More Locked-In Talk

Boy are these guys going to be surprised if rates come down and nothing changes.

The difference in rates might have the least to do with being locked in!

Here is more of the psycho-babble – and this guy is a chief economist:

Switching from a lower mortgage rate to a higher one can lead to significantly increased monthly payments. For many homeowners, the cost of selling their current home and purchasing a new one with a higher mortgage rate is financially unfeasible.

What could ease the lock-in effect going forward?

    • Life events: Over time, life events such as having an additional child or receiving a big promotion might prompt homeowners to sell their current homes and move, despite their ultralow mortgage rates. These personal changes could outweigh the financial disincentives for some.
    • Falling mortgage rates: If mortgage rates decrease, improved affordability could entice more homeowners to sell and buy new homes. While homeowners might not trade in their 4.0% mortgage rate for a 7.0% rate, they might consider moving if it means taking on, say, a 5.5% mortgage rate. This reduction in rates, if it occurs, could lower the switching cost and make moving a more viable option.

And odds are, the lock-in effect could take years to fade away.

“Mortgage rate trends aren’t likely to bust the lock-in effect until at least the end of the year, and possibly well into 2025, as the Fed holds fast on fighting inflation,” predicts senior economist Ralph McLaughlin.

“We’ll likely need to see a 150 to 200 basis points drop in the 10-year yield to get there, and at current spreads, this could require three to four rate cuts by the Fed. As of now, the market is pricing in just one to two cuts by the end of the year and two to three cuts in 2025,” he adds.

What are they missing? How hard it is to move.

You have to be willing to grind for months in search of a better home (one that makes it worth moving), juggle the sell-first-or-buy-first equation, pay six figures in capital-gains taxes, pay six figures in closing costs, and then fix up the new house like you did the old house. Sill want to move?

Hat tip to Carl for sending this in:

Zillow Predicts Decreasing Values

Here is the first report in the next cycle of local Zillow forecasts.

At the beginning of the year, they predicted that all of the local areas would appreciate 3% to 4%, and by March they raised their optimism into the 5% range.

All of those gains must have already happened?

They think that values will go negative from June to May, apparently.

These look like they will flatten out too:

It’s Friday – here is their next offering:

Summer Rally?

Yesterday, we saw a 6-handle again on the 30-year fixed rate mortgages, and it should come down a little more today.

With there being virtually no upward pressure on pricing – the quartiles just turned slightly lower than last year – we could see the sales momentum pick up if rates can just settle in the sixes.

Lower rates AND prices used to mean something. We’ll see about this year!

Frenzy Monitor – June

Almost all areas are bursting with active listings. Encinitas has joined La Jolla and Rancho Santa Fe in the “List ‘Em High And Let Them Fly” category. The median list price in the 92024 is $2,998,000!

Will buyers be affected? Will they notice?

La Jolla and Rancho Santa Fe don’t allow for-sale signs in the yard so you won’t notice just by driving around. The City of Encinitas is 20 square miles so having 75 signs probably won’t look like a glut. The average DOM is 40 days in Encinitas – once it gets up to 71 like it is in the Ranch, then buyers might take notice.

Peak 2024

The local market got off to a hot start in 2024 (January was hot – something to remember in 2025), so it follows that the selling season could conclude sooner than hoped. Let’s use the data to help decide it.

The NSDCC inventory peak of the year has been in mid-July recently:

July 17, 2023: 430

July 25, 2022: 480

July 19, 2021: 392

When we include the Coming Soons, the number of active listings today is 495 which blows right by the high counts of previous years – and we’re not done yet. The actives will be stacking up for another few weeks before sellers get discouraged and give up on 2024.

How about closed sales? They are the best indicator of all.

NSDCC Monthly Sales

The April sales this year will probably be the high point of 2024. There are 169 pendings today, and 117 of those went pending before June 1st so they have a good chance of closing this month. But adding those to the 44 already closed only gives us 161 sales for June.

It’s ok that the peak has come and gone already for this year.

It just means pricing needs to be sharp – sharper than ever – for the duration!


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