We continue to hear people state: “I am going to wait to purchase a property until the interest rates go back down.” That thinking is going to cost every person who does wait more money in the end. In metro Denver, we still have a very low supply of homes on the market at just over one month, according to the Denver Matrix MLS. This means that for every buyer in the market, the current supply will be “consumed” in just over one month.
A balanced market is defined as a market having a five or six-month supply of homes for sale. But realistically, in our metro area based on history, a four-month supply of homes is a balanced market. We are a long way from that and do not see any chance of the supply increasing anytime in the next few years. We have had low supply for years because we are in a highly desirable place to live. There is not enough new construction to cover the gap. Now, on top of that we are facing what those of us in the industry are calling “interest rate gridlock.”
According to The Real Deal, a real estate news outlet, more than 82% of mortgage holders in the United States are locked in at a rate under 5%. Of those, 62% are locked in under 4% and almost a quarter are paying under 3%. A lot of these people would like to move but are not willing to give up the low-interest rate they have for one that is in some cases 4% higher than where they are currently locked in. This is interest rate gridlock. It is real and causing more pressure on the already low supply of homes in the metro area. This low supply will go on for years and continue to keep values strong in the metro area.
You are now probably wondering, “How does this equate to the cost of waiting to buy being more next spring/summer than now?”
Going into fall, there are fewer people looking to buy. Combined with higher interest rates, that means houses are sitting on the market for longer than they used to. Most people who are selling now need to sell so they are motivated—this goes back to the interest rate gridlock. Why sell if you don’t have to?! Once a property is on the market for three to four weeks, buyers start to wonder what is wrong with it because they have been accustomed to seeing properties fly off the shelves in record time for years now. In most cases, there is nothing wrong with the property other than it being overpriced. We are currently seeing good-sized or frequent price reductions on many listings in the Denver Matrix MLS. Now is the time for buyers to take advantage. A buyer has the possibility of offering a discounted price on the property as well as asking for some seller concessions to help buy down the interest rate.
One option for interest rate buydown is to ask the seller to give the buyer enough money to permanently buy down the rate by 1% for the life of the loan. With this option, if the current rate is 7%, the buydown would lower the rate to 6%, which would make the house payment $338 less per month on a $500,000 mortgage.
A second option is called a 2-1 buydown. In this scenario the buyer asks the seller for a large enough concession to buy the interest rate down by 2% for the first year of the loan, then 1% for the second year of the loan. In year three, the rate goes back to the current rate when the loan was originated. The theory is to refinance out of that mortgage before you get back to the original rate because interest rates have gone back down. Both options are very viable now because the market will continue to slow down through the end of the year.
Buying now also gives you the luxury of having more options to look at before making such a big decision. Mark our words, spring will bring back a huge surge of buyers wanting to make the move in 2024. That increased demand will reduce supply even more. Competing situations between buyers where they have to offer over list price again cause prices to increase, and all but kill the opportunity to get a seller concession in most cases.
Mark and I, of Modus Real Estate, would love to chat with you pressure-free to educate you more on the current market and answer questions about how you can take advantage of this fall/winter market. To contact us reach out to email@example.com or firstname.lastname@example.org.