyers’ Agents to dust off some of those “Seller’s Market” tools that can help leapfrog the competition – one of which is an Appraisal Gap clause. While it depends on the house, the odds of needing to cover an Appraisal Gap will increase as competition intensifies. An Appraisal Gap typically comes into play when a buyer is competing and decides to make an offer that is above the list price. If the Appraised Value is below the Purchase Price (a.k.a. the above-list offer price), there is an ‘Appraisal Gap.’ In its simplest form “covering the Appraisal Gap” means that the buyer agrees to accept this difference and not re-negotiate the Purchase Price. It is, however, important for buyers to be specific – it is common to still require that the Appraised Value comes in at or above the list price, but these kinds of limits need to be addressed in the contract language. Since the lender will use the lesser of the Purchase Price or Appraised Value for determining loan pricing, it is a common misconception that a buyer would need to bring in additional cash to cover the Appraisal Gap. While that is one alternative, in many situations we can simply restructure the loan with a higher loan to value ratio — which can be a great option with relatively minor changes in the monthly payment. Educating buyers in advance can make a real difference — so that they have their ‘game face’ on and are ready to compete when necessary!
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 6.625%, and a P&I payment of $3,073. The Annual Percentage Rate (APR) is 6.683%, which reflects a discount fee of 0.370% ($1,772). 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.
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