Mortgage Rates1 – While rates ended in the same place they started, with the benchmark rate at 7.250% (APR 7.327%), it was not a smooth ride. Rates trended higher until the revised BLS numbers were released on Thursday showing job gains had been overstated over the past year, which helped bring rates back down. Overshadowing the daily economic news, central bankers from around the world have been meeting in Jackson Hole, WY to discuss their respective monetary policy and inflation in their regions. As anticipated, Fed Chairman Jerome Powell spoke earlier this morning and voiced support for raising the Fed Funds Rate – saying inflation “remains too high” and they “intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down.” Psychology matters and maintaining an aggressive (even an ‘overly aggressive’) posture will help move inflation in the right direction – with a target range of 2% annualized, we hope the last few ticks come sooner than later.
· Weekly Market Data2 – Active inventory continues to climb and is now at 6,604 homes. While the continued rise in inventory is certainly welcome news for buyers, we are still in a seller’s market with Median Days on Market dropping a notch to 11 days. Of the active listings, 2,763 have been on the market less than 30 days, and there were 1,081 new listings that hit the market the last week to keep things fresh. We also saw an increase in the number of homes that went under contract in the first week, stepping up to 40% of new listings. (Source: REColorado, all DMAR counties, this past week -Thursday to Wednesday).
· Columbine Team Insight – As homes sit longer and interest rates remain above 7%, buyers are looking to negotiate more favorable terms when making an offer. We have seen some success with buyers landing seller concessions and modest price discounts earlier this summer, however, we are not yet seeing sellers accepting large purchase price discounts. Sellers are instead choosing to continue to stay on the market and see if any better offers emerge. It is a waiting game, where the winners will largely be determined by how interest rates move over the next couple of months. With so much to think about, we only had 25% of offers accepted and the one accepted was 3% below list price.
· Market Trends – With the days of having a life-long employer long behind us, the variety of ways people earn a living has been expanding rapidly (evidenced by the ‘gig’ economy). Consequently, it is not unusual to find yourself in a position where the income you have may not fit easily into the underwriting guidelines published by Fannie Mae and Freddie Mac. For those who could use a creative twist and have some assets (liquid or invested), it may make sense to consider the benefits of contributing assets to a Trust, and the resulting opportunity to distribute qualifying income from the Trust. While disbursements from a borrower’s non-retirement accounts are not allowed as sources of income, different rules apply to accounts held by a Trust. In many cases, a simple letter from the trustee that states the monthly amount of the ongoing disbursement together with a statement showing the Trust’s ability to continue those distributions for at least the next 3 years (For example, $360,000 in a Trust would enable $10,000 a month in income) is enough to make a difference – so definitely worth a discussion if traditional income sources just aren’t getting us there.
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 7.327% with a 0.039% discount fee ($432). 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 08/24/2023 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 08/17/2023 to 08/23/2023. 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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