Pivot

The most widely anticipated Fed announcement in recent memory turned out to be a relative non-event. While many mortgage companies are capitalizing on the media buzz surrounding the 0.5% interest rate cut, the market had already anticipated this move, with mortgage rates gradually declining by up to 1% over the past few months. The Fed’s announcement signals a strategic shift, moving from an inflation-focused approach to a more balanced one where both labor market data and inflation will drive future rate decisions. This shift has already started to affect Denver’s housing market. Buyer activity has picked up, thanks to more affordable mortgage rates, but listings remain slow, indicating that existing homeowners aren’t as motivated to sell at reduced prices. As the market continues to evolve, this balance between supply, demand, and interest rates will play a key role for housing costs in Denver going forward.

The Skim:

1. The Pivot

2. Demand — Holding Steady

3. Supply — Slower Not Lower

The Pivot

In one of the most widely anticipated Federal Reserve moves in recent years, the Fed cut interest rates by 0.5%, bringing them down to a range of 4.75% to 5.00%. While this was the first rate cut since 2020, the market’s reaction was relatively muted. Stock indices dipped slightly but recovered after the closing bell, and longer-term treasury bond yields actually rose a bit.

The Fed has a dual responsibility when setting rates: fostering a strong job market while keeping inflation in check. Over the past few years, inflation took center stage as the Fed hiked rates aggressively to counteract the inflationary pressures from pandemic stimulus and supply chain disruptions. However, as inflation began to ease and job growth slowed, the Fed shifted its focus toward balancing these two objectives. This recent decision reflects that shift.

In their announcement, the Fed expressed confidence that inflation is on track to hit their 2% target while acknowledging recent softening in the labor market. This balancing act means that going forward, the Fed will closely monitor both inflation and employment data.

But if the Fed lowered rates, why didn’t mortgage rates drop too? Many mortgage professionals might have flooded your inbox with claims that now is the perfect time to refinance or buy. However, mortgage rates, which are tied to long-term bonds, didn’t budge much because the market had already factored in the Fed's expected rate cut. In fact, 10-year bond yields had already fallen by about 0.25% in the past month, so mortgage rates had already reached their lowest levels of the year before the announcement.

While rates didn’t drop further after the Fed’s move, they remain relatively low. With home prices likely to soften in the slower fall and winter season, now could still be a good time to consider buying before the market picks up again next spring. If you're curious about current mortgage rates, we’ve put together a tool that shows the competitive rates Blue Pebble Group offers. Feel free to check out our rate widget to explore your options!

Demand — Holding Steady

Supply — Slower Not Lower

Let’s check in on our trusty table summarizing the Denver metro housing market within a 10-mile radius of downtown Denver:

Over the past month, average interest rates for 30-year fixed-rate mortgages have declined by 0.5% to 1.0%, enhancing affordability for buyers in the Denver metro real estate market. This reduction can lower monthly mortgage payments by approximately 5% to 10%, effectively resembling a direct decrease in home prices. Such affordability improvements have spurred buyer activity, as reflected in the 2% increase in pending sales in August compared to the same period last year. Notably, August was only the second month in the past year to see a year-over-year rise in pending sales, highlighting the significant impact of lower mortgage rates on market behavior.

This uptick in buyer demand, fueled by reduced interest rates, is gradually easing the excess supply that accumulated from spring listings. Inventory peaked in May, with 86% more homes on the market than the previous year, but the surplus has since diminished steadily compared to 2023 levels. Despite increased buyer activity, August saw surprisingly low new listing numbers, which may indicate that the recent rate cuts are drawing in first-time buyers rather than encouraging existing homeowners to trade up or down. As a result, the market's inventory has returned to levels seen in April, and this trend is expected to continue into September. A sustained reduction in excess supply could support a more balanced market outlook as we approach next spring.

Meanwhile, homes are staying on the market an average of 10 days longer than in 2023, with a distinct difference between detached and attached properties. Attached units, including condos, townhomes, and duplexes, have not performed as robustly as detached homes, partly due to the high volume of attached units developed during the last housing cycle in metro Denver. These properties are often investor-owned, making them more susceptible to underperformance in less favorable market conditions, just as they excelled during the previous boom. Currently, attached properties have a median market time of 27 days, while detached homes average 14 days.

This disparity is also evident in listing prices: attached units are listed at prices averaging 9% lower than the same time last year, whereas detached homes have seen a more modest decline of 2.4%. Interestingly, detached homes recorded a surprising increase in average sold prices across the metro area last month, while attached units continued to sell at an average of 6% less than in August 2023. These trends underscore the differing dynamics between the two property types, with detached homes demonstrating greater resilience in the current market environment.