A couple of questions I get asked nearly every day are “What is going on with mortgage interest rates?” and “Will there be more real estate inventory soon?” So, let’s dive in for a quick overview…
Over the past 6-7 years we have enjoyed historically low interest rates. Many of us have bought or refinanced homes in the 3% range. This rate is now the new “normal” for buyers and sellers. However, this is an artificially low rate. The Feds have been purposefully keeping this rate low to help in the recovery from the 2008 Financial Crisis. They do this with an interest rate subsidy that we eventually pay for through an increasing National Debt.
Now, as the Feds raise the mortgage rates, we in the real estate industry hear the panic of clients fearing the loss of the 3% mortgage interest range. Recently mortgage rates headed up then abruptly backed down, and are now hovering around 4.25-4.4% as of today. However, the mid-4% range is still relatively low.
Did you know, back in the 80’s… when I had “totally rad” (translation: big) hair, interest rates were up to 15-18%? That sounds insane but none-the-less, people still bought and sold their homes. We would never imagine paying those rates today but even those relatively high rates were not a barrier to buying and selling homes.
So, what does this mean for the market? There is no real, concrete correlation between housing prices and interest rates. A “sellers market” will continue as long as inventory is low and competition is high – so, buyers bring your best offers. Additionally, housing prices and interest rates will continue creep up while jobs are strong and new Bay Area tech IPO’s are on the horizon. That said, projections put the cap on the interest rate increase around 5-5.5% by 2020.
There are a few reasons for the decreased inventory we are seeing in the Danville and East Bay area. Currently, the increased mortgage rates or the threat of higher rates in the near future are a factor for some homeowners locked into lower rates which can cause them to be hesitant to sell their home. Potential sellers may be reluctant to incur a higher interest rate on a new home. Additionally, increased property taxes on a new home may cause homeowners to rethink moving and instead consider investing in a remodel, landscaping, improvement or addition. Finally, there are just simply fewer available options to buy if they do sell their current home. Potential sellers may want to wait for more choices to come on the market. You see the “Catch 22” here… fewer homes on the market so, fewer sellers willing to sell… except that this low inventory creates a clear “sellers market” and for sellers, there is no time like the present to take advantage of this opportunity.
As long as inventory is low, housing will be at a premium, there will be competition and prices will go up.
As inventory increases, pricing will flatten out and we might even see a slight reduction in prices as competition decreases a bit and homes are on the market longer.
Take your time to interview Realtors. Find one who is knowledgeable about your area and is in tune with your needs in transitioning from your current home to your next one.
Don’t skip the essential steps in getting your home ready to sell.
You understandably feel pressure to get into something before the rates go any higher. Make sure you are prepared to present your best offer.
Get your loan qualification finalized well ahead of time. Know what you can and can’t afford.
Above all else, make sure you work with a local Realtor who can properly negotiate on your behalf and help you through this complex process. Your agent is going to be a guide over complex hurdles in one of the biggest transactions of your lifetime. Your agent should be well connected and adept at making the process as transparent and efficient as possible. See how Realtors communicate with their clients – does their style work for you? Are they going to be a strong representative in negotiating on your behalf?
It’s always a good time to buy or sell a home if that is the right thing for you and your family at that time. Do you need to down-size, up-size, find the best school zone for your kids, pull out cash or invest for the future? The truth is that the markets are in a constant state of flux. Investing in East Bay real estate is one of the best financial decisions you’ll make in your lifetime. Please don’t hesitate to reach out to me with any questions. When you need a local real estate guide and trusted adviser, I’m here to help.