Sorry but 3.5% mortgage rates are not coming back; we’ll need to adjust

‘As the graphic shows, there’s only about half of whatever a ‘normal’ inventory for sale is nationwide right now. Economics 101 tells us less supply, equal demand means higher prices.

Yes, I understand rates are high, and in my opinion going higher. And yes, that might take the marginal buyer out of the market for awhile. But that doesn’t mean that home prices are coming down. Especially here in the Front Range, where people still want to live for the lifestyle afforded here.

Another trend we are seeing nationally (and locally) is that the builders cannot keep up with demand. So to the observation that there’s a ton of building in Erie, and Brighton, and along the 25 corridor so that’s going to keep a lid on prices; well I don’t think so. Builders are very susceptible to interest rates because they are in a very capital intensive business. With rates rising, they cannot come close to speccing (building enough speculative properties, hoping to sell at a later date to recoup costs), to possibly keep up with demand. Their cost of funds and cost of carry is just too prohibitive.

I understand that its hard to buy a home at a 7-7.5% mortgage rate when it’s fresh in your mind that they were just at 3.5% and 4%. But with all due respect, those days are not coming back. And waiting for prices to come down to offset the larger payment of a higher interest rate is going to cost you some jing in the long run.

Denver economist Patty Silverstein and the Census Bureau expect the Denver population will continue to grow around 40,000 people per year. For well over 15 years now, the average number of Denver Metro closings of single family homes has been around 5000/yr. Now I know all those 40,000 people coming here every year aren’t going to buy a home as soon as they arrive.

But the numbers are stacked against home prices coming down anytime soon. Please take heed.

file:///C:/Users/Micha/Downloads/23-0710-denver-trends-final%20(2).pdf

Mike