November 2014

Naturally you eagerly read the recently released November U.S. Economic and Housing Market Outlook put out by Freddie Mac.

Oh no wait, no you didn't.

So here's what you care about most from that forecast: Looking ahead to the next year, interest rates are expected to rise, averaging 4.6% up to 5% by the end of 2015.  Across the country, houses are expected to increase in value by about 3% (which means more in the Bay Area, since of course we do everything better here.)  The rental market is projected to stay tight and strong, because vacancy rates are still low and rental rates continue to go up.

I've said it before and I will say it again — if you are thinking of buying, you gotta do it now before interest rates (that have been artificially held low) go up. The impact on your cash flow is so critically substantial. Think of this: If you buy a $800,000 house at 4% interest, you will pay $475.25 per month less than if you buy it later in the year at 5%.  That is a lot of freaking money when it's for absolutely nothing but flushing down a bank's toilet. That one percent means $5703 in actual real money out of your pocket in one year, for no reason other than you bought later rather than sooner. If you live in that house the average 9 years that most people do before selling, it would be $51,327 extra dollars spent.

But what if you want to sell?  The same thing happens in reverse -- your buyers will have less money to spend as interest rates increase.  Most people are concerned about how much their monthly payment will be, less about the actual price of the house. Check this out:

Let's say a family can afford $5000 a month for their mortgage. At 4%, they can offer $1,050,000 for your house and spend about $5000 a month. But at 5%, to spend about $5000 a month, the same buyer can only offer you $934,000 for your same exact house. Not one single thing has changed except the interest rate, and just because the rate goes up does not mean people's monthly payment amount can go up. So what changes? The house number they can afford goes down.

Will there still be someone out there that can afford your house at your desired price of $1,050,000? Sure there will. But it's just simple mathematics and logic that more buyers will be able to afford your house with a 4% loan than they will with a 5%; and the more buyers out there, the more likelihood of multiple-offers on your house.

(The complete November 2014 U.S. Economic & Housing Outlook, including the Forecast Table is here. )

Stepping back from Freddie Mac, reports are now in for housing stats around the Bay Area. Across the board, everything looks like we are getting into a more normal and stabilized market.  Housing inventory (which means how many houses are on the market) is at 45-days supply which is almost normal; a "normal" supply historically being a 2-3 months supply in the East Bay Area. (FYI, the low was December 2013, when we only had 15 days supply.)  The pending to active ratio is 0.96, which means that houses are coming on the market about as fast as they are going pending; again, a sign of a balanced normal market.

Blah, blah, normal, blah.  How does this affect you?  Bottom line:
Buyer: it's generally easier to get a house now than it was 6 months ago.  So if you gave up in discouragement after writing loads of offers, don't despair Young Grasshopper!  It's time to try again.
Seller: we get to be more sane in the sale process, instead of shielding ourselves like it's a Black Friday assault and leaving you wondering if you could have gotten even more money a month later.

Contact me in your preferred way (text, phone, email, or walk in my door) so I can meet with you about professionally marketing and selling your house, or finding you a great home or investment to buy.

—Mariah