Mortgage rates hit a new high transcript

The Fed just raised rates again, and the average 30-year mortgage is sitting right around 7%. But, we just put clients under contract on a brand new Toll Brothers home where their first-year rate is right at 3.64%. Now, on a $700,000 house with 20% down, [music] they're saving about $1,200 per month compared to that same house at 7%. And Toll Brothers isn't the only builder doing this right now. We're seeing builders all around Colorado right now offer rates in the threes and fours, tens of thousands of dollars in price reductions, closing cost credits, and other incentives that can completely change what a house actually costs you every month.

So, in this video, I'm going to show you some real examples from builders in places like Parker, Sterling Ranch, Morrison, [music] Castle Rock, and Monument. And then, we'll talk about how to compare these deals against the resale market, so you know exactly what you're getting. First, let's get all the Fed stuff out of the way because I don't want this to turn into an economics lesson. Now, the Federal Reserve just raised its benchmark interest rate by a quarter of a point.

And as of today, Freddie Mac has the average 30-year fixed mortgage rate at 6.95%. Just to clarify something because this gets confused all the time. The Federal Reserve does not directly set mortgage rates, but the Fed, inflation, bond yields, [music] and the overall economy all play a role in where mortgage rates ultimately go. For buyers, the number that matters most is what your monthly payment actually looks like.

So, let's go back to that Toll Brothers deal. Our client bought a new Toll Brothers home down in Monument, Colorado, just north of [music] Colorado Springs. Their financing included what's called a 3-2-1 temporary rate buy-down. And their first-year rate is right around 3.64%. Now, let's use a $700,000 purchase price as an example. If you put 20% down, you're financing $560,000. At a 7% interest rate, just your principal and interest payment is about $3,726 [music] per month.

Let's take that same 560 loan and drop the first year rate to 3.64, and the payment falls to 2,559. That's a difference of about $1,167 every month. So, over the first year, you're talking about roughly $14,000 in monthly payment savings. Now, this is a temporary 3-2-1 buy down. You're not getting a 3.64 mortgage for 30 years. The rate steps up over the first 3 years. So, for example, first year is going to be 3.64, second year will be 4.64, third year will be 5.64, and then it's locked in for the remaining 30 years.

Now, let's just think about someone relocating to Colorado. You're paying movers, you're buying furniture, you're selling another house, and generally spending a lot of money during that first year relocating to another state. Having almost $1,200 a month back in your pocket during that period can be [music] a pretty massive difference. Toll Brothers is also advertising similar programs all around the Denver metro area right now with a 3-2-1 promotion showing, again, first year rates as low as 3.49% on [music] some select homes.

So, this isn't some unusual deal that happened to just fall into our lap. Builders are actively using financing [music] to move their inventory, and they do this because they have partnerships or a lot of times just the in-house mortgage company. So, they don't need to make money on the mortgage cuz they can make money selling [music] the house. Now, before I go through some of the other examples, one quick disclaimer.

Builder [music] incentives change constantly. They can vary by community, by individual house, by financing program, and sometimes literally from one week to the next. So, the exact offers I'm talking about today may or may not still be available when you watch this, but generally when one promotion expires, we're seeing builders [music] come back with something pretty comparable. Whether it's another rate buy down, closing costs assistance, price reduction, or some combination of those.

Dreamfinders is another good example. Right now, they're advertising around the Denver metro area rates again starting as low as 3.49 on [music] select typically quick move-in homes using their temporary buy-down. They're also discounting actual inventory. At The Reserve at Looking Glass in Parker, they currently have a move-in ready home showing an $84,000 price cut recently. And down in Spring Valley Ranch in Elizabeth, there's another move-in ready home showing a $104,000 price cut.

Now, that doesn't necessarily mean that the rate incentive and every advertised discount that they put out there can all be stacked together. Oftentimes they can, but not always. You have to really look at the individual home, and we've got to reach out to the builder directly to confirm for you. But, that's why builder deals are so different from a typical transaction. A builder might have room to reduce the price, buy down your mortgage rate, or help with closing costs depending on how motivated they are and what inventory they're trying to sell.

Now, another good example is Sterling Ranch. If you've watched our channel for a little while, you've heard us talk about Sterling Ranch quite a bit. Tri Pointe is currently building out there, and they're advertising a 2-1 buy-down, which gives you 2 years of that temporary buy-down instead of three. But, their first year rate is as low as 3.99, and they also have promotions offering up to $40,000 in closing credit on certain homes.

Again, typically those are quick move-in homes. Now, the depending on the program and the specific property, those closing cost credits can be used towards things like buying down the rate, reducing the purchase price, paying for what they call prepaids. That would be like your homeowner's insurance or even upfront HOA fees. Now, they also have some incentives tied to personalization options and like a finished basement.

Again, on certain inventory. And those offers don't necessarily stack. They can, but not always. But, if you're already looking at Sterling Ranch, there's a lot more to evaluate than just the base price on the builder's website. Then you've got Red Rocks Ranch up in Morrison. This is one I think a lot of buyers are going to be drawn to because of the West Side location. Now, Lennar is building multiple collections there from townhomes up through larger single-family homes.

They're featuring Red Rocks Ranch as part of their move-in ready promotions with incentives that can include closing cost assistance, special financing, price adjustments on quick move-in homes. So, this is just a good example of why I wouldn't look at a builder starting price online and assume that that's the deal. You may have one completed home where the builder has more motivation on price, another one where the financing package might be a little bit stronger, and another one where, for whatever reason with the builder, closing cost contribution makes more sense and they can offer us more there depending on how you're structuring the loan.

So, now let's go down to Castle Rock because McCanta gives us some really good comparisons between two builders in the same community. So, Lennar also has quite a bit of inventory out there in addition to a lot of other builders. And as I'm recording this, there are move-in ready homes showing price reductions around $75,000, $80,000, and some higher depending on the collection. One Stonehaven in Lennar's Grand Collection has been showing an $80,000 price reduction.

But, Lennar isn't the only builder in McCanta. There's many others. Toll Brothers is another one. Now, they're showing substantial discounts on some of their quick move-in homes. For example, in their Destination Collection, some of those reductions have been huge including homes around $88,000 off. And a Keystone 2, one of their most popular and one of my most favorite models, that's been advertised a $100,000 price reduction from where it was previously priced.

Taylor Morrison is also worth paying attention to because they don't always address affordability through interest rate. They've been offering financing programs on select homes designed to reduce your cash to close amount, which is interesting and you don't see a lot of builders offer this, including down payment assistance options. Now, of course, you have to qualify for these down payment assistance programs, and I believe it is just an FHA program, but basically, they have options where you can essentially get into a home for zero down.

Now, again, this is for specific homes, and you've got to be able to qualify for it, so that's my disclaimer. But, this is just a good example of how even within the same community, you could have, you know, Lennar and Taylor Morrison competing for the same buyer in very different ways. And that's why I think one of the biggest mistakes buyers can make right now is looking, you know, only at the asking price from all these homes.

So, let's say you're comparing a $680,000 resale home to a $700,000 new build. You know, at first glance, that resale looks cheaper, but if that $700,000 new build comes with a much lower interest rate, money towards closing costs, some type of price adjustment, and maybe a few upgrades already included, man, that number can look way better when you're comparing the actual monthly payment and cash required at closing.

Now, that is the actual comparison I care about. Doesn't automatically mean that the new build is the better deal. You know, I wouldn't buy something just because a builder is dangling this low first-year interest rate in front of you. You know, you still need to make sure that you like the actual house and the community, obviously. And I would also compare things like property taxes, metro district tax, any HOA fees, future development around the neighborhood, and the commute.

All those other things that are very important. Then, you compare that against what you're possibly getting with resale. Maybe the resale option is already landscaped, has a [music] finished basement, it's got your window coverings, fencing, it's got a nice deck on the back. Those are all the things that you might be paying for separately on the new construction side. I don't think the incentive should ever be the reason you buy a house you wouldn't otherwise want necessarily, but what it can do is make a house or [music] community that you thought was outside of your budget worth another look.

And this is also why having us check the current incentives matters, cuz I don't want you watching this 3 weeks from now and assume the exact promotion I mentioned is still available. These deals move too quickly and the advertised incentive isn't always necessarily the best way to structure the deal for every buyer. Somebody putting 40% down may not care as much about 3-2-1 [music] buy down. They might get more value out of negotiating the price or using more of the builder's contribution towards closing [music] costs.

And that is why we really just have to look at your specific situation rather than just chasing the lowest advertised rate. So, if you're thinking about new construction anywhere around Denver, Castle Rock, Parker, Monument, Sterling Ranch, honestly anywhere from Fort Collins all the way down to Colorado Springs, reach out to us before you start going through all the models or calling builders. And if you just go [music] ahead and text us your price point, your location, and overall what your goals are, we'll reach out to builders and we can find out the exact incentives that are going to work for you and then help you compare those options against the resale market.

Because the average rate might be sitting around 7% that doesn't mean that every person buying with us is paying 7%. It's actually very far from that. We literally have clients right now, like I said at the beginning of this video, starting in the 3s. And with builders competing this aggressively for buyers, it is absolutely worth knowing what they can offer before you decide whether new construction or resale makes more sense for you.

If you're considering making a move to Colorado, you can also download our ultimate Colorado relocation guide. And if you want more videos like this breaking down what's actually happening in Denver real estate, don't forget to subscribe. But most importantly, if you're actively looking at new construction, text us, let us know what you're looking for, we'll help you out. >> I like this. >> I mean, that looks like your style, man. >> Like V for Vendetta in this. >> Oh, yeah.

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