The market has remained active as buyers are enticed with eye-popping low interest rates. Even cash buyers have chosen to borrow mortgage money because it is so inexpensive. For investors earning four or 5% returns on their investments, paying +/- 3.5% on a mortgage makes great economic sense.
CoreLogic recently released their 2020 Market Pulse report, projecting home value appreciation in all 50 states:
– 21 states appreciating 5% or more (Colorado included)
– 26 states between 3-5%
– Only three states were less than 3%
It is logical to think that when real estate values increase, owning a home might appear less affordable. Mortgage rates are a major component of affordability. So, with current rates now more than a full percentage point below what they were this time last year, not to mention that the median family income has risen nearly 5% since 2018, the affordability factor becomes substantially more favorable. A recent article from the Mortgage Monitor addresses this point:
“Despite the average home price increasing $13,000 from a year ago, the mortgage payment required to buy that same home dropped 10% over that same span due to falling interest rates…put another way, homebuyers can now purchase a $48,000 more expensive home than they could a year ago, while paying the same principal and interest, a 16% increase in buying power.” Those numbers are national statistics, meaning Denver values are about 20% above the national average, so local buying power has also increased significantly.
Buying power is also determined by how buyers choose to leverage their financing. Misconceptions about needing a 20% down payment are prevalent but are far from the truth. Many first-time buyers put from 3-10% down and obtain the loan they need. With interest rates in the 3.5% range, $1,000 borrowed at 3.5% will cost $4.49 per month for a 30-year loan, (on a $450k loan, that would be $2,020/month principal and interest, plus taxes and insurance.) So, do the math to meet your own financial criteria. There are approximately 19 million millennials in the 31 largest metro areas qualified to
purchase a home that have not yet done so. At today’s rates, people can better afford to buy the same home, than to rent it. Meanwhile, median prices for a detached home in the 11-county metro area, went up 6.1% from February to February, which suggests a $30,000 gain on a $500,000 home. Values in the luxury market (over $1 million) held steady for 12 months, without much increase, however the number of homes sold rose a significant 17% during that time period, (231 homes sold during the first two months of 2020, up 15.5% over the same period in 2019.)
According to a recent Wall Street Journal article, Denver moved from #9 to a #3 ranking for “Top Job Markets,” with Austin being #1 and Nashville being #2. Denver reached this rank due to 3% unemployment (which is 8th in the nation) with wage growth at 4.8%, good for fourth place. Among smaller metro areas analyzed, Boulder is #1 with Fort Collins and Greeley making the Top 10…pretty impressive!
Although we have a solid market, the dilemma for buyers is about finding the right home. This market may favor sellers, however finding the sweet spot to price is a growing challenge. Every house has a range it will sell for, meaning if it requires a fix-up, updating or has a weak location; it sells near the bottom of the range. Conversely, if it was recently remodeled and has an above average location, it will sell closer to the top range. That poor middle child. I recommend updating your home before it goes on the market, but not to the extent you can’t recoup your cost.
Almost everyone starts searching online, which means photographs are meaningful. Have a realtor help you evaluate what the house might sell for fixed up and then deduct the cost(s) to do the work. That net number will tell you whether it is economically sensible. I’m not suggesting renovating, but sometimes updating along with exemplifying good maintenance, can inspire a nice buyer offer while the house sells quicker.
Most buyers will pay a reasonable premium for a home that has desired improvements. Most buyers are unable to manage a remodel, have the time, money, or expertise, and may not have a place to live while the work is being accomplished. Getting professional realtor assistance will help buyers and sellers make money…and save money.