When it comes to the housing market, the elephant in the room is interest rates.
Interest rates are a function of the real rate (1% base) plus the expected inflation (3%) plus risk factors, credit score adjustments, etc.
Over the last couple of years we have obviously experienced inflation but the equation factors in “expected” inflation and the thinking has been that the recent inflation was temporary and that expected inflation over the next couple of years would be lower, maybe 2% to 3% going forward. This has kept mortgage rates in the 5% to 6% range recently.
Unfortunately over the last month or so, the thinking has changed, and economists are believing that expected inflation over the coming years will remain elevated.
This, among other factors, has recently pushed mortgage rates into the 6% to 8% range and that clearly is starting to have an impact on the housing market. Inventory remains ridiculously low as people don’t want to sell their property and give up their 3% interest rate from a few years back.
Also, homes are becoming less affordable as payments rise with interest rates.
On a 30-year, $800,000 mortgage, the monthly payment at 6% is $4,796 and at 8% it’s $5,870. So we have two competing forces: low inventory keeps home prices higher and rising interest rates pushes prices lower.
The result is that the median home price countywide is flat with some areas experiencing a slight increase and other areas with a light decrease. This condition is also making it difficult for first time buyers to enter the market, growing families to move up to a larger home, and empty nesters to downsize.
Another issue currently at hand is up in Sacramento. ACA 13 is an assembly bill to change the state Constitution.
The California Association of Realtors has been sending out “alerts” to myself and the other Realtors to review ACA 13 and to call their state representative to try and stop it, so I wanted to bring it to your attention. It’s a bill that would weaken the ability of citizens to put certain propositions on the ballot, and make it easier for Sacramento to raise taxes, among other things. The Realtor Association is of the opinion that ACA 13 would eventually lead to a reduction or a complete elimination of the protections of Prop13, the iconic proposition that limits property tax increases in California. Feel free to research ACA 13 yourself.
Over the past 40 years, the courts have slowly eroded Prop 13 and ACA 13 could lead to eliminating Prop 13 altogether. But if property taxes are eventually based on market value and the rate of taxation rises from the current 1% base, the cost of homeownership would greatly rise, forcing many to have to sell. Just something to think about.
If you are contemplating buying or selling in this marketplace, contact me for a no obligation meet-up to discuss your options.
MARKET REPORT (Single Family): College Area (92115): median price up 2% year over year to $965,000 and with 22 homes sold. San Carlos (92119): median price up 11% to $1,112,500 and with only 16 homes sold. Del Cerro/Allied Gardens (92120): median price down 7.7%, year over year to $1,025,000 and with only 13 homes sold. Most homes enter escrow quickly when properly priced.
– Sarah Ward is a REALTOR with Coldwell Banker West. Reach her at: [email protected].
Photo credit: Pixabay.com
