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Many home buyers are wondering: Is buying a house worth it right now? The short answer is yes. If you are financially ready, buying a house is completely worth it – even in the current market. Buying and owning a home is still a good financial investment and is better than renting for many people.

While there are financial challenges in the current market, there are plenty of reasons to buy. If you or someone you know is on the fence about buying a home, keep these things in mind:

  1. Rising prices lead to equity

The main benefit to owning a home is over time your home builds equity. This adds to your overall net worth. The ability to build equity is what sets homeownership apart from renting, where there is no return on investment. Even though home values are not increasing at the pace they were, they are still going up and the balance is being paid down.

  1. Fixed housing costs

When you purchase a home, your monthly principal and interest payment will remain the same for the entire life of your loan. While rents are increasing at near record levels, buying real estate will help keep your payment fixed.

  1. Opportunities

There are many opportunities for homeowners.

Purchasing a home is not the right move for everyone. There are downsides to home ownership in any market. One thing to be mindful of in our current market is there is not a guarantee your home will continue to increase in value at the rate properties have over the last few years. Home value appreciation is likely to slow down but will not go away.

When deciding to buy or rent, it is good to compare monthly rent versus a mortgage payment. If the mortgage payment would be approximately the same or less than rent for a similar home, it might be a good idea to take a serious look at purchasing.

It is a good idea to consult with a mortgage lender and a real estate agent to see what options are available that meet your situation. We provide free consultations for pre-qualification. Feel free to contact us and see if buying a home is the right decision for you.

A Quick Look Back

Home prices declined in the Denver metro area from 2007 through 2011. However, the real estate market in Colorado and the Denver metro area has been on a tear since 2012. Honestly, the real estate market has performed better than most people realize.

For anyone who purchased residential real estate during this period made an excellent investment, not to mention that, in most cases, they are also purchasing a place to live.

Similarly, the cost to rent increased over 40% during the past five years. However, in the last six months of 2017, rental rates declined slightly, yet they remain at all-time highs.

For most, owning a property has clearly been a better option when it comes to building wealth over the past five years.

Where Do We Go Now?

During 2017, the rate of appreciation in the Denver metro area slowed. At the end of September 2017, the annual rate of appreciation had slowed to 6.83%. Based on anecdotal data, the market was somewhat flat during the 4th quarter of 2017, with inventories hitting all-time lows along with the holiday season.

The current forecasts for the national real estate market are very optimistic, largely based on the accelerating economic growth in the U.S. economy and the U.S. employment market. The forecasts for the local real estate market are a little mixed.

Some believe that 2018 will look a lot like the second half of 2017, with more modest price increases, in the 5% range, and more in balance between buyers and sellers. Under this scenario, the market is still healthy, but not as crazy as 2016 and the first part of 2017.

There is another group of market analysts that believe the price appreciation in the Metro Denver housing market are based on fundamentals that have been in place for the past five years. The fundamentals are still in place at the beginning of 2018 and in some cases are more pronounced. For example:

  1. Inventories of houses on the market remain at the lowest levels in recorded history;
  2. People are still moving to Denver;
  3. The economy is healthy with substantial job and income growth;
  4. Interest rates, although rising, are still near historic lows;
  5. The rental market is not favorable, since monthly rents are very high and the vacancy rates are in the 5% range, even after all of the new building;
  6. There is an imbalance in the market between the types of houses available for sale or that are being built (high-end) versus the types of houses people would like to purchase (low-to-moderate-priced housing). This tends to put upward pressure on the low-to-moderate price ranges.

I am in the camp that believes that fundamental such as supply and demand are the real drive for the real estate market in Metro-Denver. Therefore, I believe the market will perform in a manner similar to 2017 barring any changes to the current economic outlook either locally or nationally.

Interest Rate Forecast

Conventional mortgage rates ended 2017 at approximately 4% for a 30-year, fixed-rate mortgage. Rates are down from where they started in 2017, even though the Federal Reserve increased the short-term rate three times last year. It is expected that the Federal Reserve will raise the federal funds rate by a quarter point three times in 2018. Most projections right now estimate that 30-year mortgage rates will end the year in the 4.5% range after the increases by the Federal Reserve and assuming there are no other surprises or unexpected events that affect the economy or expectation regarding inflation.These rising rates should force anyone who currently has an adjustable-rate mortgage to seriously consider refinancing to a fixed-rate mortgage and, where possible, go to a shorter term in order to get a better interest rate.

Other Mortgage and Real Estate News

The new tax bill that was passed in December will impact the real estate and the mortgage industry in the following ways

  1. The increase in the standard deduction means fewer people will itemize deductions, thereby decreasing the benefit of the mortgage deduction;
  2. The tax deduction for property taxes is capped at $10,000;
  3. The amount of mortgage interest that is deductible is limited to the first $750,000 of mortgage debt (under prior law the limit was $1,000,000);
  4. The mortgage deduction for a Home Equity Line of Credit has been eliminated beginning in January of 2018. Going forward, accessing the existing equity in a property may be more efficient to do in one mortgage and, in many cases, it may make sense to consolidate an existing Home Equity Line of Credit with a new first mortgage.

Lastly, Fannie Mae and Freddie Mac increased the conforming limit in the Denver metro area to $529,000 starting January 1, 2018, making it easier to stay out of jumbo loan guidelines, which can be tighter and not as flexible as conventional mortgage guidelines.