What, if anything, is going to give?

The Housing market has seen remarkable movement in the last year, and today's news that May saw the first pending home sales increase in 6 mo is just another indicator that many are trying to interpret. Here's my take on the current market and the near term future:

Many are reeling at home mortgage interest rate increases that have doubled from 3% to 6% in roughly one year. This, paired with rising prices have been a one-two punch for buyers as homes they could afford just a few months ago are now out of reach. This is a tough pill to swallow, of course. However, unless we see significant increases in inventory, or the chilling factor of the rising interest rates drives truly huge numbers of buyers from the market, we're still moving toward a more balanced market, not a down-market or buyers market.

The fact of the matter is that a 6% mortgage rate, historically speaking, is still pretty darn good. We heard rumblings at 4%, then 5%, and it continues. As they have done in the past, people will acclimate, adjust, and persevere. The market will continue in it's new reality.

The pairing of these interest rates with current values is where it gets interesting though. The Fed rate looks to keep up with aggressive rate increases for the near future to curb inflation. We're already seeing a shifting in the market and a cooling of the feeding frenzies that have been the normal opening weekends for a new listing for the last couple of years. It remains to be seen where that curbing of growth and slowing of the market may actually result in a decrease in prices, but we're not there yet.

If we have a recession, will that drive prices down? Historically speaking, probably not. Out of the last 5 recessions (1980, 1981, 1990, 2001, 2008), home prices only went down twice, and the decrease in 1990 was only between 1% and 2%, depending on whose numbers you're using. The notable exception, of course is 2008, where prices dropped dramatically. However, with much stricter lending practices and sellers sitting on huge amounts of equity gained since that drop, there is little to suggest that scenario repeating.

So what to do?

If you're a seller, particularly one with investment properties that have been held for some time (you've seen most of the tax benefits of depreciation), now may well be the best time to sell for the foreseeable future. Interest rates are likely as good as they're going to be for a while, meaning the largest available buyer pool and still-sky-high prices.

If you're a buyer, it's a time to adjust. 6% is a lot more than 3%, but as the old adage goes; "The best time to plant a tree was 20 years ago, the next best is today". Speak with your Realtor® to find out where your budget meets opportunity that's interesting to you and start from there. When you start to get heartburn looking at the numbers, remind yourself that homebuyers in the early '80's we're facing rates of up to 18%. You know what happened to the people who bought homes then and held onto them? Yep, they're sitting pretty.

It's also worth noting that real estate is an excellent curb against inflation. We'll get into that another time.

It's like Will Rogers said, "Don't wait to buy real estate, buy real estate and wait".

~John Collins

John Collins has been a full time agent based in the Pacific Beach neighborhood of San Diego, California since 2013. Working with both sellers and buyers of residential real estate all over San Diego County but focused largely on the neighborhoods of Pacific Beach, Mission Beach, Bay Park, Bay Ho, Point Loma, Clairemont, Downtown San Diego, and throughout North County San Diego, John Collins has a reputation for excellent customer service and outstanding results.

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Sources:

Cover Photo by Jessica Tan on Unsplash ~ USCD, Gillman Drive

Inman Real Estate Brief: Pending Home Sales Climb After 6 Months of Declines

Curbed.com - How a Recession Could Impact the Housing Market

Homelight.com - What Happened to Housing in Previous Recessions? A Rundown