On my way to the office this morning I thought about the four homes that have sold on my street in Terra Linda. In two of those transactions, I represented the sellers. Sellers are not crying I can tell you that. Sellers have remained in the driver’s seat. Once again, the Marin market defied gravity and logic this year and appreciated even while mortgage interest rates have settled into unattractive highs. What gives?
In the immortal words of James Carville, Bill Clinton’s campaign manager in 1992, “It’s the economy, stupid.” Despite the Federal Reserve raising their benchmark lending rates 11 times in this economic cycle, we haven’t just avoided a hard landing, there’s been no landing at all! There’s no question the increased mortgage rates that have followed have hurt buyers. A $700,000 loan at 3.0% equates to $2,951 payments. That same loan amount at today’s 7.125% interest rate is $4,716! That prices a lot of buyers out of the market as they ride out on river of tears.
HELOC (home equity line of credit) loans are more directly affected by the Feds increases than the 30-year fixed rates. Googling the average HELOC rate today we get a jarring 8.825%! The last time I paid attention to the HELOC rates they were in the 4’s. People with HELOCs are definitely crying right now.
Why haven’t these increased costs effected our housing market? It comes down to the basics: supply and demand. There are still more people looking for houses in Marin, than homes we have on the market. We are seeing some softening on the lower end of the market, in condos and townhouses, which is to be expected. People buying those homes are the least able to afford the rising costs, so they are definitely criers.
Single family homes are another story, as I get back to my own street and the four homes that have recently sold. Two were to retired couples moving to Marin to be closer to their grandchildren. In my experience this is pretty normal for Marin County. Retirees who have done a good job saving and investing, have more money to put into offers with lots of cash, and often all cash. It makes sense that these buyers haven’t been effected by the interest rate increases.
The other two houses on my street were bought by (1) a single young tech professional who makes an obscenely high salary (2) a young family moving up from a condo. Not coincidentally last week I closed escrow on a condo for a buyer, and the sellers were also moving up and buying a single family home. There’s been a lot written about people not being able to afford moving up because mortgage rates and prices have become so unaffordable. All I can say is, Marin County is different than most of the country. There’s simply a lot of people who have a lot of money, and are making a lot of money.
I guess that’s always been the case, and its why housing prices have always risen in the long term. That and the fact that new building has always been suppressed in Marin: there’s always opposition to new developments here. The options for new developments have become increasingly narrow and contested. Combine the limited new housing stock with a low turnover of existing homes (because people love living in Marin so much), and you are inevitably going to have inventory issues. That’s leaves a lot of people crying who can’t afford what little is available in our market.