Rates are going lower and there will be a recession
The biggest conversation on the lending side of Denver’s housing market is “where are the interest rates headed”. Experts are now saying we might see some of the lowest interest rates in history. Of course, we all know how accurate predictions can be… but let’s look at some of the factors driving this.
The NY Federal Reserve predicts the probability of a recession is increasing... hitting an 11 year high of 27% probability in the next 12 months. Going 1 year back before the last three recessions the Fed probability predictions then were only
20%, 15%, 10%. Most interesting is that during these same three recessions, the Federal Reserve only had a confidence of 40%, 45% and 30% while we were right in the middle of the recessions.
James Bullard, the St Louis Fed President was also quoted as saying, “perhaps there is room for a fed rate cut”. Many predict that we will see a minimum of one rate cut in 2020….some are predicting even more.
GDP and Inflation: What typically drives the fed rate
The 2nd look back at the 1st quarter GDP shows a revised 3.1% growth, slightly above the 3% estimate. Retaliatory Chinese tariffs are expected to impact the GDP negatively by .65%. Additional Mexican tariff’s will also have an impact. GDP is softening.
The Fed’s favored measure of inflation, the Personal Consumption Expenditures (PCE) Report’s headline increased from 1.4% to 1.5% in April. While this looks like a small increase, the previous report was revised lower from 1.5% to 1.4%. The Core rate, which strips out food and energy prices did exactly the same thing from 1.5% to 1.6% only after having been revised down .1% the month before. With both remaining relatively unchanged and below the Fed’s target rate of 2%; mortgage rates will remain low.
The Inversion of the yield curve, continues to be one of the best indicators for a recession. When the curve gets inverted, it means longer term maturities are yielding less then shorter term maturities.. or longer term rates are lower than shorter term rates. The 10 and 2 year yields have not inverted yet; however, at the time of this blog, the 10 year is lower than the 1 year and the 2 and 5 year is lower than the 1 year yield.
2020 continues to be the strong winner for the recession and one thing we all know.. rates go down in recessions.
So what does a softening economy mean for the Denver market?
The housing market in the 11 county DMAR area remains strong, coming off a slow start. Much needed inventory continues to warm the market. We ended May at 8891 homes for sale, the highest number since November 2013. This number was 26.8% higher than April and 38.12% higher than May 2018.
With this new inventory, buyers had more choices. Under contracts were up 5.65% since April and 10.5% since May 2018. Days on Market was slightly down from last month as buyers are eager to take advantage of lower interest rates and slower appreciation.
No matter what number you look at appreciation remains positive. Year over year median home prices were up 2.38%, since April up 2.26%. This is climbing nicely given the slow start. Remember, 2% growth on a real estate asset gives you the homeowner/investor incredible returns given the power of leverage.
Bottom line.. this is a healthy market! Of course real estate is hyper local, but Denverites in general are benefiting from slowed appreciation, low interest rates, and more inventory. A slowing economy will give way to a recession... but I’ve been saying it for months... this is one recession we might see best from the rear view mirror. One where the housing market remained strong and opportunities were bountiful.
The Rueth Team of Fairway Independent Mortgage Corporation
The Rueth Team is dedicated to our clients success. It is this driving mission that keeps our team constantly learning and pushing beyond our boundaries. We find the solutions other lenders simply can’t (or won’t). We make a commitment to each borrower, fulfilling it with hard work, constant communication and creative problem solving. When a referral partner gives our name, they are confident knowing they are giving their clients the best chance of a smooth, successful experience.Learn More
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Nicole was wonderful to work with! The experience was so much better and more personal than working with a large company where you might not have contact with the same person throughout the process. Nicole was extremely communicative, easy to reach and talk to, and went out of her way to make this the most positive experience for my family. She worked so hard to meet our tight deadlines and made the entire experience smooth and stress free. I would 100% recommend working with Nicole and the Rueth Team!
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Shelby from Denver, CO
I used Fairway and Rueth’s team when purchasing a home recently and they were outstanding throughout the entire process. One of the staff on the team was even out on leave for most of the process and you wouldn’t have even noticed. Everyone I worked with provided very friendly, personable and knowledgeable service. I knew what my options were and everything was done in a very timely fashion. They even were able to find me some closing clost assistance so that I was able to have some money in my pocket left at close to do some work on the house. This was the third home I’ve bought and Rueth’s team was by far the best mortgage company I’ve worked with and I would recommend them with my full confidence.
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Mr. and Mrs. Walls from Idaho Springs, CO
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april3lynz from Colorado Springs, CO
Absolutely AMAZING group! I had a really rocky start with my home buying experience. I had a horrible realtor and I was going to go through a different lender. I dropped my horrible agent and found an amazing realtor who was just phenomenal, and she referred me to The Rueth Team. My experience with them was quick, painless and simply amazing. I had very little stress and their team was so helpful. I had a moment of panic and I called, they were able to explain everything to me without confusing me more and went over every detail of my process moving forward with me. They had no hidden fees and were straight up and up front with me the whole way. I'm extremely grateful to them. In less than a month I am moving into my new home!!
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