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October 212 Metro Denver Real Estate Newsletter

October 212 Metro Denver Real Estate Newsletter

September Quick Stats

 Denver Metro Single Family Housing Stats:

Active Listings: 8,700

  • Down 31% from Sept. ‘11

Under Contracts: 3,548

  • Up 15% from Sept. ‘11

Sold: 3,147

  • Up 21% from Sept. ‘11

Average Price: $306,633

  • Up 9% from Sept. ‘11

Average Days on Market: 64

  • Down 35% from Sept. ‘11

Denver Metro Condo Housing Stats:

Active Listings: 1770

  • Down 39% from Sept. ‘11

Under Contracts: 909

  • Up 18% from Sept. ‘11

Sold: 802

  • Up 10% from Sept. ‘11

Average Price: $186,843

  • Up 17% from Sept. ‘11

Average Days on Market: 64

  • Down 50% from Sept. ‘11

Real Estate News

Several weeks ago Federal Reserve Chairman Ben Bernanke announced a policy to help improve the economy that has never before been attempted in the history of U.S. governance. He committed to buying $40 billion worth of bonds per month – not for a few months or even for a few years, but FOREVER until the U.S. economy gets back on its feet. The Fed accomplished two new and astonishing things with this decision. First, they made this intervention “open-ended” whereas in the past, they put a fixed dollar amount and time frame on it. This is a truly astounding break from traditional Fed policy because never before has there been no time limit given for the purchase of bonds. He will continue buying bonds until he and his board of governors believe the U.S. is back on a sustained recovery.

Second, they said the intervention would continue long past the time when the economic recovery strengthens, which suggests the Fed may keep pumping the economy full of gas even if the tank is already full. The Fed expects that a highly accommodating stance of monetary policy will remain appropriate for a considerable time even after the economic recovery strengthens. Clearly, these $40 billion monthly bond purchases are going to continue for years.

What does this mean for you? A lot. More than anything else it means the 30-year fixed mortgage rate is going to stay in record low territory for the foreseeable future, almost certainly for years. This has several major implications:

  1. For buyers it means they can continue to buy the house of their dreams at an amazingly low monthly payment because the 30-year rate will continue to remain at or near record lows. There is simply no way to overstate how important this is to my buyers. Even though the price of properties has leapt up 9% in the past year, homes are still very affordable because the interest rate is so low. It’s critical that you as a buyer understand this. The main thing that matters to most buyers is what their monthly payment will be. According to the National Association of Realtors (NAR), the Home Affordability Index is at the highest level in recorded history. This means that even though home prices continue to rise, the monthly payment for homes is lower than it has ever been in comparison to the median wage in Denver metro. The short answer is that the government is printing hundreds of billions of dollars in order to keep monthly mortgage payments low, and smart buyers are taking advantage of this policy by locking in these rates to keep forever.
  2. Since the Fed is stating they’re going to keep mortgage interest rates low for a number of years it also means that our real estate market is going to continue to rise for the foreseeable future. I hear people say that the market is peaking but I disagree. We’re going to have a strong market at least as long as the Fed manipulates interest rates and keeps them at record lows, and we know that is going to be at the very least a couple more years.
  3. For sellers it may be even better news because it affects them twice. First, it affects them when they sell their homes. The reason listing prices have been able to rise is the buyers’ interest rates are so low that increased prices have barely changed the buyers’ monthly payment. Second, it means that when a seller sells their home and buys a new one they too take advantage of historically low interest rates and can buy the home of their dreams for little more than their current housing payment. The perfect win-win situation.

Don’t get me wrong, there are still a lot of things that can go wrong with Bernanke’s decision to buy bonds indefinitely. The most important fear is that someday inflation will have to rise to cover these bond purchases. But, since the bond purchase policy was specifically created to spur the housing market we may as well understand it and use it to our advantage for as long as it lasts.