Bidding wars, soaring prices, record low inventory, rising interest rates, record rent increases, inflation, and a war across the Atlantic . . . as a buyer, how do you navigate the market this Spring? Is it a hurry up and buy a home or wait?
We all wish we had the magical answer for this, but no one has a crystal ball. Ultimately, you have to do what you are most comfortable given your financial situation, what your needs are, and your core beliefs.
I am here to state the facts to assist in your decision making:
- Interest rates are rising which mean you won’t be able to purchase as much home – The Fed recently raised interest rates and the 30 year has now topped 4% with additional interest rate hikes planned throughout the rest of the year to help tame the inflationary environement. As interest rates rise, buyers cannot afford as much house, so inevitably, competition will be driven into lower price points for those looking to purchase.
- Bidding wars were worse in January and February then during the entire pandemic … we should see improvement in the coming months – Homes in South Orange County sold often for over $100,000 over listing price and my clients were seeing 20, 30 or even 40 offers on many homes. As more people get priced out or have to shop in lower price points due to rising interest rates, competition will decrease. Some people may just give up all together.
- Inventory is at record lows driving competition and supporting higher prices – people are staying put longer or refinanced at 3% or sub-3% rates during the pandemic, so only the necessity to move or desire to cash out on the equity gained over the past couple of years is driving new listings.
- Home builders are having a hard time bringing product to market on-time, exaherbating the inventory crisis – shortage of labor and supply chain challenges are delaying new homes and much needed inventory to the market. Major developments such as the Great Park in Irvine, Rienda in Rancho Mission Viejo, Baker Ranch in Lake Forest, and Tustin Legacy are all seeing delays. Couple that with registratons for new homes maxed out, good luck getting in if you are not already on the waiting list.
- Real estate is one of the best hedges against inflation – Rents have risen anywhere from 15-25%, whereas a mortgage is a guaranteed fixed monthly payment. As wages rise, people can afford more home, so this also drives home prices up.
- Economists are predicitng the housing shortage to continue through 2022 and 2023 – The nation is in a housing shortage. Baby boomers are aging in place longer, melinnials are in their priming buying years
- Winning in today’s market requires grit, patience, extra cash, and removal of contingencies – If you want to purchase in the current market, you need to come in with a fully underwritten pre-approval (ideally to remove the loan contingency and function like an all cash offer), no appraisal contingency (you fill the difference between appraised value and purchase price with cash), and a very short inspection period. If you need to sell before you buy, that contingency most likely won’t work. You need to obtain bridge financing or use another solution to buy before you sell, which we can discuss.
Is there an end in sight?
Prices can’t keep running up at this rate. Until inventory picks up to a balanced market of 3-6 months of supply, record prices will continue to be supported, albeit at smaller increases as rising rates will drive the supply and demand problem. The question becomes at what point do prices, interest rates, and inventory converge?
If you would like to discuss your financinal situation and plan for the purchase or sell of your home, let’s connect. I’m here to provide clear and transparent advice to assist in the choice that is ultimately yours.
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