Everybody is talking about high interest rates but nobody is really talking about home affordability in Northern Colorado. In my experience in talking with hopeful home buyers is that consumers don’t care about the rate, they are willing to pay 10% on their car loan and 21% on their credit card; they only care if they can afford the monthly payment. Unfortunately, in Northern Colorado the minimum price of a single family home is $400,000 and the interest rate might be above 7.5% resulting in monthly home mortgage, tax and insurance payment of $3,000.
In the November 2023 meeting, the Fed left interest rates alone. It appears that the federal reserve has raised rates high enough to final slow down inflation but mortgage interest rates are averaging 7.5% up to 8%. (I’m not a mortgage loan officer and I’m not quoting any rates, I’m just trying to talk about general averages that I’ve been seeing.)
We’ve all seen car salesmen advertising the monthly payment and not the actual price of the car. I’ve always thought this was strange but it’s because consumers only care if they can afford the monthly payment. In housing, the rising cost of homes in 2020 and 2021 didn’t matter because the rates were so low that people could afford to stomach the monthly mortgage payment.
Now that the rates are high and the home prices aren’t coming down, where does that leave 1st-time home buyers? Well, I can tell you, it’s tough out there.
Real Estate Agents have been saying “Date the Rate & Marry the House”, meaning you should pick a house that works well for you and you can always refinance when interest rates go back down. This philosphy only works if those rates do go back down, it’s never a good idea to buy more house than you can afford.
Recently mortgage loan officers and realtors have been pushing a 2-1 buydown or even a 3-2-1 buydown. Basically, in a 2-1 buydown, you buy down the rate up front so you can take 2% off the rate for the first year and 1% off the rate the second year. The idea is that it makes the payment for affordable to get you into the house and then you can refinance later. But nobody is asking what happens if the rates don’t go back down. This feels like 2009 when people got into ARM loans that suddenly had payments that they couldn’t afford.
So, what happens to home affordability in Northern Colorado? Interest rates are a national problem and demand to own homes in Northern Colorado remains high. I can tell you that with high demand, home prices are not going to crash.
Don’t wait for prices to come down because that is extremely unlikely to happen. Instead, focus on paying down any other debt you have, build up a savings and improve your credit score so you’ll be able to get the best rates possible when it is time for you to buy.
Do you have questions about the Northern Colorado Real Estate Market? Reach out to me and we can talk about it.