Recently we’ve seen some pretty big volatility in the stock market. The unemployment rate has risen to numbers that seem to be cause for concern. I’m sure you’ve heard talk of recessions or maybe we’re going to have a harder landing than we thought. Some people are saying that the Fed held rates too high for too long.
So how is all of this going to affect the real estate market this fall?
I have a bold real estate market forecast. You might think I’m crazy. You wouldn’t be the first one. But hang in there with me for a minute. I think that this is going to have a really positive effect for a few reasons.
Mortgage rates have already started to fall. Right now we are seeing mortgage rates at their lowest point in over a year. Most experts believe that we could see as much as a whole point drop by the end of the year, which would be fantastic news for both buyers and sellers.
The stock market is very closely tied to the real estate market in San Francisco, due to the fact that many buyers have much of their down payments in the stock market and it’s tied up.
I’m hearing from buyers that a lot of people moved cash they thought they might need into things like short term T-bills that have higher interest rates than they’ve had in the past. Also, I think people have gotten relatively used to the stock market swings and they don’t feel that the sky is falling. It seems that we’re moving through the ups and downs very, very quickly.
It seems really clear that we’re going to have some interest rates go down in September and more than likely that’s going to push the stock market back up again. Not only will money be cheaper for buyers, but also for businesses as well. Hopefully this doesn’t fuel inflation because that’s what we’re trying to keep down.
Insights from recent deals
I have a few recent stories for you from the trenches. It’s been interesting. We took some buyers out in different categories, in different neighborhoods, at different price points. And there were several properties that
have been sitting on the market for quite some time.
We had some buyers express interest in them only to find out that out of nowhere after 60, 70 days on market, suddenly these properties had offers on them! That’s always a really good indication of a possible market heating up. That’s why we like to be involved in a lot of different transactions on both sides so that we really know what’s going on a week by week basis.
One of our listings in South Beach was taking a long time to sell, which can happen in South Beach. It is now in contract. Seeing that go into contract was was also very encouraging for where the market is going.
As of August 8th, mortgage rates had declined to their lowest point in over a year, while financial markets were experiencing very substantial volatility. Most analysts believe the Fed will finally begin to drop their benchmark rate in September (pending a positive inflation report in mid-August). Lower interest rates, of course, have considerable effect on the cost of homeownership for those financing their purchase, and a sustained decline would almost certainly spark increased market activity – not only of buyers, but potentially of sellers who held off listing their homes in the past 2 years due to the “mortgage lock-in” effect. Much depends on the scale of any decline in rates – as well as possible changes in other economic conditions – through the end of the year.
Following the typical seasonal trend, the market cooled in summer from what is usually its most heated selling season in spring. New-listing and sales activity slowed, overbidding declined, and homes took longer to go into contract. The 3-month-rolling median house sales price often dips in summer after peaking in spring (due to a number of factors) but it remains higher year-over-year – as is the median condo sales price after a July jump. The market usually sees a dramatic rebound in new listings in September to fuel the autumn selling season, but August may see an “unseasonal” burst of sales activity if the decline in interest rates continues in coming weeks.
Finding comprehensive and affordable homeowners’ insurance remains challenging: According to the CA Association of Realtors, nearly 7 percent of recent real estate transactions statewide fell out of escrow due to insurance issues, but noted that “The state’s largest insurance regulatory reform in 30 years is set to go into effect by the end of this year.” Hopefully, this will result in substantial improvement to a very difficult situation in many of our markets.
