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It’s no secret that 2023’ was a rough year for folks hoping to join the homeownership ranks.  What with 20+ year high interest rates and a low inventory of homes for sale those shoppers for a home had a tough time of things.  Many just opted out and are waiting for a more favorable market in order to rekindle their search.  The big question is when will a more favorable time come?

We have already seen movement downward in interest rates, solidly into the sixes as of the early part of January.  Needless to say, that is very encouraging, but what about the housing inventory.  In Orange County we are still sitting with an existing housing inventory of about 25% of what is considered a “normal, balanced market” number.  The lack of inventory makes this continue to be a seller’s market and is keeping prices high.  Seller’s have of course been reluctant to offer their homes for sale, especially if they currently have a low interest mortgage and they can’t stomach replacing that mortgage with a higher interest one, sometimes as much as twice the interest rate.  

Conventual wisdom says that as interest rates continue to fall we will see more buyer interest and hopefully the sellers that want to sell or need to sell will put their homes on the market.  One of the big questions is at what interest rate will the market turn.  Many feel that by the late summer we may be seeing interest rates in the lower six percent range and possibly even lower depending on how the inflation shapes up.  There is no doubt that if we see rates in the 5% range that will spark a buying frenzy.  Historically speaking any interest rate in the 5% range is very low.  Sadly, gone are the 3-4% rates that were of course artificially low.  Those sellers and buyers who are holding out for the return of those low rates may have a lifetime of waiting ahead of them.  

It seems to me that Americans love to consume, weather that be buying a new car, a new computer, or a new home and as the old saying goes “if they can they will”.  So that would suggest that there is a pent-up demand for people wanting to buy homes and with lower rates the affordability will of course go up.  Another main issue is what happens to the housing supply?  The housing supply is as important to buyer’s decision to buy as are interest rates.  If a buyer cannot find a home he likes why buy.  

My prediction is that as interest rates come down and hopefully the supply of homes for sale increases we will see a return to the multiple buyer offer craziness that we experienced a few years ago making for yet another level of difficulty for potential buyers but a continued advantage for sellers.  I feel that the seller’s desire to sell will lag behind the buyer’s desire to buy and hence a continued shortage of supply of homes on the market making for ever increasing prices fueled by demand. 

A possible alternative to this situation for buyer’s may be to see if they can find and stretch to afford a home in the very near future as the winter lag in sales have prices at their lowest point for the near future.  If a buyer can afford the current interest rates and he finds a suitable home he should buy it with the idea in mind of refinancing the home as interest rates decline.  There is an adage going around right now for potential home buyers that if you find a home you want to buy, “date the interest rate and marry the home”.  This may be the best suggestion of all.  

Unravel the key to successful homeownership! Understand the influence of interest rates and housing supply. Dive in now!

Voss Real Estate Advisors

January 26, 2024

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