In every market, real estate sales happen when a buyer and seller agree on price and terms.
It makes sense for buyers to buy in this market as long as a few things hold true:
#1) The buyer gets a commitment from a lender to lend at an attractive/competitive interest rate. The media advertises interest rates that are way higher than we’re seeing on pre approval letters and lender commitments in real life. Citibank, First Republic, and banks where the buyer has a relationship, offer way lower rates than the rates advertised in the media. On the day this week that interest rates were widely advertised at 7.65%, Rick Ellis at Citibank emailed his database that Citi’s highest rate, before any relationship discount, was 5.75% for a 30 year fixed loan.
#2) The buyer’s need justifies buying now and then refinancing when rates go lower again. If a buyer’s quality of life will improve, and the buyer can very well afford to buy a new property, and the deal is prudent and smart, it makes sense for a buyer to search for the right home now and adjust the interest rate down in the future.
#3) The buyer will hold onto the new property for some time. Real estate markets are cyclical. There are adjustments in all directions at different points in time. The history of California real estate has always been that it goes up long term and no doubt property values will go higher than they are today. If a long term play is being considered, it could be obviously smart to engage now.
#4) The whole deal makes sense considering the offering, the price, the interest rate, the need, the upside potential, etc. In every market there are deals that are smart and those who are savvy find those deals and capitalize on the opportunity.
In the market right now we’re seeing both buyers and sellers saying that they’re in no rush to transact and they can wait.
The buyers are postulating that interest rates are predicted to go higher yet and when they do, prices will naturally adjust and go lower, and so if buyers wait, there will be more deals and better values at some point in the future. In real life, sellers have: a) a lot of equity in their homes and b) a crazy low interest rate on their existing mortgage and c) rents that went up so that the rental value of most sellers’ properties easily covers their mortgage. Sellers are saying they can sit tight and wait to sell too. We live in an area that always has extremely low inventory but never has the inventory been as low as it is right now. It is not a given that values will continue to go lower if there are so few properties available for sale.
We’re currently talking to sellers who bought their house many years ago at an interest rate of 12% and refinanced it over time; today their current interest rate is in the 2% ‘s.
We have a seller now whose family bought their house at a 9% interest rate and adjusted their rate down to its lowest in the 2% ‘s where it sits now. Both of these owners have houses with appreciation in the millions. Both of these owners are smart and they both know that it’s fine to buy and sell appropriately in any market. But like everyone else, they don’t HAVE to.
In real life, interest rates today are not at historical highs, even though they are legitimately way higher than they were last year.
At the current interest rates, there are deals that are legitimately attractive for buyers to buy. On the other side of the coin, property values are still at levels high enough for sellers to make a significant gain on the sale of their property, even though property values are legitimately lower than they were last year. At the current property values, it is legitimately attractive for sellers to sell. In order to buy or sell, both buyers and sellers need to be able to adjust expectations and accept rapid change caused by interest rates going up quickly. It takes most people time to adjust to change. What we’re seeing in the market is people on both sides who need more time to acclimate to change. The natural response is for both buyers and sellers to say “I’m in no rush. I’ll wait for things to go back to the way they were.” No one can predict the future, but going back to the rates and values we saw last year may take a very long time, longer than anyone truly wants to wait in real life. It does, however, make sense that humans legitimately need time to slowly adjust to change.
I loved and cherished every minute I spent hanging with my cousins and my aunts and uncles for the day in Chicago last week! Walking through Neiman Marcus with some of my favorite people took me right back to Sundays spent with my Mom doing the same. Standing and listening to my cousins oohing and aahing over a sparkly cross body bag, I remembered that before my Mom died she actually shared that she’ll miss shopping and marveling over sparkly well designed beautiful things. My Mom got joy from putting together artistic clothing ensembles. She got even more joy from discovering beautiful things on sale at discounted prices. I loved dancing at my cousin’s wedding in a little circle, just me and my energetic smiling aunts (my Mom’s sister and sisters in law) in their 80’s, relishing our moment together. I loved the time close to midnight when my aunt closely scrutinized my funky shoes, squinted her eyes in concentration, and then decided she approves because they remind her of ice skates and ice skating is elegant. There’s nothing in the world like family, especially family who loved my Mom to pieces just like me. Special moments together with people we love are the best thing in life!
Wishing everyone an awesome week ahead!!!