It wasn’t too long ago that we were looking at multiple offers on million-dollar homes and fights erupting on homes in the affordability range. This was just in March of this year. We are looking at something dramatically different now with interest rates driving the changes. Those million-dollar homes are now sitting on the market longer and we are now seeing price reductions in that price range. While in the affordability range we are seeing the demand get sucked up quickly and houses are coming on the market at a much faster rate.
I will start with the analysis on the upper end of the market, those million dollars plus homes. I now can say without a doubt that the top of the Real Estate Market was March of this year. Since then, interest rates have risen above 5% which alone has slowed the market. In March of this year, you could still get a home loan with an interest rate in the 3’s, and now with rates in the 5’s that has cut the purchasing power of potential home buyers by a lot. What we have seen is that people were qualified back in March for one loan amount and didn’t realize that rates have risen as much as they did and while they were not looking they no longer qualified for the homes that were in their price range. Watching the Multiple Listing Service or MLS we are seeing more properties that were in pending status come back on the market with no fault of the seller but turns out buyers no longer qualify with the higher rates.
In the affordability range (here in California) is between $450,000-$650,000 we have seen more homes hit the market in the last several weeks. As potential home sellers realize that the top of the market has come and gone they are now putting their homes on the market. I believe that potential sellers have waited to market their homes until the top of the market and now that we are there, they are all putting their houses on the market at the same time. This is great news for potential home buyers that have been beaten out of the Real Estate market and decided to sit on the fence until this very thing happens. Demand will quickly be eaten up and inventory will continue to rise. As interest rates continue to rise this will cut a significant amount of potential home buyers from the market. So, if you fall into this price range of home buyer then I believe it won’t be long before we enter a buyer’s market.
As interest rates rise and inventory rises, prices will have to soften a bit to get buyers to buy. In addition to that, those sellers will be making concessions to get potential buyers to buy their home. A sales concession is when a seller pays for pest work to be done, the buyer’s closing costs, and other things to entice a potential home buyer to buy their home. This is what is commonly referred to as a buyer’s market. This will occur once the pent-up demand slows down and interest rates price home buyers from the market. This is not something we like to see; however, I believe this will not cause a manic sell-off as we saw in 2008 through 2011. The reason is simple we don’t have a money crunch like the last Real Estate correction. Money is still available but at a much higher rate and we have relatively full employment, and we are not seeing mass lay-offs as we saw during the recession of 2008-2011. This is not to say that it still can’t happen. The way this would happen is if the Federal Reserve continued to raise Interest Rates past the equilibrium point which is where we could be today.
If you are a home buyer today my advice would be to buy as soon as you can as interest rates will continue to rise. At MAE Capital Mortgage we have a “Lock and Shop” option for home buyers. The “Lock and Shop” is once we have you approved for a loan amount, we can lock in today’s interest rates. The lock period could be up to 180 days to give you the opportunity to look for the right home or if you are having a new home built it will allow time for the build. Doing this will cost you a little more than if you were to have a home a lock your rate for 30-60 days, but in a rising interest rate market, it could save you hundreds on your monthly payment. We are at a rare place in history where the Federal Reserve has already told us that they will have 2-3 more rate changes this year alone. That said the “Lock and Shop” option offered by MAE Capital Mortgage Inc. is an easy choice to do if you are shopping for a home to buy in the next few months.
If you are a Potential seller in this market, know where your house falls in the affordability range. The higher the value of your home the more difficult it is going to be to sell your home. If you are considering selling your home in the next 6 months now should be the time to get your home on the market to get the very best price. My advice would be to talk with a MAE Capital Real Estate Agent about getting your home on the market and devise a strategy with them to get the highest and best price for your home. Here at MAE Capital, we are no strangers to changing Real Estate Markets and how to market to the changes our Agents are seasoned pros and our newer agents have the energy and mentors to get you the very best price for your home. We also have a bundling program that when you list, sell and buy your next home with us and use our mortgage options we will buy your interest rate down so you have a lower than market interest rate thus a lower payment as our realtors will put some commission towards your closing costs on the new loan. This program is great and is not offered by any other Real Estate firm.
If you are considering buying or selling now would be the time to get on it. I can say that next month the Interest rates will be higher, and so will gas prices, and food prices. Inflation is here to stay for a while and the Federal Reserve has said they will be continuing to raise rates, we know that gas prices will continue to rise until we either produce more domestically or cut our demand, which is not possible. We also need to keep a watchful eye over geopolitical events as they could cause even more problems to our economy. We are living in a very unique time with a very unstable economy, high gas prices, high inflation, and a government that wants to spend more money and raise the minimum wage, and raise taxes, all of which will cause even more inflation.