If there is an award given for overstating the obvious, then the title of this post would be a worthy nominee. If you’re one of the hundreds of home buyers hunting for that elusive home on the mid-Peninsula, then you know just how tough it has been to find a home over the past several years.
But over the past week, three events have transpired to make the pain even that much more acute for those that are still in the hunt for a home in San Carlos:
Rising Interest Rates.
In just a little over a week, interest rates have jumped nearly 0.5% for most loan packages. According to Spiro Hishmeh of Premier Lending, this marked one of the biggest single-week jumps that we have seen in a long time, and it has pushed rates to the highest levels in the last 3-4 years.
How this rate increase will impact home buyers obviously depends on how much they plan to borrow. For a first-time home buyer who is at the max of their loan-to-income ratio and is borrowing the full 80% of the purchase price, this much of an increase could be enough to push them entirely out of the market — a situation that has already happened with one of Sprio’s buyer clients.
For those who have the good fortune to afford a much larger down payment, the rate increase will still be felt, but it won’t have nearly the impact. But make no mistake, any rate increase will have a negative effect on buyers in this market who will need a loan to complete their purchase — and that’s still the vast majority of buyers.
A word of advice that I have heard from a number of loan agents in light of the interest rate spike: Call your loan agent and reassess your pre-approval status before you write another offer. Depending on your particular situation, your buying power may have been reduced enough to warrant a re-calibration of your price target.
Volatile Stock Market.
Recent worldwide events have caused a level of volatility in the stock markets that we have not seen since the Recession. In just one day, the Dow lost over 1,000 points in value, and this came on the heels of another day of less dramatic losses. Since equities are the fruit of the down payments for most buyers in this market, this volatility may even be more severe than the spike in interest rates on their buying power.
Aside from the measurable impact of stock market volatility, large drops in the market like we are seeing now affect the confidence and psyche of the buyers in today’s market. Even if this volatility does not take buyers out of the market entirely, it may take some of the bullishness and aggressiveness out of the offer prices that we’re seeing lately.
It’s also important to put the recent stock drop in perspective to the overall growth in the market since the Recession. Despite these recent unnerving swings, the market is still at stratospheric levels by comparison
No subject about the pain of home buying would be complete without mention of inventory. At the time of this post, there are 5 single family homes for sale in the entire city of San Carlos. In Redwood City, a city that is three times the population of San Carlos, there are only 21 homes for sale. And in Belmont, there are only 7.
The situation does not appear to be improving much, either. In January, there were only 16 new single-family home listings to hit the market in San Carlos, a level that is near the lowest of any January on record. This chronic lack of inventory is the chief culprit behind the exponential growth in home prices in San Carlos and along the Peninsula. It has also forced buyers to find some very non-conventional ways to get a competitive edge, like sending personal letters to the owners of homes that they would like to live in (even if they are not for sale), and even door knocking in neighborhoods to find if people are planning to sell. And this desperation has given new life to the practice of pre-emptive offers, almost a commonplace occurrence when a home is listed on the market today.
In short, what was already a tough climate for home buyers just got a little colder and a little steeper. But that doesn’t mean buyers should drop out of the market. What it does mean is that you need to carefully re-assess your buying power and your home buying strategy in light of these recent events, and know that even in a volatile economy there are still opportunities to find your dream home.
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