Monday, August 3, 2015

Rising rates won’t cool Denver’s hot home market

What if mortgage rates rose and nobody noticed?
Or, if they noticed, what if rising rates did not cool Denver’s hot housing market, especially with demand fueled by the city’s growing millennial population?
“Mortgage rates are far less important to first time buyers than down payments,” David Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices said on Tuesday.
Blitzer made the comment when releasing the closely watched Case-Shiller index, which showed that Denver homes appreciated the most of the 20 major cities tracked by Case-Shiller.
Denver’s 10 percent year-over-year gain in May was the only city to show double-digit appreciation.
So far this year, Denver has been No. 1 an unprecedented four out of five times.
Mortgage rates in the Denver area and across the country recently have crept up to slightly more than 4 percent for a 30-year, fixed-rate loan, according to national reports by, HSH and Freddie Mac.
While rates are up from the beginning of the year, when they were hovering around 3.75 percent, today’s rates are among the lowest on record.
They were about a quarter percent higher a year ago, according to Freddie Mae.
In fact, rates were only lower in most months of 2012 and 2013, when the economy was not nearly as strong in Denver and across the country.
The Fed often will raise rates to put the brakes on an over-heated economy.
Yet, most observers reading the tea leaves and watching every move by the Federal Reserve Board, believe that it is likely the Fed will push up rates in September.
Many believe the Fed will raise rates despite inflation below the Fed’s target of 2 percent.
Indeed, a number of Federal Reserve governors in the past month have said they expect rates to be raised in September and again in December.
Last week, Denver Real Estate Watch asked Allan Weiss, co-founder of Case-Shiller, if he thought rising rates would slow housing demand, especially in Denver.
“Unequivocally no,” Weiss said, as he released a report that showed by the metrics of his group, Denver has the hottest housing market of the 10 top major cities in the U.S.
Weiss said the Fed will not be reckless and raise rates sharply.
“If they do raise rates, it will be very modest,” Weiss said.
“If they raise rates by half a point, for example, that is a very modest increase from today’s very low levels,” he said.
“When you spread out the extra cost over 12 months, it will be fairly minimal for most buyers and they will barely notice,” he said.
The monthly principal and interest on a $325,000 mortgage at an interest rate of 4.75 percent would be $1,505. At 5.2 percent, the principal and interest on the loan would be $1,589, $84 per month more.
In fact, a bump in rates could increase demand, he said.
“Some people sitting on the fence will want to buy now, rather than risk of rates rising even more,” Weiss said.
Ty Dokken, a broker with Metro Brokers, however, said he has found prospective buyers won’t lock in rates when they begin to rise. Rather, they will play the waiting game and hope they come back down.
“My experience is they kind of freak out,” Dokken said.
That happened recently when rates briefly ticked up. Mortgage rates, like stock prices, are constantly changing.
Rates quickly came down and they resumed their house hunting, although they were planning to stay on the sidelines if rates hadn’t dipped, he said.
“I’m finding people are reluctant to lock in rates after they have risen; they would rather wait for them to come back down,” Dokken said.
However, that may not be the smartest move, he said.
If rates start to trend upward, it might be safer to lock in rates at still low rates, rather than take the risk they will go even higher, he said.

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