State of the Market | November 2023
The big real estate news this month is that mortgage rates finally made a notable move lower after cresting 8% a couple of weeks ago. Today they sit at ~7.45%, according to Mortgage News Daily.
Slightly lower rates won't motivate sidelined buyers in the short term, but they offer a glimmer of hope that rates may not continue their upward trajectory now that the Fed has paused rate hikes.
Working with buyers and sellers in today's market we're encountering temporary rate buy-downs in most negotiations.
How do temporary rate buy-downs work?
In this example, the buyer is putting down 20% on a $750,000 home with a mortgage rate of 7.5% (the loan amount is $600,000). The seller provides the buyer a credit of ~$28K at closing that pre-pays the buyer's savings during the 3-year term. If the buyer refinances before the end of year 3, any excess funds from the $28K will be used to reduce the principal balance of the new loan and the buyer can lock at the lower rate.
(Zooming in, you can see that the temporary buy-down saves the buyer a whopping $1,155 per month in year 1, $789 / mo in year 2, and $403 / mo in year 3 before they are paying the un-subsidized payment of ~$4,200 / mo.)
This buy-down gives a buyer three years of reduced (subsidized) payments in which to find better long-term financing, BUT if rates don't improve substantially during that time, or the buyer is unable to refinance for another reason (e.g. loss of employment), the buyer will ultimately pay the full 7.5% rate after 3 years.
Denver Metro Market Report
October is the start of the ending for the housing market. Tepid buyers head to the breakroom and wait for a new class of listings to enter the building after the new year. Motivated buyers make aggressive/low offers and hope something sticks. Sellers need to find a buyer for their home before Thanksgiving when the market enters its seasonal deep freeze.
Despite the doom and gloom in the headlines, prices still aren't dropping in Denver. There just aren't enough homes hitting the market to satisfy the backlog of demand. We normally see prices dip this time of year, but we've had three months in a row of flat sale prices (median sale price: $650K) and there were fewer new listings put on the market in October than any October on record!
Sitzer/Burnett Commission Lawsuit
"Many buyers and sellers today don't realize that commissions are negotiable; this trial could change that."
A recent verdict against the National Association of Realtors could change the way real estate agents are paid. The lawsuit alleged that the existing commission structure makes it difficult for consumers to negotiate commission rates. The jury's decision awarded more than $1.8 billion to the plaintiffs, and if upheld, it may lead to buyers and sellers paying their agents separately, increasing transparency and potentially reducing costs, but it could also have unintended consequences for both buyers and sellers.
Thanks for reading...
Best,
Jen and Chad