Prices have not been falling as many economists forecasted, but increasingly we are seeing offers come in somewhat less than full price and without the level of competition previously witnessed.
Inventory very gradually has been increasing, but we are not seeing the normal “spring bloom.” For the first time in months, there are more homes available for sale than there are in escrow. Prices, interest rates, inflation, concerns about the economy and, lately, rising unemployment are likely culprits for buyers seemingly pulling back.
The debt ceiling agreement provided some temporary interest rate relief, but they are now back hovering near the 7% mark. By traditional standards, 7% isn’t bad but, for today’s buyers who remember interest rates of 2-3% just 18 months ago, 7% sounds pretty high.
We are entering our busiest season of the year and while we have activity, it’s not anywhere near where it normally is as we enter into the summer months. And Fallbrook isn’t alone. In major metro areas around the country, the reports of limited inventory, price stagnation or even some decline, inflation concerns and high interest rates are endemic across the country with few exceptions.
The median price of a Single Family Residence in Fallbrook as of June 13 is $1,172,000 and that is not what we might consider a luxury home; it’s a 3 BR, 3 BA, 2500 sq ft home. But have prices made the market slow down?
Understandably, yes; coupled with high mortgage interest rates, who can get there? By the way, the monthly payment for the median priced home with 20% down at 7% would be $6,605 which is a big number. Of course, we would anticipate that mortgage interest rates will reduce once inflation has been brought under control, then homeowners will refinance out of their 7% mortgage interest rate.
This brings to mind a saying that gets quoted frequently in our weekly marketing meeting, “marry the home, date the rate.” Buy now what you can afford with the mindset that interest rates will soften in the future which, after refinancing your home loan, it will seem like a pay raise.
To make the point, when I was a young Marine Corps officer, my first permanent duty station was Hawaii. Since we were going to be there three years, I wanted to purchase a home and start the ball rolling towards the American dream. The sale price was a whopping $64,000, a big number in 1977 and I was married with two kids.
We studied the amount we would have to cover and budgeted out everything we could anticipate as monthly expenses. I even rode my bicycle to work to save having to purchase another car. At the end of the analysis, we were going to have something like $38 leftover for entertainment and travel, but we took the plunge because of our belief in home ownership.
As it turned out, we did get a second car (an old island beater which helped keep me dry from bike riding in the rain); we visited each of the other islands; we traveled every year to the mainland to visit family, and while I was doing one of my seven month temporary additional duties to the far east (called unit rotations) my family visited Japan and stayed for four weeks.
When we left Hawaii at the end of that tour, we sold our house for double what we paid for it three years prior and, from those proceeds, we purchased two houses: our first rental house and our primary residence at the next duty station.
The point is that we figured out what we could afford and stuck with the plan (and we still had money to do fun things too) and we made money which became a pattern for the rest of my 30-year Marine Corps career.
When I retired from the Marine Corps, it felt natural to go into real estate as a vocation because real estate was the only investment I had ever made which I hadn’t lost money on.
Now after 20 years in real estate and looking back, I can see that my very first real estate transaction shaped my thinking, which over the years there has been plenty of financial benefit to real estate ownership; plus it’s my second career.
I have been fortunate, but it all started with us figuring out what we could afford, with a little sacrifice. So, is it a good time to invest in real estate? Indications are that prices are not going to drop off, there’s reduced buyer competition, and we have the anticipation of reduced interest rates in time, so being bold, yes, marry the house, but date the rate.