2023 was an eye-opener. Before we were even halfway through the year, interest rates more than doubled, and the frenzied pandemic market came to a grinding halt. Just as many started to feel like a 3% mortgage rate was normal, we were quickly brought back to reality. And unfortunately, that reality now included higher rates as well as home prices. However, Colorado’s economy and job market are strong, and buyers and sellers still found ways to capitalize on opportunities in the face of decreased affordability.
Then as 2023 came to a close, some light appeared at the end of the tunnel: Interest rates began to drop. In December, the average rate on a 30-year fixed mortgage fell to 6.5%, which we had not seen in several months. We also received news that the Fed plans to continue cutting rates through 2024. With that in mind, the stage is set for yet another dynamic year in real estate. So, how will this year pan out for buyers and sellers, and what do you need to know to capitalize on potential opportunities?
As always, inventory, interest rates, and the economy will play a key role in guiding the direction of the market this year. We all know that housing inventory has been low for years now, but several factors suggest we could see a significant increase in homes for sale this year. Predictions aside, the amount of active listings across the Front Range has almost doubled in the last two years. In December of 2023, there were 7,152 homes on the market - that’s an 83.5% increase from December of 2021 when there were just 3,897 active listings. Keep in mind that historically, December through February is when we see the lowest levels of active inventory, and then we get a significant boost of activity in the spring. Compared to just a couple of years ago, we’re already starting off at a better spot heading into 2024.
It’s fair to say that the increase in interest rates had a part to play in the uptick of housing inventory: many sellers who bought a few years ago have been holding out on listing their homes because they didn’t want to double their monthly payment on a new home purchase, and thousands of would-be buyers have been sitting on the sidelines eagerly waiting for lower rates as well. But if what the Fed is saying is true and we see several rate decreases this year, that could open the door for all of these sellers and buyers to enter the market and unlock a significant chunk of inventory.
Besides some optimism around rates and inventory, Colorado’s economy remains resilient with a strong jobs market and wage increases to combat inflation. As we mentioned earlier, this is one of the main reasons our housing market continued to chug along in 2023 while many areas of the country experienced a significant slowdown and even decreased home values year over year. Sure, most areas in Colorado didn’t see much price appreciation last year, especially compared to 2021, but we definitely didn’t see any notable declines like some other states across the country. Combine our economy with rising inventory levels and more favorable interest rates, and we may see a much more fruitful year for buyers and sellers.
Should You Make a Move This Year?
Deciding to sell or buy real estate should always come down to your personal situation - you should only make a move when it’s the right time for you. But if you have been waiting on the sidelines, this could be your year. You’ll want to keep a very close eye on interest rates because the lower they go, the more competition you’ll see in the market. One of the reasons buyers saw success in 2023 is that sellers were much more willing to negotiate. We saw plenty of seller concessions in the form of rate buydowns or contributing toward closing costs, and very few buyers waived inspection or appraisal contingencies. But depending on how much interest rates come down, we could see a lot more offers per listing, which can lead to bidding wars where buyers may waive those important contingencies and offer above the listing price in order to compete. But then you also have potentially higher levels of inventory, which would provide some breathing room and soften the impact of all this pent-up demand in our market.
The bottom line is: If you’ve been waiting, now is the time to get prepared so that you can capitalize on potential opportunities. Connect with your trusted Realtor to get clear on exactly what you’re looking for, or to discuss your plan of action for listing your home. Also reach out to your lender to get pre-approved for a mortgage so that when the right home hits the market, you’re ready to take action. The spring market is always one of the busiest seasons for real estate, regardless of other market factors. If rates continue downward, that’ll only add fuel to the fire, so it’s critical that you’re prepared if you aim to buy or sell in 2024.