Real Estate Round-Up: Lighting in a Bottle- Take 2

I published a similar article to this one a few weeks ago. After receiving interesting questions and comments, I decided to elaborate.

You’re probably thinking that I’m fresh out of ideas and, with the long holiday weekend, wanted to find an easy way to be in print this week. I can assure you, I am never out of information to share, and the holiday comes after my deadline.

Why then am I writing on this topic again? I want to make sure you understand the urgency at hand.

Right now, we’re in a perfect storm for real estate. The 30-year fixed-rate mortgage fell to 3.60% from 3.75%. The interest rates for a mortgage are now hovering around a full percentage point lower than they were a year ago, making it less expensive and more attractive to borrow for a similarly priced home. This is great news if you are a buyer or seller.

Buyers make a purchase based on payment. Often, buyers are approved for a higher monthly payment than they are comfortable paying. When interest rates drop, a buyers’ buying power increases. The opposite occurs if interest rates rise, even if prices drop.

Let me give you an example. If a buyer purchases a home for $650,000 and puts 20% down, and the interest rate is 3.6%, amortized over 30 years, the principle and interest payment would be $2,364. If that same home dropped in price by 5% to $617,500 but the interest rate rose to 3.85%, the principle and interest payment would be $2,316.

That same home with a 10% drop in price to $585,000 with an interest rate increase to 4.2% would produce a principle and interest payment of $2,289.

Year over year, Fallbrook had a price reduction of 3% and over the same time period, interest rates dropped 1%. It is reasonable to surmise that the scenario I provided could become a reality by this time next year.

If you’re a buyer sitting in the wings waiting for the big drop, I think you will be disappointed, because financially not much will have changed in the overall purchasing power you have, but that home you’re holding out on, will probably be sold to a buyer that understands their buying power today versus waiting.

Sellers, on the other hand, have already seen price decreases over the past year; 38% of all homes sold in California over the past 12 months had a price reduction, before receiving an accepted offer.

Moving into late 2019 and into 2020, the National Association of Realtors and the California Association of Realtors, Chief Economists both expect prices to mirror that previous 12 months, until the third quarter of 2020, when an adjustment is expected.

So, if selling is in your plans in the next few years, it would seem to make sense to do it during this somewhat stable period. Prices are still strong and interest rates are low, which means that a larger pool of buyers can afford to purchase your home. Seems like a good time to catch lighting in a bottle, right?

One more component to consider is that, currently, the daily yield for both the 2-year Treasury note and the 10-year Treasury note are only .03% apart. As recently as Aug. 1, they were .27 points apart. The 2-year note has dropped .2%, while the 10-year notes has dropped .4%.

I’m not an economist, but I’m sure that many of you reading this understand that this lack of disparity between a 2-year note and a 10-year note is not a harbinger of good news. Since 2011 the U.S. economy has been experiencing a historically long and steady growth cycle. All up cycles eventually lead to a down cycle. Economists believe the timing of this recession will be late 2020 and last for approximately 18-24 months.

I’m not spelling doom and gloom. I believe I’m sounding the alarm, to get off the fence and get into the game. If you are a buyer who is reading this, now’s a great time to take advantage of low interest rates and reasonably priced properties. You could wait until the end of 2020, but interest rates will not stay this low forever, so even a 10% drop in prices will easily be absorbed by a .6% increase in interest rates.

If you are a seller, put your best foot forward, price your home correctly and take advantage of stable prices and the larger buyer pool available to you. In the hands of an experienced, knowledgeable, professional Realtor, you will be able to maximize your selling price.

If you’re a homeowner and are planning on selling, now is the time. If you think you have the luxury of waiting it out, remember 2008. If the economists are correct, and if we have additional price adjustments, we are potentially looking at a drop in price and an increase in interest rates.

The housing market peak was the second quarter of 2018. The adjustment in pricing has started. By lowering the interest rate, Federal Reserve is attempting to prop the economy up. At Murphy and Murphy, we believe there is an eight-month window of opportunity to maximize your equity. Learn from history. Take advantage of lower interest rates and serious buyers. Murphy and Murphy Southern California Realty is here to help you navigate your best decision.

Kim Murphy can be reached at [email protected] or (760) 415-9292 or at 130 N Main Avenue, in Fallbrook. Her broker license is #01229921, and she is on the board of directors for the California Association of Realtors.