I remember my first property purchase like it was yesterday. My fiancée, now my wife of 23 years, and I were days away from getting married. Littleton, Golden, Arvada, and Evergreen all had great home ownership opportunities for us. In the end, we chose a perfect 2BR/2BA condo in Arvada. A large park was located to the west for walking the dog and Old Chicago was a 5-minute walk away for pizza and happy hour. Everything about it was perfect, including our interest rate on the purchase. I was able to lock in the mortgage rate at an unbelievably low 6.5%! Can you believe that! Of course you can. You have to understand that 30-year fixed mortgage interest rates had been as high as 9% within the 5-year period prior to our purchase. In other words, my perspective was almost entirely informed by my recent first-hand observation of the mortgage interest rate environment.
Fast forward to present day where we are in the 6%+ interest rate environment once again. The recent interest rate history, however, is much different than what I described above. Many homeowners were able to lock into interest rates in the high 2’s and 3’s over the last few years. Now buyers are confronted with 6%+ 30-year fixed rates after a rapid accent from lower rates that were available as recently as 2021. Changes this significant and this fast take some getting used to. Do buyers need to accept 6% rates as the new normal? What should we expect for the rest of 2023?
The answer to these questions depends on whether the Federal Reserve continues to increase the federal funds rate. The Federal Reserve has been raising rates aggressively in an effort to bring down inflation. The challenge for the Fed is to increase rates enough to bring down inflation but not so much as to cause a deep recession. There are many differing opinions about how successful the Federal Reserve has been at this endeavor. Recent bank closures, a slowing job market, and slowing inflation (based on leading economic indicators) are all compounding bodies of evidence that suggest the end of higher federal funds rates is near.
We do have to get used to higher interest rates this year. However, home prices have come down from the mid 2022 highs making mortgage rates in the 5’s and 6’s more palatable. Give me a call at the office, 303-325-5690, to get my latest view of the market. I’d be happy to assist you in deciding what is best for your specific circumstance.