The Denver MLS Trends data for January are now out. The spring selling season is already starting, and we’re down 50% in inventory from last January.  From December 2021 to January 2022, we’re down 20%.  It’s almost hard to believe, but people aren’t selling in Denver, and when they are, there are 10 people ready to buy their home.  The market is very tough right now.

Denver Market Snapshot

How Are Rising Interest Rates Affecting the Market?

Anyone who’s been shopping between the end of December and now is probably getting sticker shock when they look at interest rates.  As rates are rising, people are getting more frenzied about buying because there’s no sign that this rise in rates is going to slow down.  However, there’s no supply to impact the demand. 

Typically, when we see interest rates rise, we expect prices to come down to compensate, but supply constraints coupled with high demand are overriding that rule.  This is where the psychological aspect of investing and markets comes into play: a lot of people out there are worried they need to buy sooner rather than later. 

Keep in mind, though, that interest rates are still low in terms of what we’ve seen historically.  It’s just not what we’re used to after the past few years. 

Rent Increasing Across Denver Metro Area

On the other hand, rents are rising, too.  We recently received a report from Apartment List, a company with a lot of great data, on apartment complexes in Denver.  In just the past 12 months, rent prices have gone up 16.5%. Rent growth in 2021 has completely wiped away any market softness introduced by the pandemic in 2020. The suburbs around Denver look the same with 14-17% increases. 

When I try to fill out my rental property spreadsheet, I’m unsure of how to model it long-term.  A 3% increase in rent is too conservative right now.  At the same time, something will come to a head with rising rents, but we don’t know when that will happen. 

What Should Investors Do?

This brings us to an important question: with inventory so low, interest rates rising, and cashflow getting tighter, what should you do?  People are looking at other options such as bonds, the stock market, even crypto.  But for me, I want to put money into real estate because it’s inflation-proof. 

Are Adjustable-Rate Mortgages a Good Idea?

Another thing on my radar is adjustable-rate mortgage (ARM) products.  Historically, these have been lower than the 30-year fixed interest rate conventional loans.  You get a guaranteed rate for 5-7 years, then they increase.  As conventional rates increase, I’m getting more interest in exploring ARM products. 

Currently, there are ARM products that are still in the 3% range, which will bring better cashflow.  If you aren’t planning on holding the property very long, an ARM with a 5-7 year fixed rate becomes an attractive option.  Because of the market, we got very focused on 30-year conventional mortgages because the rates were so low.  But now, it’s worth exploring another option. 

If you’re new to investing or a house hacker whose investment is your primary residence, I would recommend you stick with a conventional loan.  There are risks involved with ARMs and it takes a savvy investor to understand them. 

What Do You Think?

We can only adapt to what the market gives us.  When interest rates rise, it’s time to reevaluate and adjust your strategy because you aren’t going to change the market.

We’ll keep bringing you big picture updates and our thoughts on what to do in a changing environment.  In the meantime, how are you adapting to these changes?  Are your investing plans changing?  Reach out to us with emails, comments, DMs, and let us know. 

Get Started Building Your Own Denver Rental Property Portfolio

If you want help investing in rental properties, reach out to us.  We want to help you find the right strategy and property to fit your goals. 

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Denver Real Estate MLS Market Stats – January 2022

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