Today in the news there is constant babble about what is going on with regard to mortgage interest rates and their effect on the home selling market in California. While every potential buyer and seller is anxiously awaiting the hoped for decline in the federal funds rate that will lead to a reduction in mortgage rates the residential home selling market continues on. The interest rates that are currently fluctuating around 7% for a 30 year fixed mortgage have definitely taken some buyers out of the market due to the lack of affordability for their monthly mortgage payments. This has also taken sellers out of the market as well. Many current homeowners have refinanced over the years to take advantage of the lower interest rates that were offered and are reluctant to sell now as a replacement home will probably have a much higher interest rate that could make that move unaffordable to them. That issue is reflected in the lack of homes offered for sale today.
The lack of homes for sale today is the biggest driver of high home prices, simple supply and demand, with the demand outpacing the supply. We continue to see home prices rise at about an annual rate of 6%, greatly depending on the location of the property but rising just about everywhere. Despite the high prices of homes the market is still brisk for selling homes that are properly priced and reasonably marketed. The average market time for a home to sell today is around 30-60 days.
We do see an increase in inventory today over what was on the market a year ago but the supply is still not enough to create a balanced market between buyers and sellers. Sellers still seem to have the advantage in the today’s market.
It seems like everyday were hear that there will be a decision to lower the Federal funds rate coming in the future, be it in 2 months or 9 months and of course we all hope for at least two rate cuts before the end of this year. When they come my feeling is that they will be smaller in size, maybe a quarter of a point but that will be symbolic to many buyers and sellers that more rate reductions will be coming. If we can see interest rates solidly below 7% by the end of this year the market will continue to stay strong. If interest rates come down to the 6% to 6.5% range the market will be very strong as that could entice more current homeowners to sell and create more inventory for buyers. Should interest rates fall below 6% the market will be on fire with activity and as a result there will be a strong push to drive prices upwards.
The buyers that are actively in the market today are sensing this sort of a future trend and are doing whatever they can to find a home today, even with the higher interest rates, keeping in mind that if they can get in today they can always re-finance in the future at a lower interest rate. Many are taking out adjustable rate mortgages with a fixed rate for between 5-10 years so they can get in today at a lower rate, and probably a lower home price, than the 7% current 30 year fixed rate. With that refinance idea front of mind when the time comes. The best adage I have recently heard is “Marry the house, date the interest rate”. Makes sense to me!
Mike can be reached at Mike Mullen mmullen@surterreproperties.com 949-285-6906