Cutting through the noise in the real estate news
The headlines above may be exaggerated, but don’t they hit close to home (no pun intended)?
Consumers are bombarded with confusing messages from the media, Realtors, chat pages, loan officers, and well-meaning family and friends.
“The market is dead”. “People starting out today can’t buy a home”. “It’s a great time to buy!” “Don’t buy now, wait for prices to fall.” “Buy now and refinance later (aka marry the house, date the rate)”. “Rates will drop to the low 5’s in 2023”, “Rates will top out over 11% in 2023” “We’re in for a worse crash that the last one”, “The days of multiple offers are over!”
All of these opinions are just that, opinions. The truth is, that no one knows whether rates will be up or down. No one knows what will happen in the market. We can only deal with what’s happening today.
It is true that sales are down, in some areas by over 30% from a year ago. It is also true that current 30 year fixed rates are about 7%, but what’s happening in the market?
Is the market dead?
Not even close. 1110 people bought homes in Sacramento County last month. That’s down from 1586 a year ago, which is very significant, but despite the gloom and doom and the higher interest rates, 1106 had enough need or faith that they made the decision to buy.
The truth about first-timers
Is it true that first-timers have been priced out of the market? Well in September 45% of sales went to first-time home buyers. That is up from last year, when roughly 1 out of 3 buyers were first-timers. Why is that the case?
I think it’s a combination of things. First, with an average gain of $117,000 in home equity in 2021, and homeowners having nearly 45% home equity nationwide, existing home owners can stay put. Unless they have the pressing need, there’s no need to rush into the market.
Older buyers may hold on to the memories of the market crash, and believing that history is about to repeat itself, may be pulling back from the market.
That leaves less competition among buyers, and the first-timers have a better chance at getting their offers accepted.
Sure, they’d love to buy at lower rates (and prices), but they are moving ahead, dealing with today’s rates and today’s prices in order to finally buy homes of their own.
It IS a great time to buy…. for SOME
If you are considering buying a home, and you have the means, do you believe the article that says rates will be over 11% next year, or do you believe the one that says they will be closer to 5%?
If you’re thinking that 11% is on the way, then the current 7% rates look pretty good. If you think 5% is coming, then 7% looks terrible.
Buyers who purchase homes now are protected from the higher rates, and they could refinance to lower rates if and when they become available. By the way, if rates do come down closer to 5%, that may cause a surge in sales, and prices.
So, for some, it IS a great time to buy.
Is ‘Don’t buy now, wait for prices to fall’ good advice?
It could be. It depends on you’re situation. If you’re paying cash, or putting down a very large down-payment and taking on a small loan, and home ownership is more of a want than a need, you may not be risking much by waiting.
You won’t get the benefits of home ownership while you wait, but you wouldn’t be taking on a lot of risk.
There aren’t many people predicting big price gains for next year.
If you expect double-digit rates next year, and think that would cause prices to fall, you’re probably right, but by how much? For traditional borrowers, it could put homes further out of reach.
Let’s say you buy today, taking out a $500,000 loan at 7% interest. You’ll have a payment of $3327. That same payment would only get you a $350,000 loan, if rates went to 11%.
Are we in for a crash, worse than 2008?
If prices do jump over 11%, that almost certainly would cause prices to fall, but by how much? In 2008, with a glut of unsold homes and rampant mortgage fraud causing millions of foreclosures, we saw an 18% decline.
It’s very unlikely that with homeowner equity, elimination of fraudulent loan practices, and the low rates secured over the past 10 years or so, that we’d a similar scenario.
Are the days of multiple offers over?
So far, no. Of the 1110 homes that sold in Sacramento County in September, 513 (46%) had multiple offers. That’s down from 59% in September 2021, but when homes are priced right for the market and conditions, sellers are getting still getting multiple offers.
The Bottom Line
The bottom line is this; yes, rates are up and sales are down, but there’s no indication whether or when it will get better or worse. If it isn’t the right time for you to buy or sell, wait it out. If you are truly interested right now, you’ll find less competition, and more opportunity.
Meanwhile, take what you read and hear with a grain of salt, and get your advice from experts.
Any questions? Feel free to drop me a line.
Steve Herad – EXP Realty of California, Inc – DRE#01368503 – 916 718 9577 – steve@myfolsom.com
The bottom line is
