Seems its been 6 months since I did a market update on my Blog. To start this year I was super busy and slammed. I had 13 deals in escrow at one time and that was a little stressful as I do my own files. I'm still going strong with 5 in escrow now; however, I sense things are going to hit the brakes.
Interest rates are on the move and not likely to slow down. Our gov spending over the Covid crisis was inevitable to come back to bite us. There is absolutely a cost when you print too much money! My first econ class was all about supply and demand. Fairly easy concept... The problem in lies "power". The Dems and Reps have lost their way on working together. The result is the American people getting screwed over. I'm not saying there are simple answers to the problems we face but it truly feels they are making things worse on purpose. These rate hikes are necessary to gain some control over inflation. At what rate will things calm down? 7%, 9%. My folks talk about the time when rates got up to 20% in the early 80's, a bit before my time but that is hard to comprehend with todays prices. Sure they were 20%, but houses were around $100K. A million dollar house at 20% rate would be insane. A viable change they could do is to remove the cap of 10K property tax deduction. I'm not a wealthy person and pay more than 10K in property taxes every year. That should be deductible on your federal taxes!
In regards to the real estate market, we've seen 10 years of strong appreciation. I think we all know this ride would come to an end at some point. A correction is required and I think we've come to the affordability ceiling. 30 year conv rates are at 5.75 right now. We're going to 6's soon. At the end of the day can only pay so much on the mortgage every month. There's only 2 factors in the house payment, principle and rate. One has to give and we know rates are going up. Along with rates going up, the cost of everything else is too. Energy costs are directly linked to the cost of goods. With the trajectory we're on I foresee prices coming down around 10% by the end of the year. It's more of a correction that we've been expecting. To make a prediction though is laughable right now. We have way too many variables to consider. The focus for our economy as a whole should be on oil prices. We need to get a lock down on oil prices. We're exporting oil now to make more money. There is greed in the oil business and Biden is exacerbating the problem with cancelling XL pipeline and disallowing drilling/fracking permits. Trump called it! If Biden gets in office gas prices are going to be 6-7-8 bucks a gallon. Gas prices would have jumped on Trump too, but likely around 4-5 bucks. His better energy policies would help but gas prices aren't that simple. Russia is playing a roll, no question.
Feels like I'm rambling here a bit. I'll try to stay on topic. It's tough because the politics are bleeding into everything now a days.
The folks out there that are locked in with a good rate in the 2's and 3's are likely to want to sit tight and not move. Why would they? I'm one of them and we're locked in at 1.99%. It's like free money. I don't want to give that up and get 6% on another house now.
In the last 4-6 weeks, we've seen a shift in the market. In the beginning of this year I sold 11 houses in Roseville, all were cash deal. I had trouble getting those deal together. Even though we we writing strong over asking cash offers, we were still getting beat out on homes. It was insane! A month ago I put a nice single story on the market in Orangevale and I only got 1 CalHafa offer. For those who don't know what that is, it's a first time buyer with no money. They needed 20K seller credit to pay for their closing costs. I'd say that's a shift in the demand. I have other clients (sellers) who missed the window by a week or two. They ended up pulling the house off the market and renting because it's not selling.
The honey holes are drying up. A lot of people did well in the stock market and were able to pull money for a down payment to buy a house. With the stock market tumbling and peoples 401K's dwindling I think we're heading for a recession. I'm sure they will announce in the beginning of July, it's official, we're in a recession.
My advise is to stack chips folks and rain in on spending. We might be in for a bumpy ride. Look to keep your monthly costs were you can manage. If you over extend yourself right now I think you'll be sorry.
For having the best year in real estate with 6 months left to go, I know this seems gloomy. I'm certainly not the only one thinking things are going to get worse. To what extent, we'll soon find out.
