The end of 2022 ended with a much needed 222% increase of inventory over last year. Even though that sounds like a lot, that’s the good news. We could have used 300%+ increase to balance the market. The challenge has been the rising interest rates everyone is talking about. For every 1% increase in interest rates, the Buyer pays up to 10% higher mortgage payment. So, comparing the 2-3% interest rates in 2021 and part of 2022, now having 7% is a tough pill to swallow for Buyers. Using this rule of 1% = 10%, imagine a $3,000/month payment in 2021/2022 now is at $4,200/month! That’s $14,400/yr extra in payments….
Historically, 7% is still very good. However, we just got spoiled. Buyers’ expectations have since adjusted once they got used to the new rate. Sellers and lenders are now offering buy-down (the interest rate) incentives to help people afford the higher payments. A buy-down does just that. For a certain amount of money – say 1% of a loan price ($5,000 for $500,000 loan), one can ‘buy down’ the interest rate lower. Even temporary 1 or 2 year buy-downs have become popular.
Eventually, once inflation is tamed, interest rates will come down again – but don’t expect that in 2023. Be ready for more of the same and even possibly higher rates. The Fed has indicated the Federal Funds Rate will continue to be increased until inflation comes back down. Most banks are thinking it will be 2024 and beyond before the decreases happen. Buyers – that means get in now if you’re wanting to buy. There’s a higher selection of homes, and prices have deflated somewhat with less competition/buyers. Sellers, sell now if thinking of it, since rates are going up and that makes your home less affordable. AND, if Sellers are buying as well, then you are in the same predicament as other Buyers with rates increasing. Cash buyers – you’re in the driver’s seat right now. You’re not affected by rates and with less Buyers that means you can negotiate that much stronger.
Denver’s market is still a Seller’s market – for now. Best in ’23 to everyone – reach out to your trusted CJV Real Estate advisor with questions. We’re happy to help!