Colorado’s Steady but Shifting Real Estate Market

May 30, 2024 | denver-housing-market

The 2024 real estate market started off strong with interest rates declining as expected, spurring a modest increase in buyer activity.  In mid-January of this year some mortgage banks were offering conventional 30 year fixed loans as low as the upper 5% range. 

But then in February, just as the spring real estate market was about to kick in, the jobs and inflation reports surprised the market and drove a steady rise of mortgage interest rates through early this month.  

Rates have come back down in just the last 30 days however, with FHA mortgages back in the high 5% range, conventional 30 year loans in the mid 6% range and jumbo loans back below 7%.

Home Prices

While buyer activity has been suppressed by higher interest rates for two years now, home values have held steady, consistent with our predictions of an ongoing balanced supply/demand ratio in the market.

While buyer activity (demand) would obviously drop with the 2022 rapid rise of interest rates, we anticipated that the huge percentage of homeowners (more than 70%) who acquired or refinanced their home with interest rates below 4% would not participate in the market due to the substantial increase in cost of financing a replacement home (until rates dropped again).  

This meant that while there were fewer buyers, there would also be fewer sellers.  While the volume of market activity would drop substantially, this supply/demand ratio would maintain price stability.  

It has done exactly that.

Today’s Market Conditions and Prediction Through Year-End

We expected 15% more sellers to hit the market this year, and year to date we have been exactly correct.  But with buyer activity more suppressed than anticipated, inventory has climbed to its highest point this time of year in 5 years, with 8,128 homes available for sale.  

If inventory continues to climb, rates remain high and buyer activity suppressed, this would ultimately lead to a decline in home values.  

However, the modest decline of interest rates over the last month has spurred buyer activity at a surprising rate, with weekly home showings surpassing 2022 and 2023 for the first time. 

Rates may have simply reached a tipping point where buyers are more interested in buying, than anytime over the last two years.  If rates continue to decline (which many economists believe they will), we may see a surge of buyer activity over the next couple months and potentially substantial appreciation in the spring of 2025.  

This recent increase in buyer activity has almost immediately translated to a higher volume of contracts, far surpassing last year and rivaling spring of 2022 when rates were still in the mid-4% range.  

Conclusions

If rates do continue their decline, expect more buyer activity, declining inventory and a rise of home values.  But remember that rates have been incredibly volatile.  For the time being, we encourage buyers and sellers to make decisions based on current market conditions, not the anticipation of rates dropping further.  

Sellers must understand that increased inventory has lead to longer marketing time, more price reductions and fewer offers over the asking price.  The market is still strong and might heat up even more if interest rates do decline, but sellers must prepare their home well to stand out against the competition and be mentally ready for patience in reading how the market responds to their home.  

Buyers have an opportunity they have not seen for about 5 years.  They can take a little more time, view more homes and be a little more demanding with their offers given the level of inventory.  But as the last few weeks have shown, buyers should be ware; if rates drop further, buyers will find themselves in the middle of a feeding frenzy and losing out on great homes if they are not prepared to shift their strategies.

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