It’s no secret that inventory and as a result sales volume was low throughout the first half of 2023. While 30-year fixed mortgage interest rates remained elevated, and in the last week of June breached 7%, that didn’t stop buyers from previewing houses and writing offers. Basically, anytime a house came onto the market and was reasonably priced it attracted one or more offers and overbidding situations.
Over the winter the theory was that people were going to get used to the higher interest rates and adjust their purchase expectations. That’s exactly what happened. While we did lose some buyers to the higher interest rates, there was still a sufficient pool of buyers to support price levels in our market with limited housing inventory. There was also a school of thought that interest rates were going to drop into the mid 5’s or even the 4’s, and that’s not what has happened.
Back when the weather was cold and Northern California was being pounded by a relentless stream of atmospheric rivers, there was a belief in the mortgage banking community that the interest rates would start coming down by May as inflation subsided. Historically inflation and mortgage interest rates move together, and even though inflation is now half of what it was at its peak, interest rates are pushing new heights. If inflation continues to decline, mortgage interest rates should follow.
Limited inventory doesn’t completely explain the resilience of our Marin market. One of the biggest factors is how much cash people are putting down with their purchases. Exotic mortgage products like no/low money down and no document loans brought about the mortgage meltdown and Great Recession in the late 2000’s. In the 2020’s we don’t have that same dynamic threatening our market with buyers who have no equity or are immediately underwater after closing escrow. It’s not unusual to see buyers putting 30-50% down with their offers, and I’m selling homes to plenty of all cash buyers. This is why the effect of the higher interest rates has been muted in the Marin market.
Limited inventory is both the problem (for buyers) and solution (for sellers) in our market. If we had a lot more inventory there would be a chance that we would see adjustments in pricing. The lack of inventory is keeping our market pricing in a solid place. The inventory issue does not look like it’s going to get better anytime soon. Because we have so many homeowners now who have great interest rates in the mid 2% and 3% range, there is little to no incentive to sell. Why buy up, or down, if your interest rate is going to double? Most of the sales I do these days are for trustees when someone has passed away.
Those buyers who are sitting on the fence, waiting for prices to come down remind me of the Samuel Beckett play, Waiting for Godot. At some point we will see some adjustments in the market pricing. However, the odds are good that the next market adjustment will be more in the upward direction than downward when interest rates come down and we see more buyers in the market. At the mid-point in 2023, if you are waiting for the housing market prices to come down, you might as well be waiting for Godot. Maybe in 2024 Godot will make an appearance. Or 2025. Or not.