Denver Real Estate

by : Mari Takeshita

The volume of real estate sold along the Front Range increased 32.8% in April compared to last April. Even though we ended the month with more listings on the market than when the month began, the increase in sales outpaced the number of new listings, causing inventory levels to fall slightly to 2.4 months.The market stats for Jeffco tell a similar story of surging volume and tight inventory. Sales volume increased 29.5% in April compared to last April, and the supply of inventory fell to 1.4 months compared to 2.7 months at this time last year.Staying or going isn’t an easy question to answer and this month we’ll take a look at some of the issues to consider.

Do you have a personal reason to move or are you just trying to time the market?

Timing the market is difficult. It is subject to market dynamics well beyond your control. However, you may have a need in your life that can only be met by making a move. Common reasons for moving include expanding or shrinking households, change in job/commute, school considerations, and simply wanting a new house. Because timing the market perfectly is unlikely, it is probably wise to start with your personal needs as the primary driver for making a move and have market conditions as a secondary consideration.

Are you downsizing or moving up?

The math matters here. In an appreciating market with rapidly rising prices it may be advantageous to sit on the sidelines if you are downsizing. The appreciation you gain by waiting to sell your existing, more expensive home, will be larger than the increase in price you will pay for your new, less expensive home. Of course, this assumes exactly equal appreciation rates for both homes. Possible, but not likely.

For those moving up to a more expensive home, the math works better. All else being equal, you are better off selling now and purchasing the more expensive home before it rises in price.

The examples above are driven by algebra, but market conditions also factor into the equation. In general today, lower price point markets are hotter than upper price point markets. This gives more negotiating power to those buying in the high end but weaker market; another reason move-up buyers may want to act now and downsizers may want to wait.

Are you a cash buyer or do you need a loan to purchase your next home?

For those who will need financing to purchase their next home, whether they are downsizing or moving up, interest rates cannot be overlooked.

In fact, the risk of interest rates rising is arguably the most important factor in deciding to move now or wait. Interest rates are at or near historic lows. Rates have nowhere to go but up. For a buyer purchasing with 20% down, for every increase of 1% in interest rates, the buyer’s purchasing power is reduced by 10%.

For example, a buyer interested in homes for $400,000 would have to lower their price range to $360,000 if interest rates rose 1% and they wanted to, or had to, keep their monthly payment the same.

Based on current market trends, it seems much more likely that interest rates will rise, even if just 0.5% in the next 12-24 months. To offset a half percent increase in rates, home prices would need to fall 5%.

It may be advantageous to act now and lock in a great low rate on your new home. A 30-year-fixed mortgage at 3% or 4% is the gift that just keeps on giving.

Of course, all considerations aside, to sell your home, you need a place to live when that sale closes. The difficulty of finding a replacement home is stopping many potential sellers from listing. That said, because there are so many folks in this situation, the market is adapting quickly to this chicken and egg conundrum. Three things are required: flexibility, working with a competent real estate professional who can craft and execute a plan, and a bit of faith that everything will work out. Call me if you want help evaluating your options.