Like many people, I have been reading about falling real estate prices across our great nation and especially in California. The idea of falling prices though, seems so foreign given the 2-year super-hot real estate market that ended in June-July 2022, and which came to a screeching halt October 2022 due to the Federal Reserve continuously ratcheting up the federal funds interest rates to combat inflation, which drove mortgage interest rates up to 7.3% that month.
Consensus among economists was that real estate prices would immediately plummet by as much as 20-25% and our economy would dive into recession; all of which sounded very scary…except it didn’t happen.
Prices dipped a little but then held steady largely due to lack of listing inventory. The market action index, which had been as high as 76 in May 2022, demonstrated a super strong seller market. Buyers were bidding up prices over list price by sometimes hundreds of thousands of dollars.
It was a very strong seller market and buyers, while severely disadvantaged, were just happy to get offers accepted even if they paid a lot to get there (we’ll address the fallout of that practice in a later article). Then the interest rates went up aggressively and the runaway train ground to a halt…except it didn’t stay halted.
In February 2023, mortgage interest rates dipped to near 6% (into the 5% range for government guaranteed loans like VA, FHA, USDA) and suddenly the market felt active again with an abundance of transactions…except it didn’t last very long because the mortgage interest rate shot up .5% literally overnight (due to another Fed bump up in the Federal Funds rate) and byers backed away.
Throughout the late 2022-early 2023, real estate turmoil prices held fairly steady although properties stayed on the market weeks and months rather than days as was the case a year earlier. The matter of curtailed inventory contributed to that phenomenon despite the higher cost to borrow money (the Federal Reserve’s intent for raising the Fed Funds rate with resultant effect of higher mortgage interest rates…except that didn’t happen in large mortgage interest rate increases).
The market action index got as low as 30 (30 being described as a neutral market) and hovered there… except it didn’t hover there very long. Over the last several months the market action index has steadily risen and at the most recent weekly marketing meeting attended by the local area’s most active purveyors of real estate (people in the real estate industries), the market activity index was 47.
Also reported at the marketing meeting was that there were just 73 active listings and at least two of them went into contract above list price within several days of coming onto the market. This “quick into contract above list price” phenomenon demonstrates that despite higher interest rates, there are qualified buyers out there who want to purchase real estate. There is demand, and properly priced properties sell.
This enhanced activity level, by the way, isn’t limited to just Fallbrook-Bonsall, it’s being experienced across all areas in North San Diego County defying the headlines that prices will decay by 20-25% in San Diego County.
Some economists also predicted that the country would be in a recession during the second quarter of 2023 (which doesn’t appear to be going to happen), so now they are projecting recession might happen in the second half of 2023 or first quarter of 2024.
To make matters even more confusing, my financial planner, who has a long history in banking, emphatically states that we have already had a recession and he can cite multiple indicators to back up his thesis.
My partner and I went on a listing appointment the other night during which we counseled sellers that the real estate market is a fast-moving train right now, but if the economists, in fact, get it right and we do go into a deep recession, the train might stop.
The takeaway is, if there might be a real estate listing transaction in the future with your name on it, then it might be prudent to make the decision while the train is still on the tracks…or else it might not happen later at current price levels.