The Competitive Edge

Have you heard the saying that the best time to buy is when others are not?  When there are lots of buyers in the market, the competition for homes can be fierce.  Recognizing that the current environment has many buyers ‘on pause’, those who are financially able to ‘stay in the game’ will likely face less competition and will have the opportunity to re-evaluate their mortgage if the interest rate environment improves down the road.

·      Home Sales Are Down – The combined impact of higher inflation, economic uncertainty, bank failures and debt-ceiling drama have led to mortgage rates we haven’t seen in 20 years; driving home sales down almost 24% year-over-year as buyers (and sellers) remain on the sidelines.

·      Home Prices Are Down… Slightly – While off their April 2022 peak, home prices did not experience the dramatic declines that some analysts had predicted and are currently forecast to end 2023 higher.

·      Active Listings Are Up – Inventory is up over 43% from a year ago as buyers continue to carefully consider their options.  While not back to pre-pandemic levels, inventory is moving more toward ‘healthy’ levels.

The Cost of Waiting

Beyond the competitive dynamics, there are a few actual costs that should also be considered:

·      Missed Appreciation – While home prices have dipped a little over the past few months, the persistent shortage of inventory and pent-up demand are expected to support continued appreciation.  Even at 2-3% per year, this can add up quickly with median home prices nearing $600k in the Denver Metro area.

·      Rent vs. Interest Expense AND Building Equity Over Time – Home prices are not the only thing impacted by inflation.  By some reports, rents in the Denver Metro rose nearly 10% in 2022.  When comparing rent to a 30-year fixed mortgage payment, it is important to recognize that it includes both interest and principal.   The nature of a fixed payment means that the interest expense portion goes down over time, while the increasing principal component helps build your equity position.    

·      Interest Rate Optionality –  Buyers have the option to refinance in the future if interest rates drop and/or their home equity grows through appreciation or principal repayment.  Depending upon their equity position at the time, the cost of refinancing (roughly $3k) could potentially be rolled into the transaction.