Absolutely kicking buyers in the nuts. Interest rates are now hovering around 7.50 % on the 30 year fixed. Worse if your fico is below 680. On a $650000 dollar purchase with 5% down payment the mortgage payment all in PITI ( principal, interest, taxes, mortgage insurance and fire insurance) the payment is $5400 a month. In early 2022 the same house at 3.50% interest had a payment of $3400 a month. $2000 more a month just because of the rate. And $650,000 is a pos house in SoCal. Nothing special. Now here is the super interesting part, home prices are not dropping. The crash is canceled. Not happening. Why? When rates go up from a low of in the 2's to the highest in a couple of decades in a span of 16 months, we should be seeing a free fall in prices. Why isn't it happening ? Why are prices firming up instead of collapsing?
A few reasons.
#1 low inventory of homes for sale. Just not enough houses for sale to create a balance in supply and demand. Sellers continue to laugh at low ball offers and Buyers continue to pay whatever they have to. Why is inventory low? Well, let's say you refinanced or bought a house in the last few years and got a 2, 3, or even 4% mortgage. Are you going to sell to get a bigger,better house and pay 7.50% on your new house? Fuck no. The increase in the rate alone will decrease your buying power to where you can only buy a house similar to the one you already have. Move up buyers traditionally create inventory. But they are not moving.
#2 a strong job market . No distressed sales to speak of. Another reason people sell is when they lose their job and can no longer afford their house. So they sell before they lose it. Employment is robust. No one is losing their jobs. Mortgage delinquencies are at all time lows.
When interest rates go up, companies experience higher operating costs, so they cut overhead by reducing head count. Also not happening.
#3 Plenty of Buyers that make enough money to qualify for a mortgage loan. No stated income shenanigans. To qualify for a $5400 dollar a month payment you need to gross about $13,000 a month . No problem lots of buyers can do that. Houses aren't getting 50 offers, all above list price, but they are still getting multiple offers and selling within 30 days. By the way, if you are a Seller, NEVER accept an offer before 30 days on the market and at least 3 open house events. No matter what your douchebag realtor tells you.
4) underwriting guidelines remain flexible. Not tight. Debt to Income ratios on an FHA loan go up to 57%. Imagine that. You can get a home loan even with 57% of your GROSS income going to your monthly bills. Excluding food, gas, entertainment, utilities, etc. That's tight.
What can we expect in the short run?
Home Prices aren't dropping. Rates are going to continue to go up as the Fed continues the inflation fight. The Fed has been clear, we need unemployment at 6%, it's now at 3%. Job creation continues to blow out expectations, we need that to stop. Weekly unemployment claims need to get above 300, 000 a week. We are not even close to that now. That gives the Fed plenty of room to continue its all out assault on the economy and raising rates. We need more Californians to move the fuck out and list their house for sale. A lot more. Any volunteers? A sliver of hope is the collapse of the short term rental market. Hopefully plenty of those idiots will list their Airbnb investment house for sale.
Remember in 2013 when I posted that I was going all in on buying SoCal real estate, and recommended everyone do the same? Every fucking penny I had went into buying. But truthfully I never expected it to get as crazy as it is. Good times. Cheers homos.
4.5 weeks until the next FED meeting/announcement on rates. All indicators pointing to another 25 BP increase.
I thought I heard someone mentioning some distress in the Air B&B market? It has to start somewhere. But yeah, I think we should continue to watch the unemployment numbers.
Let's say you have a million dollar home in Cali paid off (paying about $3k a year in property tax). There's little motivation to move cause upgrading also entails having to sign up for $12k and up a year in property taxes alone. Yikes! I'd rather put that money somewhere else.
Some good info thanks. My Daughter has held off on a purchase for the very reasons you pointed out in your first paragraph.
I do like low inventory, strong job market , plenty of buyers and there will be no crash. Of course I'm not looking for a home either.