The last two years in the Denver housing market have seen unprecedented appreciation of over 25% each year for homeowners in the Denver metro area. The demand for active listings for this year and last year in the Denver Market has driven the median sales price above u s averages for demand in the u s real estate market. A consistent shortage of single-family homes for sale keeps inventory low in the Denver real estate market.
Real estate investing has delivered some healthy returns for landlords in the current and past years. Denver’s unemployment rate is better than most of the nation, which helps drive home prices and home values in the Denver housing market. Colorado boasts a diverse local economy, there are a wide variety of small Colorado-owned local businesses to a large diversity of corporations with high-paying positions feeding demand for real estate activity and making the Denver housing market a hot ticket as the population and economy are still growing.
This also attracts real estate investors to consider purchasing single-family homes along the front range and the Denver metro area from Colorado Springs to a new home in Fort Collins. The front range is also limited when it comes to desirable areas for new home sites and new listings, and most people want to be near the mountains making this a factor in the Denver real estate market, furthering demand for home sales.
Most homeowners in the Denver Metro area stay here for several years, which means that existing homeowners are staying put or even ‘right-sizing,’ limiting available new listings of homes in the most attractive price ranges, typically above the median sales price in the u s housing market.
Denver Real Estate Market
Even with these factors, the sudden jump in interest rates & mortgage rates over the last few months has cooled off the Denver housing market from its’ feverish pitch moving the pendulum to a buyer’s market. Today, we are seeing price drops in the metro Denver area, and homes are staying in the Denver real estate market longer than before. This price drop and trending towards a buyer’s market was expected by most people who study the local Denver market’s economics and will still leave home prices well above the typical 5% to 10% appreciation.
Before the recent pandemic and the recent surge in home values and higher prices, seasonal trends were tied to home inventory as we moved into the fall months and the start of the school year documented by the Denver metro association. When combined with the higher listed price and mortgage rates & interest rates, many homebuyers for single-family homes are taking a fresh look at their budget or home pre-approval amount.
As a side note, renting and Denver’s unemployment rate remaining low in the metro Denver area is also up an average of 15% over last year‘s rents, according to rent.com, with the median rent for a two-bedroom apartment being $1,817. Real estate investors are getting premium dividends with higher average rent. The Denver vacancy rate is under 5% making it a very competitive market to find an apartment or rental. With limited options, this has led some first-time home buyers to consider purchasing townhomes as their first purchase or looking at areas further away to get more “bang for their buck” such as Colorado Springs or Fort Collins.
Possible Mortgage Solutions
To help potential homebuyers qualify or manage their budget, we see lenders creatively combat the higher interest rates. Using a 2–1 Buydown, the homebuyer can benefit from a lower interest rate for the first year loan, a slightly higher rate for the second year, and then settling into the final interest rate for the remainder of the mortgage period.
Another way to help in the short term is using an adjustable-rate mortgage with a fixed rate for the first five or seven years, then adjusting annually after the initial period. These adjustable-rate mortgages initially offer a lower mortgage interest rate, giving buyers a more affordable payment at the start. Some lenders guarantee no-cost refinancing when rates improve in the coming months and years so that homebuyers will get a better rate at no cost.
Several other ways to improve your home purchasing power for that single-family home. The first way to increase your purchasing power for your dream home is by buying down the mortgage rates via paying points which will lower the rate. A lower interest rate means you can qualify for a higher house price at the same income level while keeping your qualification ratios in the guidelines. A quick reminder that a mortgage point is a fee a borrower pays the lender to obtain a better interest rate on the mortgage. Typically, a point will cost 1% of the mortgage amount, meaning that one mortgage point would be $5,000 on a $500,000 mortgage.
The second way to improve your purchasing power is to use more of your savings for a larger down payment. Another advantage of a larger down payment is that you may avoid paying monthly mortgage insurance, ranging from $150 to $400 a month. Even though the industry standard is a 20% down payment to avoid mortgage insurance, some lending programs only require 10% to drop the costly mortgage insurance.
Lastly, review your credit report for accuracy and consider improving your score by paying down debt. A higher credit score often translates to better mortgage rates or might help you qualify for a slightly more expensive home, depending on your specific underwriting guidelines.
Looking Ahead To Your Next Home
With home price decreases and increased seasonal inventory, real estate activity is changing and now is an excellent time to find and purchase a home in the metro Denver area – buy the home, not the mortgage interest rates. Unlike only a few months ago, home buyers have many more options with active listings. They can once again search existing inventory in the most attractive neighborhoods and locations in the Denver housing market.
If you are searching for your next new home, real estate investing, or want to know the value of your home in the Denver housing market, reach out to our family-based local Colorado-owned business team here at H&H Family Real Estate, and we will help you find the perfect house that you can call home. Bring happiness and homes together for more than 20 years.