It’s not just real estate, it’s prices across all fronts. Have you checked out the price of gasoline lately? In town, there is nothing offered under $5/gallon, and two days ago gasoline at Costco was $4.79/gallon. How about vegetables and produce? Propane, water and electricity?
Due to slower than usual real estate business, we haven’t gone through a lot of printer paper this year. But really, a case of printer/copier paper went from $22 to $36 since the beginning of the year? Woof!
What is impacting prices across the board? We have an extremely tight labor market, which has to impact prices since businesses need to pay more for labor just to keep the doors open. The Temecula Hyundai dealer closed their service department on Sundays and are scheduling service appointments out to September due to a shortage of qualified technicians. Tight labor means increases in prices, regrettably the $7 burger at Harry’s is now history.
The supply chain is affected by the tight labor market AND the high cost of fuel. Our government has decided to move toward green power (electric) but can infrastructure support the change? Can we create enough electricity to abide by the new energy policies mandated by various city, county, state and national governments? The cost to transition to green energy must be passed along to the consumer, even if the consumer didn’t ask for the transition to happen.
As this article addresses real estate, high prices are not just about consumer goods. Per national studies, Case-Shiller reported that prices kept rising in May. Nationally prices rose 0.7% and for the fourth straight month, and are now just 0.9% less than the historic peak of June 2022. In Fallbrook, prices have been rising since March and we are up 4% Year Over Year (YOY).
The Federal Housing Finance Agency reported similar results but from different data. YOY price rise of 0.7%, 2.8% in May and 3% increases year to date.
The National Association of Home Builders Trends Report indicated new buyer interest for new construction was up from 20% to 25%. That isn’t really startling considering how constrained the resale real estate market is (remember the phrase “golden handcuffs” from an earlier article?). People who refinanced into 2-3% mortgages are hostage to their interest rates and are not ready to give them up to buy smaller and more expensive properties at higher interest rates, which keeps inventory constrained. The trend toward new construction is likely because buyers are sick of competing and getting beat out by higher offers (yes, we are still witnessing multiple competing offers above list price despite high mortgage interest rates, the demand is there). So even though new construction is usually higher priced than residential resale there is availability and generally fairly accurate completion schedules, so buyers are heading that direction because they want to share in the American dream of home ownership.
The Federal Reserve still isn’t happy with the rate of inflation and recently raised the Federal Funds rate again (for the 11th time in 16 months) so the cost of credit, and indirectly the cost of mortgage money, will remain high.
Okay Bob, what does all this blather about high prices mean? My tea leaves indicate prices are not going to reduce significantly in real estate, consumer goods, automobiles, travel, food, entertainment or any goods, services or products that are sensitive to labor and/ or fuel-transportation prices.
Specific to real estate, prices are not going to fall off the table. Properly priced properties will continue to sell as evidenced by continuing high demand. The takeaway, if you want to be a homeowner and you can afford the monthly payment, bite the bullet and pull the trigger.
Anticipate some relief in mortgage interest rates in 2024 when you can refinance but by doing so you will have captured a home you can love as your own, build equity and when you do refinance it’ll be like getting a pay raise. Marry the house, date the rate.