Front Range Real Estate Market Update, September 29, 2022

Interest rates were at 7% on Monday and are down nationally to about 6.65% today for a 30-year fixed rate mortgage.

With rates rising and prices up year-over-year, we’re wondering, what does it cost to purchase a home in Metro Denver compared to a year ago?

Let’s assume a buyer today and a buyer a year ago each put down 10%. Each gets a 30-year fixed mortgage and pays a total of $5,100 yearly in taxes, insurance, and HOA dues.

In August 2021, the median price for a home sold in metro Denver was $502,000. On August 5, 2021, a buyer could have gotten a 2.77% interest rate to purchase that home. Monthly payments for that home would have been about $2,274 per month.

Last month, the median price for a home sold in metro Denver had risen almost 15% to $577,000, and the interest rate was lower than it is today. Then, a buyer could have gotten a 5.5% interest rate. The monthly payment for that home would have been $3,373 – 48% higher than a year before.

We don’t know what the median home price will be when September is over. Let’s say it’s the same as last month – $577,000. With a 6.65% interest rate, monthly payments on that home would be $3,707, which is more than $300 per month higher than a purchase made in August and over $1,400 higher per month than a purchase in August 2021.

It’s gotten significantly more expensive to purchase a home in the past year. Sellers should understand the effect higher interest rates have on buyers’ monthly payments. Sellers should also review pre-approval letters and ensure that prospective buyers are approved at current rates and may want to make sure their buyers have locked in a rate as soon as possible. Sellers should also be prepared for homes to spend longer on the market, especially if they aren’t prepared well or priced correctly.

Buyers may have to adjust their expectations and look at homes priced lower than they had hoped to purchase. Fortunately, buyers don’t have to compete against multiple offers or provide concessions to sellers like they did a year ago. Buyers should also consider negotiating with the sellers to provide a mortgage interest rate buydown. Basically, the seller pays into an escrow account to reduce monthly payments for the first two or three years of your mortgage.

People who purchased homes in the last year or two may feel discouraged when they see average prices decrease for a few months and not the wild appreciation they may have hoped for. The soaring home values we saw in 2020 and 2021 weren’t typical and couldn’t last forever. It’s important to remember that the market is constantly in flux. The days when the price of your home matter most are the day you purchase it and the day you sell it. What happens between those days is interesting (and affects taxes, insurance, and other things), but you won’t realize a loss or gain until you sell.