There is no arguing that the gradual increase in interest rates has hindered home sales across the nation. Homeowners cannot sell because if they do, the home they desire, is no longer affordable. Why would you move up, only to buy a less desirable home?
However, Zillow recently stated, "Borrowers say a 5% mortgage rate is their make-or-break point to stay put or re-enter the pricey housing market". Therefore, if we are hovering around 7% daily on a 30-year fixed, we anticipate the Fed to enforce one more interest rate increase, to try and curb the inflation at the desired 2.5% Y.O.Y growth. With July 2023 interest rising to 3.2%, we feel confident that the Fed will either pause any further increases or enforce one more rate increase before the end of the year.
The knowledge behind this is that we are approaching an election year. A politician trying to win the chair or one trying to retain it, will not go into an election year with a stagnant economy. Therefore, the anticipation will be that after the next Fed meeting, there will be a decrease in the Fed fund, freeing money into the open market. According to Zillow's recent survey, as the interest rates decline at the beginning of next year, once they hit that 5% marker, more people will be inclined to sell. But why? The affordability becomes manageable, creating opportunities for these move up buyers to pursue that dream home without being priced out of the market. As the interest rates return to a 5-6% rate through 2024, we expect inventory to increase to normal averages. Currently, there are only 842 single family homes in Santa Clara County. These numbers are indictive to the Fall months, not the end of summer selling season.
As the rates return to the 5% desired rate for homeowners to consider selling again, it will not change the supply and demand of Silicon Valley Real Estate. Even at 1,500 single family homes that are the target for the summer selling season, it is still very low for the demand in Silicon Valley. However, with double the homes as of today, it will create 2 homes for every one person buying. That in itself then creates a new problem, more buyers in the market, due to the falling interest rates and increased inventory. With these two factors impacting the market simultaneously, you can expect bidding wars to ensue.
So how can you beat the competition in this difficult housing market? Aligning yourself with a Trusted Real Estate Advisor and becoming prequalified, with every 60 days, updating your financial picture with your mortgage broker, will keep your profile active so you can act when the right home or rate becomes available in the market. Consumers often times "take a break" from the market after losing on a few homes or watching the Fed Fund increase. But don't be discouraged, keep a pulse on the market by looking at the daily listings your Trusted Real Estate advisor sends you and always send updated pay stubs to your mortgage advisor to be sure Financial Picture is always clear.
Happy Hunting!