You may be wondering what’s the deal with the Fall housing market? The San Diego market has certainly slowed since the post pandemic insanity and we are in the midst of a home supply crisis. We give you the lowdown.
Economy 101
The recent interest rate increases are impacting the number of homes on the market. Supply is suffering, since 90% of Californians have an interest rate below 5%. They feel stuck and unable to “move up” due to high interest rates, which is preventing them from selling their home. The rates are expected to remain high until one of the following happens: We go into recession, receive a negative job report, or inflation reduces to the fed target. There are currently 65% fewer homes for sale compared to a year ago! For the foreseeable future, we are likely to be stuck in the current cycle, with low inventory preventing prices from dropping.
Seasonality is also putting downward pressure on inventory, since Winter is typically the time of year when inventory drops for non-economic reasons. Families don’t like moving during the school year, and no one likes moving around the holidays.
How Important Are Rates Really?
Here’s a quick example to illustrate the effect of rate increases. This assumes a conventional 30-year mortgage with 20% down:
In this example, home prices are 28% higher, but the monthly payment is double. The other 72% increase in monthly payment is entirely due to the interest rate.
At the current average rate of 7.5% you'll pay a combined $700 per month in principal and interest for every $100,000 you borrow.
Updated Homes Reign Supreme
Homes that are updated and priced correctly are selling well. If you have a dated home and list it for “market price”, please know that you will get lowball offers, and fewer offers. The homes that sell quickly and for the highest price are updated homes with staging. They consistently sell better across all of our micro-markets in San Diego.
Why? Because homes cost twice as much as they did two years ago. At today’s prices, buyers expect beautiful, move-in ready homes. And they have no cash left over to do their own renovation.
A Success Story - Full Renovation in Del Mar
About 8 months ago, this Del Mar Terrace property was snatched up for around $2.5M after being listed for $2.7M. It was straight out of 1983, and was in serious need of a renovation. It sold for 50% less than the average “market” price in the area.
After 7 months of renovations, this luxury designer property is now listed for $4.95M and has had over 50 showings to date. This example is the high end luxury fixer my husband and I have invested in, however, it still does a good job making my point.
Another Success Story - Minimal Listing Prep
In July, we listed a 3 bedroom detached home in Carmel Valley after the seller spent $40K to paint, swap out lighting, add new mulch, and make minor repairs. The client received 12 offers after we listed it for $1.9M, and it sold $120K over asking. This seller asked our advice on where to spend renovation dollars for maximum impact, then moved efficiently to make it happen. I know $40k is not a small amount of money, but the higher selling price made up for it 2-3x over. Additionally, she took advantage of our Compass Concierge program, an interest free loan that can be used on any listing prep whatsoever.
Off Markets
Did you know that this year alone, 25% of our sales have been “off market”? There are many reasons for this, but here is one thing I have found: Sellers that put their homes in Private Exclusive with my brokerage, Compass, end up getting their asking price or more due to the “threat” of going to market and having buyers compete.
So, the value of exclusivity is really what makes this super compelling. For Buyers, they get access to homes that are not “on the market”, since they are private and exclusive to our brokerage. This seems to be a very powerful way to help BOTH sellers and buyers in today’s market.
Buy Down Your Rate
Although it seems like the worst time to buy, if you don’t remember, between 2020 and 2021, home prices went up so quickly because the rates were so low. At some point in the next 12-16 months, rates will go down again, and with that, insane bidding wars and price inflation will ensue.
To help lessen the pain of these high rates, buyers today are requesting sellers pay for what’s called a 2-1 rate buydown. Instead of lowering the listing price, sellers provide a credit to the buyer at close of escrow to help buy down the buyer’s rate. Then, when rates decrease again, the buyer can refinance.
They have a saying about this: Date the rate, marry the house. In other words, rates change, but finding the house you love and want to live in is worth the investment. All of us who have been homeowners know this. A home is an investment but more importantly, it’s your home. Rents go up forever, interest rates go up and down, but locking in a home is the smartest investment you can make in California. Buyers, you can do this, there are deals to be found, you just have to make the first step!
If you have questions on any of this please give us a call or a text. We would LOVE to help.