Nicole Guest Blog 4-22

It’s Not Going to Get Worse | Guest Post

Rates hit their high and came down, inventory locked up, sales dropped, and demand is still pent up. There is a path from here. News cycles in quarter one will pick up year-over-year comparisons, which will look worse, but watch the trends, feel the boots on the ground, and pay attention to inflation, job loss, and rates.
Nicole Rueth


Did you see the smirk on the face of 2022 as she gave us one last gift on her way out the door? During the last 15 days of the year, rates jumped from 6.125 percent to 6.54 percent. An opening China, a hawkish Japan, confident Americans, a strong workforce, and light holiday trading were all to blame. But I saw the smirk as the door clipped her heels. It is a year that will go down in history as the worst year for mortgage rates in terms of the pace of the rate spike, but maybe it was just the bill coming due, the housing and mortgage market party coming to an end. If you add it to the previous two years and divide it by three, some might argue it was a fair price to pay. 

The average Denver home appreciated 44.6 percent, reaching its peak in May 2022. Since then, it has given back 4.95 percent of the gains. Home sales exploded to levels well above anything we’ve seen in the past decade, with 64,000 homes sold in 2020 and 2021 dropping to an average of 60,000 homes sold in the last three years, still well above a Denver 2012-2019 average of 55,194. Rates plummeted well into new all-time lows and stayed there for much longer than any previous period in history. Even if we look outside housing to the stock market, there were gains of almost 50 percent. Add in 2022, and we are still up 20 percent from pre-covid levels.

So, where do we go from here? Well, it’s not going to get worse.

Rates hit their high and came down, inventory locked up, sales dropped, and demand is still pent up. There is a path from here. News cycles in quarter one will pick up year-over-year comparisons, which will look worse, but watch the trends, feel the boots on the ground, and pay attention to inflation, job loss, and rates. The Fed is moving towards raising the fed rate two more times by 0.25 percent each. This is already baked into the market. So it’s on inflation and jobs. When inflation drops further (which it will as supply has loosened up) and when wage inflation is curtailed by job loss, rates will drop below 6 percent, and the mood will change. 2023 will be a renormalizing year. Let’s break down what to expect for home prices, inventory, rates, and demand.

Home Prices

Those markets which appreciated the most, along with an abundance of new construction, will see the biggest corrections. As you know, Denver saw incredible appreciation adding us to the list of least affordable metros to buy. New construction in Denver has also not been scarce, yet as of November, Denver single-family home permits dropped 64 percent from their cycle peak in March 2022. The last time we saw these low permit numbers was in 2014.

This drop-off in new construction, in addition to low existing home inventory, mortgage rate stabilization, and demand recovery, will all support home prices. If you believe that inflation will go back up, the Fed will have to get more aggressive in raising the fed rate, and mortgage rates will increase, slowing demand again, thereby dropping home prices. I don’t believe that. I believe inflation has seen its peak, both locally and globally. Rates will stabilize, and demand will pick back up. But not quite yet. Through the first quarter of 2023, we will see some buyers come out and take advantage of seller credits and discounts, further lowering respective home prices. Quarter two will see prices flatten out from their descent, then turn slightly upwards in the second half. All that assumes inflation will be curtailed, and rates will start their move into the 5’s. 2023 overall appreciation will be in the low single digits by year-end. Remember appreciation was only 2.5 percent in 2019, and it was a good year.


While mortgage rates were the conversation for 2022, I believe inventory will take a front seat in 2023. This is the topic that gives me pause. Inventory ended the year with 4,757 homes for sale. While still lower than in 2019, this number is more in line with 2014-2019. The difference from then to now is that the average mortgage rate from 2014 to 2019 was 4 percent, not the 2.75 percent lows we saw in 2020-2021. 24 percent of all mortgages are now locked in below 3 percent. Another 41 percent are between 3 and 4 percent. Keep in mind that 38 percent of homes don’t even have a mortgage. That means 65 percent of all homes have a rate below the ones we see this year.  This “rate lock” in addition to the rapidly declining permits and starts; will further support stable home prices.

As rates drop, sellers, i.e., “would-be buyers,” will put their houses on the market. If they choose to test the market by overpricing, Days on Market will continue to increase from December’s 30 median days in the MLS. However, if they come out aggressive, understanding the market shift, they will see multiple bids and quick sales. On average, homes that had to drop their price stayed on the market twice as long as homes priced right. 

Also, do not expect any pop in inventory from distressed sales. Short sales and foreclosures will remain limited. Suppose we see a massive 15 percent decline in home prices nationwide. In that case, we will still only see 3.7 percent of our mortgaged properties dip into negative equity territory, with the majority purchased just last year. Low locked-in mortgage rates and monthly payments will support even those who lose their job from losing their home. 


Lower rates might not be everyone’s cure-all, but it sure is ours. Seeing rates rise above 7.25 percent sank the hearts of would-be buyers putting both buyers and sellers at a standstill in 2022. Rates have since dropped back to the low to mid 6’s. Lower inflation and a slower economy will continue to give bonds the relief they need, dropping yields and lowering our rates. We have now had two lower inflationary reports, with the next Consumer Price Index report due on January 12th. In addition, December’s unemployment report will also be released on Friday, January 6th. If we see the core CPI drop from 6 percent and unemployment increase from 3.7 percent, we will see mortgage rates drop again. While I would love to see them drop straight to 5 percent, realistically, it will not be a straight line, nor will it be fast. Rates will continue to react to global economies, GDP, employment, and inflation. Nevertheless, I am hopeful that we will see rates drop into the mid 5’s consistently by late Spring or early Summer.


Having seen the calendar turn over, the largest borrower age group is now 32 years old. We have years of pent-up demand, with first-time home buyers still at an average age of 34. They were priced out for years, then feared out. Many want to own, creating long-term wealth only real estate provides most Americans. But affordability will continue to be the limiting factor, especially in the Denver market. As rates fluctuate, we will continue to see buyers react. As rates dipped in November/early December, we saw seven weeks of slowly returning buyers through increasing mortgage purchase applications. Then, during the last two weeks of December, rates moved back up above 6.5 percent, and so went the buyers, with applications dropping 12.2 percent from just two weeks earlier.

Buyers today have the advantage of less competition and more negotiating power. That opportunity will evaporate as rates drop below 6 percent and more buyers come back into the market. While I would advise all buyers to jump in now, I also want to express caution. A buyer today is looking at the long-term benefits of owning a home: the lifestyle, stability, and protection a home provides. Yes, real estate will always go up in value, but short term, we could be in for a little more price instability. 

So my advice? Buy when it’s the right time in your life. Make sure you have job stability and a little money in the bank. Then, go in with confidence knowing the Denver Metro continues to provide long-term appreciation and a beautiful place to live.

Well, that’s a wrap. Until next time, this is Nicole Rueth with the Rueth Team, powered by OneTrust Home Loans. It’s my pleasure to keep you updated…and say farewell to 2022!


The views, opinions and positions expressed within this guest post are those of the author alone and do not necessarily represent those of the Denver Metro Association of Realtors®. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.

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