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SAN DIEGO REAL ESTATE MARKET UPDATE
By now you have likely heard the news of the Silicon Valley Bank and Signature Bank failures over the weekend. This has brought up concerns, that stem from the fallout of the 2008 banking crisis and the subsequent crash of the housing market. That financial crisis, however, was caused specifically by sub-prime mortgage lending which was regulated by the Dodd-Frank act in the wake of the crisis. It’s true that these recent bank failures are a result of loosened restrictions on banks as Dodd-Frank legislation was altered, but those loser regulations did not extend to mortgages. Essentially, most financial experts agree that the failure of these two banks was “idiosyncratic” in that their investments skewed towards high-risk venture capitalism in the tech startup sector as well as cryptocurrency.
These recent developments have added uncertainty to the market, and investors have turned to the safety of bonds. Due to the fears about the impact of the banking turmoil, interest rate yields have dropped significantly. The 10-year Treasury yield fell to 3.51% from 3.98% the previous week.
The 10-year Treasury yield influences how mortgage rates move. While it doesn’t directly affect mortgage rates, the mortgage rates tend to run 1.8 to 2 percentage points higher than the 10-year Treasury yield. So far the average rate on a 30-year mortgage fell to 6.66% this week, down from 6.84% last week.
The Fed is expected to raise rates yet again this month – the question is how much. Strong job reports plus persistent inflation had been pushing the central bank to move forcefully on rate increases. But a banking crisis could force the Fed to act more cautiously.
Why do we feel confident that a housing crisis is not on the horizon? Today, US homeowners enjoy fixed-rate mortgages for which they are very well-qualified, with the added benefit that nearly all mortgages in the US either financed or refinanced their homes while interest rates were at all-time lows. Unemployment numbers are quite low and homeowners are flush with equity, so the likelihood of a housing crisis where supply explodes, demand dried up, and home values plummet is extremely low.
As for the San Diego Real Estate market, we have seen increased activity since the New Year, with buyers back and looking for homes. Median sale prices saw the first increase since September 2022 with prices for San Diego county at $760,000 which is only down 2.3% to last year’s $777,500.
What’s really interesting is that we are starting to see multiple offer scenarios again, however, buyers are cautious this time around and are trying to stay at or slightly below the list price. With this much competition, we are starting to see a decline in the Average Percent of the Original Price with homes selling at 97.% of their Original list price.
With an increase of 15.8% in the number of Sold Listings compared to the prior month and only a 5% increase in pending home sales, we definitely saw a substantial burst in activity in the month of January and a bit of a slowdown in the month of February. Which aligns with the adjustments we have seen in the fluctuations of the mortgage rates.
Interest rates fell in late December and stayed lower through mid-February, but began rising again in mid-February. As of this week, rates are back down around 6.5% again as a reaction to the financial market impact of the recent bank failures. The question now is whether the Fed presses pause on rate changes as a result of bank failures or consumer behavior goes unchanged keeping inflation high and the Fed continues to raise rates.
As recently as last week, Federal Reserve Chairman Jerome Powell told members of Congress that the latest economic data has come in stronger than expected. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Powell said. While mortgage rates don’t follow the federal funds rate exactly, they are heavily influenced by both the Fed’s monetary policy and its thinking on the future of inflation.
Al Otero, portfolio manager at Armada ETF Advisors, also said that the bank collapse may have forced the Fed to hit the brakes on raising rates, which helps the housing market. There’s a rally in rates across the yield curve, Otero said, “and an expectation that the Fed will now ‘pause’ raising the fund rate at its March 21-22 policy session.” And this means that “we could see a material reduction in mortgage rates going into the spring sales season,” he added, “which would be a substantial positive for the housing market.”
Of course, the Fed rate is not the only thing that influences mortgage rates. Today, rates are lower following stock market uncertainty and a 15-point decrease in 10-year Treasury yields. These dynamics will likely heavily influence the 2023 real estate market, so we will keep a close eye on them and continue reporting about how things are evolving.
If you’re a homeowner:If you own a home and you’re not looking to move, ride the wave. You likely have substantial equity and a low-interest mortgage that is manageable. If you’re considering moving in the next few years, let’s talk about your ideas. If you’re considering remodeling or tapping into your equity, give me a call for lender referrals that can help you access the lowest rates available right now.
If you’re a hopeful homebuyer:
If you’re newly in the market or revisiting buying a home after choosing to wait the market out for a while last year, we should talk sooner rather than later. Buyers have a great deal more power in the real estate market right now than they have in the last few years with sellers more willing to make concessions including rate buydowns, repairs, and price reductions. Keep in mind, though, inventory is still low so there is still a more limited selection. When you lock your rate for a home loan is very important right now as rates have been very volatile and changes of even .5% can save you thousands of dollars per year in interest costs. If you love a home, you need to take steps to secure it quickly.
If you’re a potential home seller:
If you’re interested in selling your home, it’s still a great time to sell. It’s true that you may have missed your peak price last Spring, but your home has still earned you substantial wealth over the last three years. The key to selling in this market is to price your home intelligently, make it as appealing to buyers as possible, market it strategically, and come to the table ready to create a win-win scenario for both you and your buyer. This is my expertise and I’m never too busy for you or your referrals whether you’re considering selling or you just have questions about the market.
Most importantly, if you have questions or concerns about your specific situation… CALL ME to help sort through them. That’s why we get up in the morning – not just to sell homes, but to serve our clients.
As always, we will be here to continue to provide you with updates about the housing market and answer any and all of your questions. Feel free to reach out to us anytime.