It feels like a gut punch to housing demand to have 8% rates. So many predictions said we’d be at 6% or below by now, yet here we are. I think it’s really important to stay grounded and realistic, so let’s talk about this. I also have some market recap visuals (and a few insane graphs). I hope this helps.
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JUST DATE THE 8% RATE
First off, I want to say that “date the rate, marry the house” is a terrible slogan in my opinion. I’m not a fan of promising the future. Look, it might work out really well for some people. But then again, maybe not. Amy Tremayne told me that dating the rate is like marriage advice she got from her mom. “You need to marry the person for who they are, not who they might become.” Such a solid word picture for buyers being comfortable with the mortgage payment today instead of banking on what it might be in the future.
JUST PLUG IN NEW NUMBERS
“Dating the rate” is a comical narrative though because new numbers just plug into the slogan. “Date the 6% rate.” “No, date the 7% rate.” “Bro, D8 the 8.”
8 THINGS ABOUT 8% RATES
1) Higher rates will take more demand out of the market.
2) We’ve seen an increase in active listings lately due to fewer pendings. This could start to increase more. Time will tell. It’s so important to watch this trend closely.
3) We’ll have to see if 8% is a psychological barrier for buyers causing more pause.
4) There will always be some buyers and sellers in any market. Someone told me there would be 0% demand at 8% rates, but that’s fiction.
5) It seems like mostly everyone got their rate predictions wrong this year, so maybe it’s best to not predict. Even the Mortgage Bankers Association had a 6.3% rate projection for this quarter (they’ve since changed the projection).
6) Sellers, do what the market requires. Reduce the price, give credits to buyers, buy down the rate, negotiate… There is a smaller pool of buyers right now. It is NOT 2021 where you had total control, and buyers are going to need more help to make things work if rates keep ticking up.
7) If you work in real estate, you have to be intentional about increasing the size of your network. This is a housing market where you will hear NO more than YES because supply and demand are so limited. Who are the gatekeepers to the types of work you want to do? Who do you need to get to know? What is your action plan for getting in front of people this week? Who needs your expertise? What types of transactions are happening today, and how can you connect with that target audience? How do you need to diversify your practice?
8) Last but not least, be full of hope in life, but be realistic about the housing market. Expect low volume and low new supply ahead as we are still in a market where many buyers and sellers feel stuck and unable to move.
QUICK MARKET RECAP STATS
Some local stats for those interested.
YEAR-OVER-YEAR:
MONTH TO MONTH:
AND SOME CHAOTIC GRAPHS
I’m starting to add some different counties into the mix. I’m getting requests and speaking gigs in other places, so it’s spurring me to add some new stuff. I know these visuals are a hot mess and likely too chaotic to be meaningful. But I’m intrigued by the juxtaposition of different areas.
Thanks for being here.
APPRAISER PRIVATE WORK FOCUS:
I haven’t forgotten about the free Zoom class I mentioned for appraisers. I’ll get a date together soon. I’m thinking November at some point or very early December. Thanks to Joe Lynch for helping me with this.
Questions: What are you seeing happen with active listings? Are they taking longer to sell? What is open house traffic like? I’d love to hear.
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Glad to see you’re branching out to new areas. It’s interesting to compare our markets with the higher priced areas but with similar trends.
Along with increasing rates we have seasonality kicking in. And fewer sales to use as comps. What a headache for appraisers trying to figure out values. I’m starting to struggle with conforming homes because of so few sales, never mind the tricky stuff.
I’m looking forward to the non-lender work discussion, happy to help.
Thanks Joe. I hear you. 40% lower volume means 40% fewer comps. It’s not easy out there with fewer data points. Let’s keep our market antennas up.
Hey Ryan, hope all is well at your end. I have been benched, on the couch and in bed. Covid for the third time thank you very much for dear Covid. UGH.
Okay on to fun things, from my last appraisal I just finished up today on a litigation case (will send it virus free, I hope). “The subject’s market has slowed from approximately 9 sales per month in 2021 to 3.5 sales per month in 2023, over a 60% decline in sales volume primarily due to the rate hikes in the 30-year mortgage seen over the last 20 months, which has led to a shortage in inventory (listings) as sellers are finding it difficult to give up their 3% rate for 8%.”
This is for a tract house community in a community that has been growing, or at least was growing. Currently 3 active listings, 5 pending (4 of 5 have been pending for over 40 days thanks to the interest rates and agents / lenders trying to figure out how to close the loan thanks to the spike in rates). Quotes from the agents involved.
This is, I am sure a simple example of what the other markets are seeing. Good news the sales I called on 4 of the 6 agents called me back (apparently the other two were busy trying to find a 4% loan to give to their borrower). The weird news is the sales that have been closed or in escrow with very short DOM under 10 days, in some cases are still getting multiple offers. One went from $599,000 asking to $635,000 closing. Folks with only 3.5 closed sales a month and some sales with this type of price action, really hard to tell if the market is going up, down, sideways, or to the Psych Ward.
There is a glimmer of hope, my cash is now earning 5.62% on the 3-month treasury, so there is that benefit.
Last item, referencing Ryan’s comment about dating the rate and marrying your house, I am not saying don’t get married, but I would be really careful about your in-laws, this market is NUTS
Brad, I’m so sorry to hear about your third time. Let’s leave it at three and not do round four. I appreciate hearing about your market also. I can relate to volume being low but days on market still being historically fast (not always of course). It’s a strange time.
I love Amy’s analogy of dating the rate is like bad marital advice. I admit that I liked the slogan when I first started hearing it last year, but it’s totally ridiculous when you think about it. It’s like buying stock in a company that has poor fundamentals.
Right on. Her analogy really resonated with me. I’d not heard that before. She commented on my Facebook page, and it was gold. Hope you’re doing well.
Great analogy Gary, bad fundamentals. You hit that one dead on.
Hi Ryan, thanks for another great article. Wanted to get your thoughts on this.
Here’s a scenario:
A builder incentivizes buyers to use their in-house lender buy giving rate considerably lower than market, does that screw the true value of that house when it’s used as comp on future home near by? In this situation there’s no seller concession “buying down” the rate. The builder’s lender simply has the capital to lend say 2% below market. So my question above, would that house now not be a true comp to future resale homes in area since those homes aren’t baited with mortgage rates below market? How would that below market rate be accounted in calculations if using as a comp?
Hi Joshua. First, sorry for the later reply. I jumped on a plane to visit family just after this post went live. This is definitely a concession because it’s something the seller is giving to the buyer. I think the key here is to compare homes with and without this concession if possible. Is there a price difference? If there is, then the appraiser can likely adjust for the difference. Technically this shouldn’t screw up the comps because appraisers need to adjust for stuff like this if there is warrant to do so. Granted, if we were to blindly look at closed sales without consideration why they closed higher or lower, then we could say this would mess up the comps by either inflating or deflating the market (if a property sold lower). I would guess a property like this would sell at an inflated level. In short, this is not a true comp without consideration of the concession. That’s a pretty big part of the story of the sale to ignore.
Thank you Ryan
Solid advice Ryan. Dating a rate cuts both ways when a rate buydown pulls into the mix. HELOCs are also on the rise but suffer the same adjustable issues. People need to consider that while rates are “high,” they may stay between 6-7% for several years. Rates and real estate don’t follow the laws of gravity. We all need to keep our eyes open.
Thanks Kyle. Well said. And we’ll see. It would likely be wise to not expect 3% rates again. Though there is a political candidate trying to bring them back (doubtful to see that in my opinion).
Thanks Ryan! As always great information! Sad to see the short sales and bank owned on the rise.
Thanks DeeDee. Yeah, we should see a rise since we’ve basically hit bottom and there is no longer a foreclosure moratorium. We could see more with economic carnage too, but that’s to be determined. This is a tiny portion of the market for now.
Compared to the 80’s…
Inflation fell below 10% by the turn of 1982, having peaked at 22% in 1980, and by spring 1983, it had fallen to a 15-year low of 4%. Strikes were also at their lowest level since the early 1950s, and wage growth rose to 3.8% by 1983.
Early 1980s recession – Wikipedia
Why were mortgage rates so high in the early 80s?
Interest rates had to climb higher to compensate for the ravages of inflation. In the late 70’s and early 80’s, the Federal Reserve attempted to choke off inflation by repeatedly raising the Fed funds rate until it hit 21 percent.
https://www.loanatik.com › ..
2023 Inflation rates are up from 3.0% in July to 3.7% in Sept …
https://www.statista.com/statistics/273418/unadjusted-monthly-inflation-rate-in-the-us/
Yes, I was alive and purchasing homes in the 80’s…Based on the above referenced historical data, odds seem to be good that we may not have seen the last mortgage rate increase.
Also, as referenced by your own “Median House Prices” graphs, it is also extremely apparent that working class families are struggling just to stay afloat and achieving the reality of home ownership is totally impossible for many of them. Additionally, as the working class retires and using their retirement income, even renting an apartment is financially beyond some of their means. And yes, I work in an un-housed and low income day shelter.
Sharing watching info from other areas – In the last week, many of the $325K to $475K range Humboldt County properties that I am tracking have initiated sizeable price reductions.
I remain watching with bated breath.
Thank you Patty. I really appreciate your commentary and perspective from multiple decades. Right now I’m hearing feedback of well-educated buyers in the trenches, but there is not a sense of urgency. I’ve heard that sentiment multiple times this past week when asking agents what they are seeing. While 8% is not historically high, it’s so difficult to make the numbers work for many people today. It’s unreal to see the growth over time. Granted, we should see some growth purely based on inflation, but home prices have definitely outpaced inflation growth.
Thanks for giving thoughtful consideration to my response Ryan… I appreciate all of your time and efforts to continue present us with your thoughtful analysis!