Low Interest Rates Create a Pivotal Moment in Local Real Estate Market
In my last post I shared the numbers from 2018 and my thoughts on the market. Since then, inventory has remained relatively low and so have mortgage interest rates. In fact, rates are about 0.5% lower than what was offered just a month ago. (Natalie and I just refinanced our own home and we’re kicking ourselves for not waiting just a little longer, but sometimes that’s just how it goes!)
At times last year, rates were being quoted at as much as 4.5% for a 30 year fixed rate mortgage. Today, 7 year ARM's are being offered at less than 3.375%. MSNBC reported that the number of mortgage applications surged last week as borrowers rushed to take advantage of lower rates.
The spreadsheet below breaks down the monthly payment for common loan amounts in our market. For example, the difference in your mortgage payment at 3.5% and 4.5% at $800k is $461 and $1,153 at $2M, which is huge.
I understand that some people may feel cautious about jumping into the real estate market if things are, in fact, cooling off a bit. But if you’re looking for a home to live in for the next 5-10 years, this may be a good time to make a move.
The folks that are really going to benefit from this right now are the ones that are selling their house and buying a larger/more expensive house locally. While the house they’re selling right now may end up selling for a little less than what it would have last year, the more expensive house they’re replacing it with is selling for a lot less — and on top of that they’re getting a low interest rate.
People that are buying their first home are also in a good spot as well. Prices are down, the competition isn’t quite as fierce as it was — and they have a good shot at getting a decent interest rate as well. Sometimes you get one or the other, but you don't always get both at the same time. It’s a good time to double down.
Even if we do see a larger dip in the market in the coming year, I personally don’t think we’ll see the amount foreclosures and fire sales we saw back in 2008. Since the recession, qualifying for a mortgage in most cases required two years of tax returns, six months of reserves, and a healthy annual income. For the most part, buyers in our area are buying with at least 20% down. Because of this, people have a lot more equity, are less likely to default on their mortgage payments, and are more likely to wait out any dip in the market to sell. This means we could continue to see low inventory, which in theory, would help to stabilize prices.
Right now, there are 40+/- homes listed for sale in Redwood City. Assuming our inventory stays about the same, we could potentially see the market pick up a bit as long as rates stay low — things may just be moving a little slower than the fast and furious market we saw a year ago. So in other words, if you find the right house now, you may be able to get a pretty good deal and also get a low interest rate. If you wait, prices and/or interest rates may creep back up and you could miss out on the perfect house or end up paying more later.
As always, I’ll be keeping a close eye on things. If you’re interested in chatting more about this unique opportunity to make a move in Redwood City’s real estate market, I’d love to talk to you. Or if you’re looking for a local lender to chat with, I’d be happy to recommend someone. Click below to schedule a consultation or give me a ring at (650) 704-8883.