- Mortgage Rates1 – It wasn’t a friendly week for interest rates, and we saw our benchmark rate move up to 7.25% (APR 7.37%). On Wednesday, the FOMC released the minutes from its June 14th meeting, which showed that almost all of the Fed officials believe further policy tightening is likely. Then, as if that wasn’t enough, Thursday’s ADP employment report for June added fuel to the fire with an entirely unexpected 497,000 new jobs created, which was more than double the consensus estimate of 225,000.
- Weekly Market Data2 – As expected, the holiday weekend put a damper on the number of new listings, which came in at 838, down 34% from the prior week. Of those, only 156 went under contract, reflecting a relatively light 19% of new listings going under contract in their first week on the market. This kept our total active listings near our peak of 5,728 – opening the door for buyers who are willing to wade into the market. The median days on market increased to 9 days, which is as high as it has been since the first week of April. (Source: REColorado, all DMAR counties, this past week -Thursday to Wednesday).
- Columbine Team Insight – We had another week with 80% of offers being accepted, even as the overall market slowed. As has been typical lately, half of the offers accepted were over list price by roughly 4%, while the other half came in under by roughly 4% after factoring in seller concessions. The key difference between the ‘haves’ and the ‘have nots’ was the length of time the home had been sitting on the market – and now that almost 80% of active listings have been on the market for more than a week, buyers may start seeing opportunities to negotiate more aggressively.
- Market Trends – Following up on the topic of home price appreciation, it is important to point out that slower appreciation is not the same as declining prices. With most pundits expecting to see home price appreciation end the year in positive territory, it is worth focusing on understanding the case for buying now versus waiting another 6-12 months. With rates now in the 7% range, it can feel daunting to pull the trigger on a home purchase, but a quick review of the impact of appreciation and the optionality to refinance in the future shows that if you are interested in buying, then now is the time. Of course, to do this sort of analysis, the two big questions we have to ask are (a) when will interest rates come down? and (b) how much will they drop? Using a scenario in which interest rates drop from 7% to 6% over the next 12 months, factoring in the ‘extra’ interest expense for the next year as well as the costs of refinancing, we see the benefits of even modest 2% appreciation (hopefully higher) on a median priced home outweighing the marginal cost – making the “buy now” decision a clear winner. Add in less competition and some potential tax benefits too, and you’ll feel much better about placing that offer.
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 7.250%, and a P&I payment of $3,274. The Annual Percentage Rate (APR) is 7.370% with a 0.266% discount fee ($1,277). 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 07/06/2023 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 06/29/2023 to 07/05/2023. 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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