This Months Normal: Real estate markets throughout California, and the country are normalizing. What we see on the news and other media and other non-real estate market sources do, is compare what is currently going on in the market with the last two years of 2020 and 2021. The pandemic years were an anomaly and many buyers were buying homes to use as offices or upgrading their current home to have an office. That drove selling prices through the real estate roof and had buyers lose out on properties they put offers on.
How We Should View the Market: Comparing long-term appreciation rates on the value of your home, more than a few years are more normal to look at instead of comparing the market to the pandemic years. Real estate throughout the years has showed that it is a good investment especially if plan on living in it for 5 years or more. Many buyers are currently priced out because of the higher interest rates, they have lost buying power (for example they were looking at a $500,000 home in February 2022 but now can only afford a $400,000 home).
Don’t Delay in Buying (if you can): Some buyers may try to time the market and wait for prices to soften, even fall. The price of a home is of course, important to consider when buying it, but interest rates should be just as important when using a home loan. Mortgage rates are near their highest level in almost 14 years and will likely climb further as inflation remains elevated. The average 30-year fixed rate mortgage today is 6.66% and can go to 7.5% by mid-2023, according to forecasts. That 6.6% is more than double what it was a year ago which was 2.99%.
So even if you can time the market you can still end up paying more each month. With prices not expected to drop low enough, especially here in the San Francisco Bay Area, to offset a higher interest rate, it may not be a good idea to wait until next year to find that right property. If you are financially ready to buy and can afford it, data-speaking, it’s worth doing so.
The Inventory: Although inventory (properties for sale) may not go up dramatically, you have plenty of properties to choose from, with less competition from other buyers and investors. Many buyers are choosing move-in ready homes with flexible floorplans which can be used for office space, guest rooms and especially love outdoor living areas. Accessory dwelling units or ADU’s are also very attractive since they can be used as an office away from the main house or used for additional income to pay the mortgage payment.
What Other Choices You Have to Buy: Some buyers are choosing adjustable-rate mortgages which can be a percentage point lower than the 30 year fixed. The share of these ARM rates are 11.8% of mortgage applications last week, up from 3% earlier this year. Expanding your search criteria further away from city centers are another option where it may be more affordable. Can you ask the Seller to pay for closing costs? What other reductions in asking price can be had? Are there other costs the Seller is willing to negotiate to pay?
