December DMAR Market Trends Report

Buyers Searching for Holiday Deals

Buying or listing a home in November and December is not for the faint of heart. The holidays have started pulling our attention and we are all still recovering from an intense election cycle and whip sawing mortgage rates. The uncertainty of today’s environment justifiably has many sitting on the sidelines. But not everyone. Seasonally, this time of year gives an advantage to homebuyers. Because sellers who are on the market are also trying to juggle kids, gifts, a clean home and showings and are typically only listing because they need to sell.  This year, however, buyers have an additional benefit beyond typical seasonality due to lower-than-normal demand and higher-than-average inventory. I want to break down the advantages today’s buyer has, where experts think rates and home prices are going, and why waiting could end up costing more. I’d also like to highlight three strategic moves my buyers are taking in the current market.

Don’t get me wrong, I’m not telling any buyer who feels uncomfortable to jump in anyway. I don’t want anyone on my watch regretting a move they made. However, I don’t want anyone saying I didn’t tell them what could happen next. So let’s talk about 2025 for a minute.

Leading experts have started releasing 2025 forecasts based on the current Fed’s position of relaxing their restrictive stance juxtaposed to the increasing risk of tariffs, higher inflation and a stronger economy. These opposing forces have many believing rates will stay higher for longer. In fact, Fannie Mae published their rate projections of 6.4 percent for 2025 and 6.1 percent for 2026. The Mortgage Bankers Association (MBA) sees rates averaging 6.4 percent in 2025 and dropping only to 6.3 percent through 2027.  The National Association of Realtors predicts rates to settle slightly above 6 percent through 2026. And the National Association of Home Builders is calling for an average of 6.12 percent for 2025.

Now, let’s touch on home price projections. Because with higher for longer rates, wouldn’t home prices seemingly drop? It seems logical and certainly discussed prolifically online as to the need for home prices to fall in line with affordability.  Yet, the Federal Housing Finance Authority or FHFA, just released their higher conventional loan limits for 2025 based on their estimated yearend 2024 home price growth of 5.2 percent. Even with rates spiking above 7.5 percent and the volatility of the economic and political environments, home prices didn’t falter.  Let’s look at a few of the other home price indices.  The Case Shiller Home Price Index, which is the “gold standard” for appreciation, just published their September data showing a 3.9 percent year-over-year price growth nationwide with the top 20 cities, of which Denver is included, increasing 4.6 percent and their top 10 cities up 5.2 percent. FHFA also released their September data, which measures home price appreciation on single-family homes with conforming loan amounts. Year-over-year home prices are up 4.4 percent. Now, jumping over to our local Denver data, even with November’s typical seasonal slowdown, year-over-year, the median and average home prices are still up 3 percent and 5 percent respectively.

Going into 2025, Fannie Mae is projecting another 3.6 percent growth in home prices.  MBA is projecting 1.5 percent and NAR forecasts a 2 percent growth for both 2025 and 2026. While these lower than historically average annual home price growth numbers will help slightly with affordability, they are not indicating signs of declining.

Higher home prices and higher for longer interest rates don’t exactly sound like a buyer advantage. I’m totally with you on that. So let’s also throw today’s inventory story into the mix.

Nationally, inventory is higher than it’s been since June of 2020, working its way steadily towards pre-pandemic levels. Locally, Denver saw our current 9,310 units for sale last during the summer of 2019 then not since November 2013. This additional inventory is giving buyers choices and sellers a need to stand out. But the excess inventory is fading fast. Sellers waiting till spring created a drop of 41 percent month-over-month in new listings. Add that to a seasonally lower, but year-over-year higher closed unit count of 3,022, active inventory dropped 15 percent from 10,940 to 9,310. This inventory count will continue to drop over the next few months as buyers scoop up deals and sellers wait for spring.

Let’s double click on the buyers scooping up said deals. Of the homes sold in November, about 50 percent had made at least one price reduction before going under contract, and roughly 60 percent of the sellers provided concessions to the buyers, many in the form of interest rate buydowns or and repair credits.

Buyers who recognize home prices in the long term always go up, and interest rates are always refinance-able, are looking at today’s higher inventory as choices and today’s higher prices and mortgage rates as competition limiters. In fact, any slight dip in rates or even their consistency demonstrates this in an increase in mortgage purchase application data. We saw this in September when rates dropped to 6.11 percent and mortgage purchase applications spiked 10 percent and again in November as post-election certainty and rate stability of 7 percent increased application data by 16 percent.

As a potential buyer looking for a holiday deal going into December and January, here are three strategies to consider.

First is the Buy Before You Sell Strategy.  This is a tool we are using a lot as homeowners are looking to jump into a new home for a discount but sell in the spring at full price.  Now, while nothing is guaranteed, the spring market will traditionally have more buyers competing for home to purchase pushing up prices and/or limited a sellers need to provide a concession.  This program allows a buyer to use their current home’s equity while removing their existing mortgage payment from their debt-to-income ratio when qualifying for the new home.

A second strategy is using interest rate buydowns or seller credits to pay off debts to help offset higher mortgage payments. Many don’t realize if you are a Veteran a seller can pay off your debts to help you qualify for more home. A non-veteran can also look at redistributing monies needed for closing costs towards debt payoff when getting a seller credit for closing costs. Rate buydowns are extremely helpful for giving a buyer temporary relief assuming their wages increase or rates decrease over the next 1-3 years.

A third strategy is negotiating time and credits for a home renovation loan. Many of the homes sitting on the market today need a little TLC. With Days in the MLS increasing another 12 percent this month, sellers are more willing to give longer closing timelines to allow a buyer time to get a contractor and the bids required for a renovation loan. Imagine your ability to have the home of your dreams done for you.  Just another gift in today’s market.

Bottom line, we don’t actually know what 2025 will bring. We don’t know how intense the spring market will heat up or how long it will take for rates to drop. What we do know is buyers have an advantage that some of them know and others are still remain uncertain about.

Meanwhile, ApartmentList just put out a study of how rent burden has reached an all-time high, with 52 percent of renters paying more than 30 percent of their income on rent nationally and 53 percent here in Denver. Choosing to wait might give you a lower interest rate, but at what cost?

Well, that’s a wrap.  This is Nicole Rueth with the Rueth Team of Movement Mortgage and proud sponsor of the DMAR Market Trends Report and your November Update.

 

Nicole Rueth
SVP, The Rueth Team
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www.TheRuethTeam.Com