It breaks my heart to know that only 10 percent of adults when surveyed said homeownership is easy to achieve and only 8 percent believe financial security and a comfortable retirement are attainable, per a recent survey by the Wall Street Journal. Yet, 89 percent still believe owning a home is either essential or important to their vision of the future. While this vision seems to have stalled out with 83 percent of adults thinking it’s an awful time to buy, my fear is that it won’t get easier. And that’s what I want to cover in today’s video. I want to highlight what interest rates and home prices are doing, specifically in the Denver market, and what further moves we could see to close out 2024.
Home affordability is primarily made up of three categories: prices, interest rates and wages. Over the last four years, nationwide home prices increased 49.1 percent, interest rates shot up 5.25 percent sending principal and interest mortgage payments skyrocketing 131 percent, while average hourly earnings struggled to keep up, increasing 25.9 percent.
According to research by the Massachusetts Institute of Technology and Harvard University, 90% of children born in 1940 were ultimately better off than their parents.
Only half of those born in the 1980s were able to say the same. Generation Z will be even less so.
While home buyers are waiting for or hoping for home prices to drop; I fear home prices have become permanently more expensive. In fact, per S&P Case-Shiller’s most recent report, home prices nationwide hit another record high in June. Locally, the Denver market did not escape the price pressure, as our Home Price Index, or HPI, also hit a record high in the 2nd quarter 2024, topping our 2nd quarter 2022 HPI by 0.8 percent.
Note that HPI measures home price appreciation on singular houses when they turn over or appraisals are recorded. This kind of data aggregation is a truer measure of home price growth than the more readily accessible and timely median and average home prices reported. Having said that, the average home price in the Denver Metro hit its own record high in April 2024, before retracing its steps 2.6 percent lower by August.
While this all has the risk of sounding a bit doomsday, the understanding of today’s market moves allows each of us to make a decision and create certainty where uncertainty is prevalent.
But before I get too far ahead of myself, do me a favor and if you find any value in this content, give this video a thumbs up. It’s easier today to tap out with home prices and interest rates high; but searching for the opportunities and grabbing them before they pass is what creates wealth and future options. And while you’re here, make sure to subscribe to stay updated on all thing’s real estate and home buying.
August came and went with the biggest news at the beginning of the month… lower-than-expected job numbers and higher-than-expected unemployment which provided a head nod towards a recession. Then the Consumer Price Index, or CPI drifted lower breaking below 3 percent and hitting its lowest level since March 2021, all but securing a Fed rate cut in September. Manufacturing contracted for its 5th consecutive month marking 21 out of the last 22 months. And according to Paychex, August hourly earnings growth fell below 3 percent for the first time since January 2021. If we aren’t officially in a recession, it certainly feels like one.
With all the economic news, mortgage rates fell further in August from 6.7 percent to 6.4 percent. While 0.3 percent doesn’t sound particularly sexy, the fact that the 30-year fixed mortgage rate has fallen from just over 7.5 percent only four months ago gets a little sexier. Add that to the factoid I dropped just a minute ago about the average home price dropping in the Denver Metro 2.6 percent since April; affordability got an early Christmas gift.
Now, if I stopped there, you might be temped to just keep waiting. Because if that’s the early Christmas gift, what will the real Christmas party look like. Well, seasonally we know home prices typically drop in the fall, level out in the winter, and pick back up again in the spring. However, this year there’s a wild card with the beginning of the Federal Reserve rate cuts. As mortgage rates fell in August, pending home sales in the Denver Metro increased 3.7 percent from July and 7.7 percent from last year, a bit in the face of nationwide mortgage purchase application data which fell 1.5 percent.
The highly anticipated rate cut at the September 18th Fed meeting will not provide an additional drop in mortgage rates given the market has already moved based on expectation. But what will or could move markets is the Summary of Economic Projections, or commonly referred to as the Fed’s Dot Plot Map. This will provide insight as to the Fed’s prediction of their own Fed rate, unemployment, GDP and inflation. If their projections are surprisingly friendly, mortgage rates could fall sharply on September 18th. What is also going to assist mortgage rates over the next few months is the year-over-year comparison of the inflation numbers. Annual inflation is simply the sum of the last 12 months of month-over-month changes. CPI July 2024 month-over-month change of 0.2 percent replaced a 0.21 percent last year inching our annual inflation just under 3 percent. Comparatively, August and September 2023 readings were a higher 0.5 and 0.4 percent respectively. Those numbers will be easy to beat and the year-over-year inflation is likely to drop further.
A slowing economy, slightly lower home prices, and falling interest rates will give some home buyers an opportunity to jump into homeownership. Which in full transparency feels a bit like trying to jump onto a moving high speed rail. So while some will stand on the sidelines warning that it’s a bad time to buy and home prices are about to drop… record high tappable equity, languishing foreclosure rates and an impending drop in the Fed rate, don’t give the same vibe.
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 September Update. I’ll see you next time.
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