· Mortgage Rates1 – This past week was marked by the first FOMC meeting of the year in which Fed Chairman Powell confirmed that the committee believes that its Fed Funds Rate has reached its peak. What might have otherwise been a big win for the mortgage markets was tempered by the realization (delivered in the same press conference) that rate cuts may be a little further away than the market had been pricing in. Beyond the Fed, this was also the week for employment data. The mortgage markets started strong with a weaker than expected ADP Employment report on Wednesday that helped push our benchmark rate down to 6.250% (6.289% APR). The excitement ended this morning with the release of the BLS Jobs Report, which showed an unexpectedly large increase in January, and upward revisions in both November and December. We will likely give back some of the gains, but I think the overall message is that rates are moving in the right direction.
· Weekly Market Data2 – Another week of new listings that were in line with seasonal trends – something we expect to see more of as interest rates continue trending lower. We saw another nearly 800 new homes hit the market this past week and yet again the new listings were not enough to offset the 850+ of homes that went under contract. With older listings making up more than their share of new contracts and closings, we have seen the percentage of homes on the market for less than 30 days increase to 38% (up from 22% in early January) and Median Days On Market for those closed sales came in at 42 days. (Source REColorado, all DMAR counties, this past week – Thursday to Wednesday).
· Columbine Team Insight – It was another solid week of buyer activity, but those buyers were met with more competition than in past weeks and only 56% of offers were accepted. However, the average accepted offer was 3% below list price, primarily driven by homes that had been sitting on the market since the fall. When looking for a deal, be sure to look for how long the home has been on the market and its asking price history. You’ll want to act quickly though, because as more buyers come into the market, these homes seem to be finding their buyers.
· Market Trends – One of the most confusing concepts for homebuyers when comparing loan options is the relationship between the interest rate and the (a) associated discount points or (b) lender credits associated with that rate. When scrolling the internet, the click bait is thick in the water – seemingly below market rates attempting to lure prospective clients into lead funnels (how many times have you clicked a link, only to find that you’ve been transported to another site trying to collect your personal data?). Those headline rates almost always come with hefty discount points, which is the upfront cost you pay to ‘buy down’ the rate. In a declining rate environment (like the one we are currently in), it is important to understand the payback period associated with the cost of the rate. The most common way to think about this relationship is by calculating the simple cash flow breakeven point. By looking at the cost difference between the market interest rate with the fewest discount points (closest to zero, or ‘par rate’) and the ‘bought down’ rate, and then dividing the result by the difference in the monthly P&I payment, a borrower can see how many months it takes to recover the extra upfront cost. In most cases you’ll quickly see that buying down the rate exceeds the time period in which you might expect to refinance, and it probably does not make sense to pay upfront points for the cache of saying you have a lower rate – better to just speak with a lender that offers a lower ‘par rate’ in the first place.
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 6.250%, and a P&I payment of $2,955. The Annual Percentage Rate (APR) is 6.289%, which reflects a discount fee of 0.187% ($898). 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 02/01/2024 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 01/25/2024 to 01/31/2024. 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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