What seems like a lifetime ago, I owned a condo in San Rafael and sold it in 2003 when I thought the market had peaked. That was a year before I became a Realtor, and I wasn’t aware of all the subprime and low/no money down loans that were flooding the market. I moved my young family to another condo in Novato and purchased it in 2004 directly from the owner. We sold it at the top of the market in December of 2005 because we knew that time was the peak for our HOA. The person who bought the condo had poor credit and 10% down but she was willing to pay $35,000 over our asking price and we were only $5,000 off the thenhistoric high. Four lenders turned down the buyer, extending the escrow an additional 30 days, before Long Beach Mortgage agreed to underwrite the loan.
I knew our patience would pay off and it turned out to be a great financial move for us. It wasn’t a good move for Long Beach, which was later bought out by Washington Mutual. WAMU infamously was ruined by all the bad paper, which included our buyer’s loan. Three years later the condo sold for 59% less as a short sale, where the bank agreed to take the loss. Condos in that HOA didn’t rebound to that 2005 sale price until 2021, and now prices in that HOA appear to have dropped back to the neighborhood of where we sold.
The old saying in real estate is ‘condos are the first to go down, and the last to go up’. At this point we may have already seen the peak of our market, but what we are unlikely to see moving forward is anything like we saw with the mortgage meltdown and financial crisis that led to our Great Recession. There is no imminent flood of foreclosures on the horizon because almost everyone who currently owns property can afford it. They didn’t buy with the plan of the properties going up $100,000 in a year, then refinancing and taking out equity to pay their mortgages, and needing further appreciation to hold onto their homes.
That doesn’t mean we won’t see the market adjust. Recent dramatic rises in the 30 year mortgage rates have quickly evaporated a once overflowing pool of buyers who were willing to outbid one another. A $500,000 loan at 3% translated to $2,108 monthly payments at the beginning of 2022. Current rates are threatening 6% and that payment would be $2,998. The hard reality that buyers, and possibly sellers, will need to get used to is that those 3% mortgages are gone. Those rates were exceptional and historic. The difference what you can get with a $2,100 payment between buying in January 2022 and July 2022 is $150,000 ($350,000 loan instead of $500,000). This doesn’t mean the market is about to drop $150,000 (or more if rates go up to 7%+), but I do think there will be some adjustments needed in the market. I certainly don’t think the condo market has appreciated by $150,000 in the past six months. Are there enough buyers left in the market to maintain today’s current prices? Will we see more properties come on the market and competition at lower prices among sellers to attract the limited number of buyers? It goes without saying that in the short term I don’t see a significant increase in values.