Welcome to the post Covid world of real estate. With most businesses shutting down during the pandemic and the government flooding our economic system with money, thereby driving down interest rates down to artificially low levels, they set up the perfect storm for a very rare bout of inflation in our economy. Further they encouraged many homeowners to refinance into abnormally low mortgage rates—rates that they are more willing to keep than to give up, thereby creating an environment with very few homes for sale.
Here's the fallout from crazy government economic intervention for those waiting to purchase a home:
- Very few homes for sale—which keeps prices marching higher.
- Interest rates that seem high—but have actually normalized.
- Your rent keeps getting raised—this will continue well beyond your worst expectations.
First, inventory is low and is likely to stay that way for a while. Folks that have been in their homes for a long period of time and have a 2.5% fixed rate mortgage are likely to stay put as long as they can. Whether they would like to upsize, downsize or relocate, that mortgage rate is a prize—one to be kept and coveted. They’re simply not selling, yet buyers are still eager which gives the sellers that do exist the upper hand on setting price, and prices continue higher despite the silly predictions for a housing crash that keeps getting predicted by the “experts.” A crash that is simply not going to happen.
Interest rates have normalized. I took a monthly sampling of mortgage rates over a 50-year period and ran an average on a spreadsheet—it gave a 7.75% average result. The low to mid 6’s to the low to mid 7’s are likely the range that’s here to stay—potentially for years. Waiting for mortgage rates to come back to the 2’s or 3’s is fool’s errand at this point at best. A waiting game that you will lose.
The median rental rate for a house in Sonoma County just hit $4,000 per month in January 2024 and over $6,000 per month in Marin County according to Zillow and going higher. Landlords in California are limited to rent increases at a rate of 5% per year plus the rate of inflation. This could easily equal 8% to 9% annual increases, which will compound annually. The only way to put a stop to the rising cost of housing is to purchase a home of your own. Please do not ignore this very important point. Ignore this important issue at your own peril. The articles in the media stating that renting is better than buying are often written by millennials that may not be able to afford a home on their own quite yet. Please take their misguided articles for what they are—junk journalism.
This leaves the question if you have not purchased a home yet: what are you going to do about it? Owning a home puts a stop to most of the increases in your monthly housing expense. Property taxes can go up slowly over time and insurance is anyone’s guess, but the bulk of your monthly housing payment will not change unless you change it.
Lower home prices and lower interest rates are not likely anytime soon. Higher rents are assured.
Let’s do something about it…
Scott Lawson
America’s Home Loans
(707) 763-7900