2015 3Q Market Update -- The FREE money era is coming to an end

The big questions is - "How soon will impacts be felt in the housing market?"

For the last 10 years, money has been close to free to borrow. This has crushed retirees and anyone on fixed incomes while doing its part to contribute to economic growth out of the disastrous crash of 2007-08. According to GDP numbers and virtually all indicators, growth is in the right direction, but most everyone agrees that it is tepid at best.


After a few headfakes, trajectory of interest rates seems clear

Rates are starting to rise. See the chart below, as they rise, you will recall that rates have an inverse relationship with prices. As rates rise, prices fall and as we saw in the mid 2000s, as rates fall, it prompts price inflation for all assets, including real estate.

Now that rates are starting to rise, what does the future hold? Well, most certainly, in the near term there will be better places to park your money than real estate if you are an investor chasing the best return. However, if you are a buyer that has been experiencing the drama of being outbid on everything you try to buy, your luck is about to change. You can see on the right of the chart, today rates are higher than they have been since September of 2014 and the momentum is headed in the upward direction.

A little steam left

As rates rise over the remainder of the year, price gains achieved in the first half of the year will most likely be given back and buyers will start to gain a little more control through increased leverage in transactions. Good news for buyers, bad news for sellers. As the busy summer sales season comes to a close, I believe that the best pricing sellers can hope to achieve is happening right now. See the average days on market in the chart below. Notice the obvious seasonal impacts of the time you decide to sell. Summertime demand makes it difficult to keep inventory on the market, however, you can notice increasing market times starting in August and continuing until the spring of the following year. Further exacerbating this supply and demand imbalance right now is the supply that is much lower than the same time last year. If priced appropriately, it sells quickly.

15-3q supply_0.JPG


Demand far outstrips supply as inventory is far less than the same period in 2014. Days on market falls to low levels on all inventory.

15-3q price chart.JPG

For Sale vs. Sold Prices - ORANGE COUNTY, CALIFORNIA

Sellers expectations are starting to widen from market conditions. Due to demand, buyers are dealing, but as market conditions like rising rates take hold, sellers will need to temper their expectations or they could miss the peak summer market.


Smart sellers are looking for the exit - Smart homebuyers look to lock in lowest rates we could see for some time. As always happens, those who are currently on the fence and ‘thinking’ of selling will soon decide it is time to act as conditions further deteriorate and then I expect a glut of inventory to be met with indifferent buyer demand that has chased property throughout the summer and is starting to get tired. Even if prices stagnate or have a few years of declines, homebuyers still have advantages of tax deductions that come from ownership and historically low rates even though they are rising that make buying a home still an attractive proposition.

Buyers have the ultimate dilemma right now – If I am correct and rates continue to rise, monthly payments will rise with them, but then again, lower prices will likely be on the horizon. If you are thinking of selling, Get a free Home Value Evaluation along with a complete Net Sheet to know how much a sale would produce. I wouldn’t wait too much longer if you are on the fence, prime summer selling season is upon us – call us today so we can get you into escrow at the best time that I think you will see in the next few years.

Christine DiCarlo

Real Estate Broker License #01290192

949.433.4372 Mobile