This Sunday is Easter, and I’m sure I’m not the only person feeling it’s a bit too early in April for this holy weekend. It doesn’t matter when it happens in April, Easter has had special meaning for me since even before I met my wife on Easter Sunday WAY back in 1994. For a while now it seems I have typically held open houses on Easter, but I’ve only actually sold one house on Easter in 19 years of real estate sales. This year even though I have my family home at 19 Tanfield Rd in Tiburon on the market I won’t be holding it open. Instead, we are plan on having what should be our last family gathering at the house.
What can we expect after Easter 2023, and what is different this year? Easter, and Tax Day (4/15), most often represent a watershed moment in the market, when the spring season is officially ‘on’. We see more buyers entering the market because after Tax Day they have a clearer understanding of their financial picture and capabilities. While I am expecting more activity this year, there is a dark cloud that’s recently developed over the market.
With OPEC announcing their intention to cut production this year, the inflationary fires will be stoked. The cost of goods throughout the economy will go up, because gas prices effect everyone’s bottom line. As inflation goes, so do our 30-year fixed mortgage rates. Mortgage brokers had been expecting inflation to keep declining this year, and interest rates to settle in the mid 5’s. Rates have been hovering around 6 recently, they are down from nearly 7%, and we can’t expect that to last. The momentum is likely to switch back to the wrong direction in the coming months.
Every time the interest rates go up a quarter point, we see buyers getting priced out of the market. The higher the rates, the fewer number of buyers. Higher rates have the potential to really put a damper on sales this year for those buyers who need to get loans. There are still all cash buyers out there, and buyers who just need small loans. Those are the ‘cash is king’ buyers who have the most leverage in a market with rising interest rates where it becomes more difficult to qualify for a dream home.
The good news for sellers is that inventories remain low. Part of that is because many would be sellers have loans in the low 3’s or even less, and they loath the thought of getting a new loan at 6% or higher when buying up. So many will just stay put. A 30 year fixed mortgage at 6% on an $800,000 loan translates into $4796 monthly payments. The same loan last spring at 3% was $3373. Take those numbers in for a moment. That’s a 42% increase! This hard economic fact has taken a lot of potential buyers and sellers out of the market.
There is also a perception among some sellers that this isn’t the best year to sell. This line of thinking ironically makes selling conditions better, because we are liable to see less inventory from those uninspired homeowners. As long as inventories stay low, our market will be fine. Fewer buyers and fewer sellers keeps the market on an even keel. If we start seeing houses sitting on the market and inventory accumulating, the market could change in the second half of the year.