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Denver had one of its most competitive real estate markets in history in 2021. Some areas saw as much as 21% appreciation. Although the market did slow down some in the fall of 2021, the beginning of 2022 is proving to still be a strong seller’s market. This is keeping many buyers that normally would be looking at purchasing a home from jumping into the market. This decision, however, could cost homebuyers not only thousands in appreciation but also add to their monthly mortgage payment.
As our 2022 Market Prediction blog stated, we predict that the first half of 2022 will be very similar to most of 2021 when it comes to low inventory and homes selling quickly and for over list prices. This will result in some major appreciation; however, expected rising interest rates could be the factor that finally puts some downward pressure on the Denver real estate market, causing the second half of the year to experience lower or even flat appreciation. Many buyers might think this is when they should jump into the market and buy their next Denver area home, but this game plan could cost you.
With the low level of inventory and high demand, it is unrealistic to think that values will be lower, even with higher interest rates, than they are right now. So, one obvious way waiting will cost you additional money is simply the idea that there will be noticeable appreciation for the first part of the year. However, there is a less obvious fact that will cost you more money, and this one you will feel each and every month. In fact, it is this extra cost that might have the potential to ultimately slow the market down as a whole. What I am referring to is higher interest rates.
Your monthly payment is directly related to your interest rate. The higher the interest rate, the more you’re going to pay on your mortgage each month. If the interest rates go up by even one quarter of a percent, which doesn’t sound like a lot, it will instantly increase the amount of your monthly payment. For example, on a $400,000 mortgage, one quarter of a percent higher rate results in an extra $58.10 additional in your monthly payment. If that same mortgage of $400,000 has a 1% higher interest rate, it will cost an extra $237.63 each month. You can see how quickly rising interest rates can cost you month over month.
One could try and make the argument that the higher interest rate won’t matter because a slower market could mean lower values. I personally see two issues with this thinking. First, I do not think that the rising interest rates are going to put enough pressure on the Denver market to cause values to slip enough to be back at today’s values. This alone means that you’re going to be paying more for the same house in the second half of the year than you would now even without rising interest rates. Second, if interest rates were to rise even just 1%, the values would have to drop significantly in order to make up the difference between purchase price and higher interest rate. For example, a $400,000 mortgage with an interest rate of 3% would roughly have the same monthly payment as a mortgage of $350,000 but with a 4% interest rate. Simply put, values would have to drop significantly in the second half of the year to make up the difference with the higher interest rates. With the current demand and lack of inventory in Denver’s market, this scenario does not seem very likely.
If you want to save money on your next home purchase, let’s talk about how you can jump in the market, beat rising interest rates and enjoy major appreciation, rather than pay for it. At TK Homes, we’re not afraid of the market and will work hard to get you a home you love, even in today’s competitive seller’s market. Contact us today, lock in your low interest rate and make 2022 the year you use homeownership to grow your net worth. We’re ready to work for you!
~ Written by CEO/REALTOR® Trevor Kohlhepp