Interest rates, permit waits depress investor interest in Denver homes

In the Denver metro, rising interest rates in 2023 dampened investor interest in home purchases.

The higher rates combined with long waits for building permits made buying and flipping homes less appealing, while the higher rates made renting investment properties less profitable.

Investor purchases of U.S. homes dropped by 30% year over year in the third quarter, the lowest level in seven years, due to rising mortgage rates, high home prices, and a lackluster rental market.

Despite higher interest rates, limited inventory held home prices steady in Colorado.

Denver Metro Area Realtors reported the median close price for homes for 2023 was $578,00 compared to $588,000 in 2022, $525,000 in 2021, $450,000 in 2020, and $420,000 in 2019.

However, the number of homes sold and the total sales volume for 2023 were lower than in the past few years. Closed properties totaled 41,840 in 2023. That’s down from 51,016 in 2022, 64,108 in 2021, 63,516 in 2020, and 58,902 in 2019.

“Those investors are finding other places to put that money,” said Craig Harcek with 8z. “In fact, we’re even seeing some investors divesting from their real estate portfolio and selling houses.”

That makes sense for investors who’ve owned their properties for two years or more and have built up equity. And if they updated the homes, that would make the homes even more appealing.

“It’s not a bad time to walk away, and if the home’s in good shape, there are buyers.”

Heather Bustos, regional vice president with Compass Colorado, said while she still sees some investors, that market segment is weaker. She’s seeing fewer investors buy and more sell their rental properties.

“Some have decided to liquidate. They don’t want to be landlords anymore,” she said.

Sometimes, investors sell rental houses and invest in attached properties like condos.

“Rather than manage 10 buildings, they’ll buy one condo building. It’s easier to maintain and manage.”

Some are still looking for investment properties, Harcek said.

“It’s still a good time. With some houses staying on the market longer, you can come in and negotiate better terms,” he said. “Sellers are motivated, especially for properties that have been on the market for 30 to 60 days.”

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“If you have the ability to make the payments work now, you can always finance in the next year or two when the rates go down,” Harcek said.

If investors don’t have cash, they are less likely to buy now, said Jared Blank, manager partner with The Agency Denver.

“But with fewer investors in the market, the silver lining is it’s a positive for potential homebuyers who previously may have felt pushed out.”

The news and editorial staffs of The Denver Post had no role in this post’s preparation.

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