Cash has always been king, or queen depending on the buyer. As of 10/9/23, the national average of 30 year fixed mortgage rates is an alarming 7.93%! That means that there are people currently being quoted both below, and ABOVE 8%! The 10/9/23 average rate is .19% higher than last week, and I can confidently say all stakeholders in the housing sector can’t wait until this trend starts to reverse. We might be waiting a while, or Fed speak rates could stay, 'higher for longer'.
These rate increases have been hitting home buyers hard. According to Axios we could see 8% rates soon. News flash, we are already there! Just ask anyone trying to get a loan who has less than perfect credit, or people buying second homes. We all know the Federal Reserve has been trying to slow the economy, and this will definitely do it. The resale housing market is a major force in the economy, and when the wind comes out of these sails, everybody feels it.
What do I expect this fall and winter?
1) Fewer buyers in the market. As rates have risen more buyers have been taking sideline seats, and the ones that have remained have adjusted their price expectations on what they can afford. It’s been a very bitter pill.
2) Lower sales volume. Only sellers who are truly motivated will put their homes on the market. This will at least keep the market somewhat in balance, although we are vulnerable to price declines in this economic climate. With many home buyers have large amounts of cash to invest, Marin is more insulated from declines than other areas of the county.
3) Buyers becoming acclimated to higher rates by the spring. Every year without fail we see a fresh crop of home buyers. 2024 should be no different. If rates can fall back into the low 7’s or even the mid 6’s, the market will be firing on all cylinders come March and April. 8% rates won’t go over so well as the weather warms, but buyers should be used to the rates by then.
4) If you are a home buyer with cash, you are holding all the cards.
The Final Word:
Pandemic interest rates were too low when they were under 3%. In retrospect, those rates remind me of the run up to the mortgage meltdown, when anyone with a pulse could get a loan for any amount just by signing inflated mortgage applications. When people had to legitimately start qualifying for loans, there were less buyers in the market. We also saw a lot of distressed homes drive prices down, and fortunately we aren’t in that situation now. But interest rates have gone up to where less people can afford to buy at these price levels. Predictably, we are again seeing the market slow. In the absence of foreclosures, we should be okay, but the market has definitely cooled down this fall.