Between higher mortgage rates and higher home prices, buyers of a typical home in metro Denver faced monthly payments 21% higher at the end of March than was the case at the start of the year, according to a new analysis from Zillow.
Going back a full year, would-be buyers in metro Denver are now paying 42.2% more, ahead of the 38% increase averaged nationally. As big as Denver’s monthly payment increase is, other areas are higher. Dallas, Phoenix and Atlanta monthly payments are up around 48% over the past year, while increases in Nashville, Tenn., Tampa, Fla., and Las Vegas top 50%.
“Higher mortgage rates were anticipated this year, but the speed of their rise has been breathtaking,” said Jeff Tucker, Zillow senior economist, in a release. “There will be a point when the cost of buying a home deters enough buyers to bring price growth back down to Earth, but for now, there is plenty of fuel in the tank as home shopping season kicks into gear.”
The analysis set a typical home value at $627,072 in metro Denver, which is up 24.3% over the past year. It also assumes a buyer made a 20% down payment, which is getting harder to pull off the more prices rise. Zillow lists the monthly mortgage payment in that scenario as $2,445 in metro Denver, which is much higher than the U.S. average of $1,316.
Given that mortgage rates have gone even higher in April, the gap is getting even wider. If there is a plus side, it is that higher costs have reduced the competition and boosted supply. The inventory of homes available for sale in metro Denver grew 30.5% between February and March, but remains 4.6% lower than a year ago, according to Zillow.
“Eventually mortgage rates will slow down home prices, but it hasn’t happened so far,” Ken Johnson, an economist at Florida Atlantic Univesity, said in a report last month. “We should not see rapid upticks in prices as mortgage rates rise. It’s that kind of exuberance that led to past housing downturns.”
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A valuation index from FAU and Florida International University estimates metro Denver home prices are 37% higher than where they should be based on historical trends, while in Colorado Springs they are nearly 45% higher.
A fear that prices will only go higher should not be the primary motivation driving buyers, Johnson said. He argues the current housing cycle appears to be entering a peak and that prices historically return toward the long-term trend line for those who are patient enough to wait.
“Perhaps staying where you are now and letting this irrational market settle would be one of the best decisions you could make,” he said.
Renters are also facing inflationary pressures, but not to the same degree. Zillow’s rent index for metro Denver is at $1,905 a month, up 15.7% over the past year. Nationally, the rent index is at $1,904, up 16.8%. In that regard, Denver rents are more in line with national averages than its home payments are.