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Updated: Jul 28, 2022

The Winds of Change May Finally Have Arrived, According to the Economist

High winds, on the other hand, have been relentless this month, as well as the winds of change. Anyone who is not living in a hole has no doubt noticed increased gas and grocery costs. Despite the fact that inflation was already on the rise at the start of the year, it accelerated to 8.5% in March, owing to supply shortages caused by the ongoing conflict in Ukraine. Since the 1980s, this is the highest inflation rate in America!

What does a rising inflation rate signify for the real estate market? One important consequence is that it has reduced mortgage interest rates. After the FED announced that it would be rolling back extensive policies to ease pandemic strain on American families, mortgage interest rates were already anticipated to rise this year. To combat higher-than-expected inflation, they lately voted to adopt a far more severe approach. As a result, we saw the most rapid rise in mortgage interest rates in the history of the United States. The average interest rate for a 30-year loan in Colorado is now 5.5%, up from 3.4% at this time last year.


Competition Should Ease Slightly as Rates Increase

What do these recent economic indicators mean for buyers? Everyone's situation is unique, so it's best to consult with your lender about what works best for you, but the following are the major market impacts:

  1. More Inventory: The growth of inventory in Metro Denver has been attributed to interest rate increases. Early April saw the biggest raise, so next month will almost certainly be more dramatic when it comes to inventory, but you can see that there was already a 5.2% increase in new listings in March following the most recent rate hikes. With so much economic uncertainty, some people believe that the ship is sailing to make the greatest possible money for their properties, therefore they are choosing to sell now rather than later when a bubble bursts (Unlikely.)

  2. Higher interest rates result in a greater number of buyers being priced out of the market. If you are a well-qualified buyer who believes interest rates will decrease again to historical lows, that is probably a mistake. Mortgage rates are projected to continue to increase, in part due to current economic circumstances.

  3. Slower Price Growth in the Housing Market: As can be seen from our market snapshot graph, home values have increased by around 20% since this time last year. Although house prices are not predicted to fall, owing to the current state of the economy, they will most likely decelerate as a result of these price increases. There is no indication that house prices will drop to pre-pandemic levels this year if you are a buyer who has been waiting for them to do so. The problems in the market today are not the result of artificial factors like bad lending practices, but rather a consequence of genuine high demand and a scarcity of homes that is putting upward pressure on house costs.


Rising Rates Panic Some Sellers

Many sellers have been taken aback by the recent rise in interest rates, believing it to be the ideal moment to sell. Some believe that we are in another residential bubble, as occurred in 2008 and 2009, and that the market will come to a halt. However, as previously stated, market conditions are considerably different than they were in the past. Over the next year, home prices are anticipated to rise slightly slower. The prices are not anticipated to drop. Buyer demand is still strong, and inventory is still insufficient in comparison with a buyer's market. Even if some buyers are priced out of the market owing to increased rates, you may get six offers above asking price rather than ten. It's still a great bargain!

Finally, we advise against attempting to time the market. All of these economic circumstances may change at any moment, and no financial expert has a crystal ball. Instead, do what is best for you in your situation. Do you need more room for your growing family? Do you want to downsize? If you decide to sell your current house, this is still a sellers' market in most cases. You will probably continue to gain equity for at least another year if you do not want to sell. Just keep in mind that your future property's monthly installments will probably be greater than this one due to the rapidly increasing interest rates.

(Data Sources: REColorado®, The Wall Street Journal, CNBC,

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