Denver Real Estate Market Update | February 2024

A Sweet Spot in the Economy

We are in a sweet spot in our economy. 2023 defied a recession with an unexpectedly strong 2.5 percent real GDP growth rate. According to GDPNow’s latest estimate for quarter one of 2024, this strong economic growth will continue. In fact, on February 1st, they published an estimated GDP growth rate of 4.2 percent, up from 3.0 percent on January 26th.  Strong construction spending, new orders and business reinvestments gave the metric a lift; but when I look out further, this strength is supported.

The United States Manufacturing sector is on the cusp of a recovery with January’s Manufacturing ISM data the strongest it’s been since October 2022. Production data at factories have improved, new orders are picking up, goods inflation is stirring after months of deflation, and supplier deliveries are getting faster.

Worker Productivity also rose rapidly, advancing 3.3 percent in the fourth quarter after a frothy 4.9 percent surge in the third quarter. This is a sign that the economy could grow faster than expected. Higher productivity is the secret sauce for an economy. When it rises, businesses earn bigger profits and workers reap bigger wages. Higher productivity also helps to reduce inflation.

Not only is productivity strong, so are jobs across all industries. January’s BLS jobs report blew away forecasts with a strong 353,000 new jobs created, double expectations. The unemployment rate held at 3.7 percent, against the estimate of 3.8 percent. And wages doubled expectations increasing 0.6 percent month-over-month raising the annual wage growth to 4.5 percent. This just reaffirms the jobs market is entering 2024 on solid ground.

And then there’s consumer spending which remains surprisingly strong despite high costs, high interest rates, and depleting savings accounts.  Core retail sales hit a record high in 2023 and Amazon just published their 4^th quarter revenue report showing a 14 percent jump. Consumer spending is two thirds of our nation’s Gross Domestic Product.  Given consumer sentiment has climbed a cumulative 29 percent over the past two months, the largest two-month increase since 1991; it would not be a surprise if strong spending continued.

And why not spend when you feel wealthy? The Dow Jones Industrial Average and the S&P 500 continue to push further into record territory with 68 percent of companies beating their earning forecasts in the fourth quarter, 2023.

Don’t get me wrong, the lack of savings and the speed of spending is a great concern. But an overall strong economic comeback, increasing wages, and decreasing inflation all support a soft landing at this time; as well as an additional delay in rate cuts for 2024. This will cause some market participants to recalibrate their thinking.  We are already seeing this as I work up this narrative. While the 10-year treasury yield touched a 6-month low earlier in the week due to concerns over the regional banking sector hitting drama last seen in March of 2023; the strong BLS Jobs Report reversed that sending the 10-year back above 4 percent.

So what about housing?

Denver Metro’s real estate market kicked off 2024 feeling just as good about things as the rest of the economy. Buyer demand picked up with mortgage purchase applications jumping 24 percent while rates fell into a 5-week, 6.6 percent mortgage rate lull.  The end of January saw turbulence pick up with a strong fourth quarter GDP, bank concerns and a much stronger than expected jobs report. Due to this volatility in rates mortgage purchase applications dropped 11 percent week-over-week on the last Wednesday of the month.

But the last-minute swing did not disturb a strong start to pending sales.  Pendings jumped 43 percent from December and 6.5 percent year-over-year. We are also seeing 2024 start off with a strong 5% gain in Median home prices from January 2023 and 3% from last month. While sales volume and closed units were down, this is more of an indicator of less buyer activity in December than January.  The real estate number I am most excited about is the 90 percent jump in New Listings from December and 15 percent jump from January 2023. As buyers got used to 6.6 percent rates, so will sellers decide that pausing life to hold onto a low rate is no longer tolerable.

While I do not expect the real estate market to parallel the stock market’s exuberance, I do expect our market to be better than 2023; to continue to grow as inflation concerns fade and the economy readjusts. What I no longer expect is a Fed Rate drop in the first half of 2024. Fed Chair Powell’s comments at his January meeting were clear.  Housing is not his concern. When asked about lower rates to make housing more affordable, his response was “our job, the job Congress has given us, is price stability and maximum employment. Price stability is vitally important, especially at lower income levels, and the tool we have been given to manage inflation is interest rates.” Powell wants to see a 2 percent core PCE inflation over 12-months, not the 3 or 6-months that have already hit it.

Given affordability is unlikely to change meaningfully in the next several months, I would tell buyers that trying to time the market around mortgage rates is a stressful venture. Instead, buyers need to recognize their own personal and financial circumstances. What matters most is whether buying a home meets their needs long term and whether they can afford it. Timing the market was a game for 2021, and that golden window of record-low rates has closed.

Until next time, this is Nicole Rueth with the Rueth Team. It’s my pleasure to keep you updated.

Nicole Rueth
Producing Branch Manager with The Rueth Team Powered by Movement Mortgage