Last week, we mentioned that some analysts believe home prices will decrease in the metro area by next May. Even if prices do decrease, it may make sense to buy a home now rather than wait. The biggest reason for this is interest rates.
Interest rates for 30-year mortgages hit record lows last week, going below 3% for the first time ever. Average rates crept up to just over 3% in the last few days, but are still very low. A year ago, the rate was 3.94%. We don’t know what rates will be in a year. If mortgage interest rates climb and prices decrease, it may make sense to buy now rather than wait.
A rise in interest rates has a bigger impact on monthly payments and total payments than many people realize. Imagine you really want to buy a $450,000 house today and could get a loan with a 3.08% interest rate. With $90,000 down, your monthly payment would be about $1,865. Say you wanted to buy the same home and it went down to $410,000. Your down payment would go down $8,000 to $82,000. If interest rates were to increase one percentage point, your monthly payment would be about $1,894 and if they increased to 4.5% – still low historically – your monthly payment would be $1,974. Over a year, you’d pay $1,308 more than you would with the lower rate. The decrease in down payment is not insignificant, but it’s important to remember that not every loan requires a 20% down-payment. Many buyers put down much less.
Over the life of a 30-year loan, a change from 3.08% to 4.08% would equal more than $90,000 in additional interest payments. If the loan were 4.5%, you would pay more than $130,000 over the life of your loan that if you got today’s interest rate of 3.08%.
No matter how smart anyone is, no one has a crystal ball and predictions about the future are notoriously wrong. We have a presidential election coming up, we’re still battling a global pandemic, the inventory of homes for sale right now is near record lows.
The best time to move is when you’re ready, willing and able. If you can afford the cost of a mortgage, have good credit, are committed to owning a home and you want to move, than it’s a great time to move. We can’t go back in time and buy a house at 1980’s prices and we can’t know the future with certainty.
If you’re ready to make a move, or if you have questions about buying or selling a home, give us a call today.
Reach David and Tom at The Principal Team at 720-408-7409.
Metro Denver Real Estate Market Activity
Pent up demand is still having an impact on home sales. The number of closings and pending sales is still high. Mortgage applications are way up. We thought we would see a surge in sales once safer-at-home orders were lifted and that has come to pass. Things are still roaring but have stabilized a bit with slightly fewer new listings on the market as well as slightly fewer closings and pending sales this week than last. So the big surge may have slowed, but we think the market will continue to stay very active through the rest of the summer and into the early fall.
During the last week:
New Listings – 1455
Back On Market – 343
Price Increase – 206
Price Decrease – 1149
Pending – 2450
Withdrawn – 201
Closed – 2121
Expired – 223
New Listings – 1738
Back On Market – 394
Price Increase – 238
Price Decrease – 1326
Pending – 2562
Withdrawn – 182
Closed – 2220
Expired – 292
Based on data from REColorado®