The tug of war continues in this unstable real estate market.

Inflation is pushing the price of nearly everything higher, including home prices, but rising interest rates are causing a strong headwind pushing back.

Mortgage rates are market driven, not controlled by The Fed and closely follow the U.S. 10-year treasury bond, which has steadily increased higher straight through the summer, continued rising in September and now two weeks into October, has risen even further. The Freddie Mac Average 30-year fixed rate just hit 7.5% for well qualified borrowers. For other borrowers, putting less down, with lower credit scores, purchasing investment property, or using nonconforming loans, rates are closer to 8%.

The primary difficulty with rising rates is that buyer’s affordability immediately drops. Conventional homebuyers, especially those who stretch to make a down payment to maximize home value for payment, are in an increasingly tight bind. Every notch up in the interest rate means these buyers can afford less, causing buyers to drop out of the market. Now we are seeing inventory increase.

Higher rates equal more inventory, and if rates remain near 8% or higher, expect to see inventory rise in 2024. But unlike 2008 and 2009, there is not a flood of sellers, as homeowners are now loaded up on equity and often sitting on a 3% mortgage. Fewer sellers see any upside of listing now, resulting in both homebuyers and home sellers waiting on the sidelines.

Over the last month, more homes than usual dropped out of escrow as buyers ran into trouble closing their loan or simply got scared off. More listings are coming off the market as well.

Listing withdrawals often increase in the fourth quarter seasonally as the holidays approach with many of these same homes getting relisted early the next year.

We are seeing that now, as some sellers are throwing in the towel for a few months hoping rates decrease during the holidays. But looking at the late 1970’s, that inflation storm lasted nearly ten years. Inflation is a wildfire that is difficult to extinguish and the continuing $2 trillion in annual government deficits is fuel for the fire. Expect inflation to continue as the dollar weakens.

Price reductions are increasing. There are currently 38% of homes on the market that have taken home-price cuts from the original list price. That is greatly elevated from just a couple years ago. Mortgage rates over the last year and a half have increased a jaw dropping 4.5%.

Now we are watching the slow motion effects of that with buyers shying away, sellers dropping prices, and inventory slowly increasing.

If you need to sell your property, call me for a no obligation chat or meet-up. There are certain actions I can guide you with to help sell your property faster including appropriate pricing and improvements.

MARKET REPORT (Single Family): College Area (92115): median price up 17.5% year over year to $900,000 and with only 19 homes sold (very low!). San Carlos (92119): median price up 15.8% to $1,100,000 and with only 14 homes sold. Del Cerro/Allied Gardens (92120): median price up 6%, year over year to $1,125,000 and with only 16 homes sold.

– Sarah Ward is a REALTOR with Coldwell Banker West. Reach her at: sarah@sarahdoesrealestate.com.

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