A Letter From Your Agent
Is now a good time to buy a house? If I had a dollar for every time I got asked this question in my 30-year career, I would be rich enough to buy all my client’s a house! This is the most common question Real Estate agents get. However, while a market is in the middle of changing and the global economy is chaotic, this question requires a deeper explanation than just a simple “yes.” So let’s dive in!
Earlier this year, we were still in a hot seller’s market. As I have explained in past newsletters, a “seller’s market” means insufficient inventory to supply the number of buyers, thereby giving the seller more negotiating power than the buyer. In the last two years, we saw record low interest rates a which encouraged more buyers to jump into the market and purchase anything available at whatever price the sellers wanted. It was causing one of the craziest “Seller markets” we have ever seen as it was combined with record-low inventory. However, since we had a minimum of 10 offers per listing, buyers who put down less than 20-25% were passed over repeatedly, and their dreams of purchasing a home seemed almost impossible.
Fast forward to the present day, when everything has changed. We have interest rates back to 6-7%, still lower inventory, but fewer buyers due to affordability hindrances. Today, buyers have more than 5 minutes to view a property and can take a moment to analyze if the home meets their criteria. Generally, this would indicate that we are in a “normal market” now. However, I do want to add that in some neighborhoods, we still see a “seller’s market,” just not the crazy overbidding we saw four months ago. The challenge buyers are facing today is the rising interest rates. Unfortunately, as interest rates go up, the prices of homes do not come down proportionately. This means buyers’ monthly payments are still higher for the same house, even at the lower purchase price. Since January, we have seen interest rates double, yet home prices have only dropped 15% from their record highs. Even if a buyer bought at the height of the market (Spring 2022), their monthly payments are higher today with the higher interest rates. There are no signs that interest rates will be coming down anytime soon, and we need to consider they are here to stay for at least a few years. Traditionally interest rates are between 5-7%, so the days when we saw them under 3% really was a unique opportunity. With the new normal being higher interest rates, buyers will have to spend more of their income on homes and may have to settle for a smaller house or move to neighborhoods they never considered before.
The next question I could retire on would be, “is the market going to crash?” This question is usually followed up with comparisons to the 2007/2008 recession. To understand why this market is nothing like the crash we saw just 15 years ago, we need to understand what led to The Great Recession. Back then, most people had a variable rate loan and used stated income or negative amortization loans to qualify for a home purchase. If you saw the movie, “The Big Short,” you saw people getting loans under their dogs’ names. To say the system was broken would be an understatement of the century. Buyers could literally make up their income to “qualify” for their loans. They also had a teaser rate, a fixed rate for a set amount of years, which was half their normal payment. The problem was once that specified time frame ended, buyers’ rates doubled, tripled, or even quadrupled. They could no longer afford the payments on that home, and more often than not, they lost the house. As a result, we saw the market flood with inventory causing the market to “crash.” Today, income is verified, and most Americans can afford their payments. Additionally, most homeowners refinanced and locked in low interest rates, which will allow them to stay in their homes during any recession. This will create incredible stability in the market and continue to keep inventory low.
Long story short, we will not see the same “crash” we saw back in 2008. Buyers who are waiting for a crash are going to be highly disappointed in this new market. We expect a correction, not the “crash” that the media is reporting. Prices of a home are based on supply and demand. Southern California still has a shortage of homes, especially in neighborhoods with desirable school districts, lower crime rates, and fewer homeless people on the streets. If you wait for the market to crash, you will miss out on this market. And could end up paying more as interest rates go up.
Another thing we need to consider is the price of rentals. When there is a considerable imbalance between the cost of renting and the cost of buying a home, you can see a more significant change in home prices. Unfortunately, rent in Southern California remains high as our prices are some of the highest in the nation. With many buyers being priced out of the housing market, more people are turning to rentals to fit their housing needs. Additionally, the high cost of building affordable homes, government regulations slowing down the entire process, and lack of available land contribute to a shortage of inventory. We do not see a significant change in the housing supply over the next few years. In fact, California has an estimated shortage of 1,000,000 homes. To live in Southern California, you must pay the price to enjoy our weather.
People combat this information because we saw an exodus of sellers moving to Texas, Florida, Arizona, and Nevada. Yes, people are moving out of state. However, it is not creating a shortage of buyers because California, especially Southern California, is the epicenter of Hollywood and many large businesses. We will always have more people moving into the state than leaving it. Even today, we see 5-10 buyers and sometimes 20 buyers for every listing. This is significantly lower than the 30-50 buyers per listing in April and May. Even with the departure, it does not significantly impact our Real Estate market. We must remember there is a lot of diversity and wealth in Southern California, and even though one segment of the economy may be slowing, others are still solid. This creates high demand in our area, the Conejo and San Fernando Valley.
Let’s go back to the million-dollar question, is it a good time to buy? This newsletter includes our newest flyer on the 7 Benefits of Home Ownership. As you will see, owning a home is always more equitable than throwing your money away on a rental. Therefore, if you can afford to purchase a home, it is always a good time to buy Real Estate. As we transition to a “normal market,” buyers with less than 20% down will finally have a chance for their offers to be accepted. As I mentioned, buyers will have more time to shop for properties and can be selective when choosing the house they want to call home. If you are ready and able to purchase a home now, you will be able to afford more house than if you wait and watch the interest rates rise, forcing your payments to increase as well. If you are still in the saving process, let’s talk about your timeline now, so we can put you on the right path to fulfilling your home ownership dreams.
Continue reading on for Ilyssa’s article, “Style + Real Estate,” to learn about the different options buyers have in this market and how our Concierge Program can get you the “deal” everyone wants. For all Real Estate and business questions, give me a call, and let’s start the conversation today on how we can make your dreams come true.
Mark and Ilyssa Moskowitz