Welcome to Crazy Town. A year ago, if you had told me the current rate for a 30-year mortgage today would be 6.7%, I would have called, “Impossible!” But here we are folks. The Feds are apparently ready to throw the real estate market under the bus to curb inflation. Rates this high drastically reduce a buyer’s spending power which was already stretched, and sellers will just have to have a bit of a reality check as the ridiculously high prices from spring and early summer start to come down. It is still a seller’s market here in San Diego but the days of bidding wars that pushed prices hundreds of thousands above asking are gone.
So, I have a couple of tips. First for sellers: Do not rely on closed comps to determine fair market value for your home. Six months ago, looking at the sold price for homes that had just closed gave one a starting point, knowing that current value would likely be higher. Think about it: A home that closed escrow in September likely went under contract in August and might have actually been on the market for a couple of weeks. In a contracting market the value at that time was likely to have been higher than the value today. Better to look at current active listings, particularly those who have already taken a price reduction. If the home is still on the market and has taken a price reduction we know it is still priced too high.
Second tip is for buyers: Consider a 5 year ARM from a credit union in stead of a 30 year fixed mortgage. I can feel you all shudder at the mere mention of the ARM acronym, but it makes a lot of sense right now. A 5-year ARM will have a lower interest rate and a credit union historically offers the lowest financing fees. Interest rates will come down again once inflation appears to be under control and in any case, interest rates are usually lower in a general election year, so odds are in your favor that two years from now you can re-finance that ARM into a 30-year fixed.
Currently, San Diego sellers are still hoping to get prices from 6 months ago, but buyers can’t afford those prices, so there is a disconnect that is slowing the market here and throughout the country. Nationally, existing home sales in August were off 19.9% compared to a year ago according to the National Association of Realtors.
So my read on all of this: Waiting to sell may mean that you have a bigger pool of buyers (provided interest rates go down), but it is also likely that you will get a lower price. This is still a good time to sell while inventory remains tight. Buyers, sorry. Not a great time to buy but as prices and interest rates start to come down there could be some real opportunities.
As always, please don’t hesitate to call with any real estate questions.
Photo courtesy of Realtor.com