Mortgage Rates Tumble Due to Equity Market Volatility

Late Friday (August 28th, 2015) the average rate on a 30-year fixed conventional mortgage dropped to 3.84%. Of note conventional in Denver concerns mortgages below approx $417K.

The drop in large measure was due to the instability within the equity markets and thus the capital flight to safety via treasury bonds. Thus the underlying mortgage rates subsequently dropped.

Will the drop in rates assist those properties on the market at present? I am not sure. While August has historically been a challenging month for home sales in Denver Metro i.e. primary schools begin their year in August, families have already settled in their new homes and the early weeks of the month are the last opportunity for summer vacation. Those factors coupled with more homes on the market for longer periods of time.

From the neighborhoods I review i.e. central and southeast Denver I am seeing 1) houses staying on the market for longer periods of time, 2) some residences going under contract quickly only to be back on the market within a few weeks (and usually with a slight downward price revision and 3) if not priced correctly within the view of prospective buyers, resistance concerning showings.

Over the weekend I reviewed a few listings; all in “active” status and having last transferred ownership in 2012 and 2013. While far from a meaningful statistical sample, many of the listings are asking 30% above their last transaction 2012 – 2103. These were not fix and flips as those usually sell within 6 months of previous transfer.

When adding closing costs and commissions, the net profit would be closer to 22-25%. However even 20% is quite a strong gain within real estate in such a short period. From what I hear from peer brokers and listing clients; many of their client’s read the news headlines i.e. Denver one of the strongest housing markets in the country and thus price their homes at those levels assuming statistics will justify their asking price.

As a broker with two plus decades of experience I am slightly concerned as 1) such an increase in value i.e. 20-30% over 24 – 36 months  is not sustainable, 2) appraisals may still lag i.e. takes into account values from 6 months prior, not forward and 3) some buyers are basing their purchase on a monthly payment and not overall value.

Full disclosure, I too am in the market to “trade-up” i.e. selling my primary residence and an investment condo and rolling the proceeds into a new primary residence. However I too am starting to be concerned. My wife and I found a residence we have truly fallen in love with. One that regardless of price we would desire to purchase as it ticks off all our boxes i.e. location, size, design, functionality and so forth. Yet I too must take emotion out of the mix and realize 1) we have to sell our residence and investment condo first, 2) the home we wish to purchase is probably somewhat overpriced i.e. asking 30% above what it sold for in 2012 and 3) while inventory is limited we do NOT have to move nor other external pressures to do the transaction.

Thus, I am heeding the advice I share with clients; I am replacing emotion with logic as I too plan to wait until Spring 2016 to pull the trigger on the transactions. Will our dream house sell by then? Most likely. Will we find another house that checks all our boxes? Doubtful. Will mortgage interest rates be higher in Spring 2016? Most likely regardless of the Federal Reserves lack of clarity.

Yet I also believe by Spring 2016, prices will either stabilize or even drop slightly, usually to the inverse of interest rates. I believe there will be additional inventory on the market at that time as well. While I do not have a crystal ball, I plan to take my chances and hang out on the sidelines for a bit and while I may miss a great opportunity concerning interest rates, being conservative has historically worked for me.

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