Updated 04/04/23 This newsletter is updated as the economy and situations change.
Housing prices just went up a little this past month but are still down 10% – 12% (+/-) from their peak last May depending on the desirability of the home and neighborhood. Escalating interest rates have caused housing payments to rise near 30% (PITI). If interest rates level off so likely will housing prices. A bigger factor to keep an eye on is population growth or decline in the Bay Area affecting supply and demand, hence pricing. Many Baby Boomers are retiring and selling their California homes and relocating out of state. The average person moving into California may have difficulty affording those available homes. This could affect pricing. Time will tell.
In conclusion: *Homes are taking a little longer to sell, the days of bidding wars have passed, buyers are having time to inspect the properties and surprisingly there are still very few homes available-for-sale.
*Nicer homes are selling quicker, but homes with issues are taking longer to sell and are being discounted a little more.
The supply and demand ratio, so far, is not changing. That’s the number of homes actively listed on MLS for sale today (the supply) compared to the number of homes that have sold and closed escrow over the past 30 days (the demand).
I have found the following scenario has always happened and will likely continue.
If # of homes in any given city, currently listed for sale on MLS ≤ the number of homes that sold over the past 2 months, then home prices rise beyond current inflation.
If # of homes in any given city, currently listed for sale on MLS = the number of homes that sold over the past 3 months, then home prices stay roughly with inflation.
If # of homes in any given city, currently listed for sale on MLS ≥ the number of homes that sold over the last 4 months, then home prices will decline compared to current inflation.
It’s like musical chairs. With 10 people and 9 chairs, the demand for a chair is high and people fight for a chair but with 9 people and 10 chairs there is no urgency to get a chair.
Population growth or decline is the long term gold standard for housing demand and pricing. Just as an influx of people will raise prices by creating excess demand on existing housing, an exodus of people will drop home prices by providing a dwindling demand on existing housing. It’s all supply and demand.
*Inflation causes most everything to cost more, including homes. Inflation parallels government borrowing. Lately, the government is borrowing money by the trillions. Some people refer to this as printing money because it adds to the amount of dollars in the world but does not add to the amount of tangible goods. To watch our debt grow in real time, go to this website. https://www.usdebtclock.org It will shock you!
High inflation is bad because it makes your money near worthless but moderate inflation is good. If you own real estate and are leveraged with a mortgage, a percentage of your house will be paid off by inflation. Example: If you buy a $500,000 house with $100,000 down and owe $400,000 you essentially own 20% of your home and the bank owns 80%. If your house doubles in value to $1,000,000 you would still only owe $400,000 which would then only be 40% of the value of your home. You then effectively own 60% of your home and your bank owns only 40%. Inflation paid off 40% of your home for you. That’s real profit. AND… If in years to come, because the dollar is worth less, each dollar you owe should be easier to earn, making your balance easier to pay off! That’s a double win. Example: people who bought their homes 15 or 20 years ago make very small monthly payments by today’s standards.
Questions & Answers
Q Is now a good time to sell?
A Housing prices are down a little and might continue to drop a little more. In my opinion if you plan on selling in the next few years sell now because selling now eliminates the risk of the market turning down even if just a little before you sell. A bird in the hand is worth two in the bush.
Something to remember: if prices are high when you sell, whatever you buy with the money you gain from the sale will be expensive. If prices are low when you sell whatever you buy with the money you gain from the sale will be cheap. Knowing that removes a lot of the perceived risk of buying or selling at the perfect time.
Q Is this a good time to buy?
A It could be if you’re buying a home you really want and plan to stay in it long-term, but the rush is over so take your time and find the perfect home. I love this saying, “You marry the house but you date the interest rate.” It’s a slang meaning you will be in the house for a very long time but rates go up and down. If rates are up you get a discount on the purchase price and when rates go down you refinance. You still have the better price you bought the home at. Some economists think housing prices will decline even more over the next few years. Some say inflation will cause home prices to rise even more. I believe though there could be a small recession in the near future there’s always inflation which inevitably drives prices up over the long haul. If you are thinking of flipping it’s a very risky time to buy but if you plan on staying in your home long term, 10+ years, it’s always a good time to buy even if rates are up. Take advantage of the discounted price and refi when rates drop
Q Should I fix my home up before I sell it?
A Generally yes because most homebuyers today are afraid of projects. Today the typical buyer is a young, well-educated, well-paid professional with little interest in working on a home. They prefer it “Move-in Ready”, but improvements can cost more than they will benefit a sale. Cosmetic work is still considered the best investment when selling a home. Beauty always sells.
Q Is now a good time to buy a multiunit income property?
A Yes! Just be sure the real CAP rate as reflected in the seller’s tax schedule C’s is greater than the current mortgage rates for that property. OR Have a rental property professional such as myself oversee the transaction. (Alex Schauffert – 707 332 8301) Because multi-unit income producing properties are valued on their profitability or CAP rate (click here to see how it’s calculated). Most economists believe we are headed for a slowdown. If this causes homeowners to disproportionally sell their homes they will likely end up as tenants. That will add to the demand of rental property just as it happened in the 2007 recession. Then home prices dropped but rents went up. Add to that inflation, and multi-unit properties can be the investment of the century.
Disclaimer with regards to future predictions: Although this is compiled from my 26+ years’ industry experience, it is my best opinion. Its accuracy can’t be guaranteed as I have not seen your actual deal and should not be entirely relied upon when making financial decisions.
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