Spring is in full swing in Denver and while April saw a 44.26% uptick in inventory, it was quickly snapped up by eager Denver buyers. The average property was on the market for just 8 days in April. 6,881 new homes came on the market in April and 5,725 went under contract. Denver buyers continued to compete in multiple offer situations all while interest rates jumped a half-point over the month. While there are a growing number of factors that could point to a slowdown, Denver demand has proved strong enough to continue to drive the market forward.
This April, interest rates continued to rise to well over 5%. Considering that in the last 52 weeks we saw a low of 2.28%, buyers are feeling the blow to their buying power. This dramatic uptick in interest rates is also convincing more potential sellers to stay put. Many were able to refinance at rates below 3% and aren’t anxious to finance a new home at over 5%. For every 1% increase in interest rates, buying power decreases by about 10%. The higher cost of purchasing a home is discouraging some, but strong demand continues to push up home prices.
While interest rates may begin to slow appreciation some, we would need more inventory to really see a shift. The median home price in April was $624,950, up 19% from last April and April 2022 had the lowest inventory of any April on record. Denver buyers are anxious to buy a home and with 65% of homes selling for over the asking price, they are willing to pay for it. In April, the average home sold for 107.29% of the list price. Denver has appreciated 11.2% since 2021 and real estate values are 78% higher than in 2008.
In such a competitive market, the contracts buyers are writing are changing. It has become commonplace for buyers to waive their rights to an inspection objection and offer to pay out of pocket the difference between the appraised value and the offer price. To effectively use this strategy, we assist our clients in determining property values, while also considering the potential costs down the road of waiving these contingencies. Being aggressive doesn’t mean being reckless.
To those who predict that the bubble will burst, consider this: A housing bubble is defined as an unsustainable period of home appreciation generated by artificial demand, such as loose underwriting or speculative buying. Today’s price growth can be credited to an extreme supply shortage aggravated by a pandemic construction freeze, not subprime mortgages and loose lending standards. What’s more likely is for interest rates to thin the buyer pool and slow appreciation. While interest rates are cooling some buyer demand, Denver seems to have a wealth of people with the money to buy into the market at any price. It is still a great time to sell, but fewer buyers in the market may create opportunities for buyers that haven’t yet been able to get a home under contract.