There are times in life when having a crystal ball would really make life easier.  Like when Powerball was over $1 billion.  So, without a crystal ball, we look at the signs of the times and make the best guess.

The most important factor that will either inspire or depress the real estate market is the mortgage rate.  Mortgage rates track the 10-year Treasury Bond, as can be seen in the graphic below.

The 10-year Treasury is impacted by the interest rate which is set by the Federal Reserve.  This rate is now at 4.5%.

At the December 2022 Fed meeting, Chairman Powell said that he sees several more rate hikes occurring this year.  A few members of the Federal Reserve Board suggest that the rate needs to get to 5.5%.  If this happens, I think we could see mortgage rates above 7.5%, even close to 8%.

However, I have also read reports from economists who believe that the rates will begin coming down, even to a point of 5.5% at the end of the year.

A second major point to consider is the supply of homes on the market.  At the end of December, we currently have three months of inventory on the market.  This is still a seller’s market and home prices could still increase.

Consider the see-saw.  As one side goes up, the other goes down.  Now, put mortgage rates on one side and home prices on the other.  If buyers are waiting for home prices to come down, chances are that mortgage rates will be higher.  If buyers are waiting for mortgage rates to come down, then home prices will be higher.  At the end of the day, the monthly budget is about the same on a monthly basis.  This can be seen in the chart below.

As shown above, you would actually pay more per month for a home priced at $30,000 less.

Another factor to consider is the cost of renting.  While home prices to expected to increase less than 1% this year, rent is expected to increase, though rents have come down in some areas.  Renters are feeling the squeeze.  And, unfortunately, rising rents mean that renters have less money to save for a down payment for a home.

What’s my advice:  If you are in a position to buy a house, buy now.  If rates do come down, then you can refinance.  If home prices come down, you may pay more each month, as shown above.

There is also a loan program available that will allow buyers to buy a home that needs work (usually these homes are priced lower) and will loan the money for the work to be done.  So, you could buy a move-in ready house for $350,000.  Or, you could buy a house in need of repair for $300,000 and get $50,000 for renovations.  By the way, these figures were off the top of my head and not actual examples.

Contact me if you have questions about these renovation loans.  I can put you in contact with an expert who has done renovation loans for over 15 years.

Home Prices are dropping.  What does it mean?

During the week of July 14-21, more that 800 sellers reduced the price they were asking for their home.  In the five zip codes of South Tampa, there were 63 sellers who reduced the price.  The media price drop was 3.28%.  Since the median home price in South Tampa is $500,000, then the median price reduced is close to $16,000.  To put this price reduction in perspective, let’s look at the median home prices for the past three years.

This graph shows the median sales price of homes in South Tampa increased from around $400,000 to over $600,000.  That is more than a 50% increase in 3 years.  So, how does the current reduction of 3.28% look compared to the 50% increase already experienced?

Let’s zoom in and look more closely at the past seven months.

You can see that in jus the past seven months, home prices have continued to increase.  This is extremely interesting because this is also the time that mortgages rates increased from 3% in December to almost 6% in May.  According to this graph, even to get to the median price of homes in February, home prices would have to drop 18%.

A question that has to be answered is, “Why are home prices being reduced?”  To answer this question, let’s look at two more graphs, one shows active listings and the other shows sales per month, over the past three years.

The graph on the left shows how the number of active listings (inventory) decreased dramatically.  Then the law of supply and demand kicked in.  With low inventory and strong buyer demand, prices accelerated.  In the chart to the right, you can see that sales were very strong through 2020 and 2021.  Because of the competition for homes, buyers were willing to pay over asking price, waive inspections, waive appraisal contingencies, etc.  Buyers were chasing the market, and this helped push prices higher.

In 2022, the Fed raised interest rates and mortgage rates began to rise and this impacted buyer’s affordability.  For example, if a family had a monthly budget of $2400 for mortgage and interest, at a 3%  rate they could afford a mortgage of $530,000.  However, when rates went to 6%, this family could only afford a $400,000 mortgage.  In six months, they lost $130,000 of purchasing power.  This impacted sales, as shown in the graph.

So, how to sellers respond?  They lower the price of the home to attract buyers.  The degree to which they reduce the price of their home depends on the attention their house is getting.  If they reduce the price 3.28% and still do not have interest, they may reduce the price again and again until there is interest.

Tampa is still seeing about 25% of homes receive multiple offers.  That is down from close to 57%, but 25% still signals a competitive market.  Mortgage rates, now around 5.5% are still low when you look historically going back to the early 1970s.   If mortgage rates fall in the futures, homeowners can take advantage of refinancing.

If you are considering selling your home, let’s talk.  I can show you the comparable sales and talk about a pricing strategy.

Home prices have increased by over 30% since last year.  Feeding this increase were the low mortgage rates, lack of inventory and strong buyer demand.  With mortgage rates now above 5%, some people think that buying a house is too expensive.  While the cost of borrowing money has increased, buying a home is still a cheaper alternative to renting.  Let’s take a look at some numbers.

Doing a quick search for single-family homes for rent (for Hillsborough County), I found monthly rent prices ranging from $1950 to $6,500.  Let’s use a below-average rent of $2300 a month.

A 30-year mortgage, with a fixed rate of 5.25% for $416,000 would cost you $2300 a month.  However, if you buy a home, you also have taxes and insurance.  So, let’s figure that in.

If we assume taxes are about 2% of the purchase price, that would put the taxes at $8320 annually, or $693 a month.  On the conservative side, we can plan $300 a month for insurance.  So, each month one would pay $2300, $693 and $300, a total of $3293 per month.  Again, this is based on a loan of $416,000.

What if the loan is only $300,000?   The monthly mortgage/interest payment would be $1657, taxes would be $500 and again insurance at $300.  The total is $2457 (which is in line with the average rent now).

There are three main hurdles that buyers are facing right now: 1) qualifying for a loan – be sure to keep the credit score above 650, 2) having enough money for the down-payment and closing costs (you need to plan for about 9%), 3) presenting a strong enough offer in today’s competitive market.