Front Range Real Estate Market Update, March 2, 2023

Nationwide, mortgage applications fell for the third week and haven’t been this low in 28 years; they were down 44% this week compared to a year ago. 

Why did demand decrease so much?

It’s easy to see why demand is down. From January 9 to February 2, rates hovered around 6.1% and 6.2%. On February 2, the average rate for a 30-year fixed mortgage dipped to 5.99%. 

Those low rates led to more home sales in February—23% more homes sold during February than in January. 

Buyers are sensitive to rate increases.

Today, the average for a 30-year fixed-rate mortgage is 6.94%, almost an entire point higher than a month ago. Buyers have responded quickly, and mortgage demand is down.  

What does this mean for metro Denver?

Fewer people are ready to buy a home right now; they need a mortgage in place and have yet to apply.

This isn’t great news, but the situation may not be as dire as it seems. If mortgage rates improve, buyers are likely to come back. In fact, buyers could surge into the market if rates drop to 6.1% or 6.2%. 

Will mortgage rates improve?

News about inflation is mixed. But, eventually, inflation will get under control. At that point, mortgage interest rates are likely to come down.

There’s also important news about the 10-year Treasury Note and interest rates. 

Historically, mortgage rates and treasury yields move in unison, even though rates aren’t based on the Treasury note. Mortgage-backed securities and Treasury notes compete for the same investor money, though, so they rise and fall together.

Typically, there’s just under a 2 percent difference between the interest rate on a 10-year Treasury and the average mortgage interest rate. 

Can history be our guide?

Treasury note yields are now around 4% – almost 3% less than mortgage interest rates, so that gap is wider than average.

If history is any guide, that gap should narrow, and rates will go down when it does. If mortgage rates go down, buyers are likely to re-enter the market. 

Let’s also talk about prices.

Prices increased between January and February, but the median price for a home sold in our area fell by 10% from April to February, from $625,000 to $565,000.

Still, affordability has taken a hit, and many buyers have been priced out of the market. If home prices decrease, buyers will enter the market. If prices decline AND rates fall, we expect a significant influx of home buyers.

Sellers – including home builders – are buying down mortgage rates for buyers, which may be slowing the price decline. However, if sellers become reluctant to buy down rates, they’re likely to attract buyers with lower prices.

Inventory – the number of homes for sale – is still low compared to before the pandemic. That’s kept prices from falling more than they have. However, prices could decrease even further if inventory increases more than is typical for spring and summer.

Prices rose for the first time in months last month, and rates rose faster than ever this month. So put your seatbelt on and stay prepared! We’re with you and will keep you informed as the market shifts.