Mozart has staked his reputation on North SD County Coastal home prices going up 10% in two years.
If there were rumblings of increased pricing, would buyers get off the fence?
Yes, I think they would, but being off the fence and actively looking for a home, is different than buying. Can you imagine the environment? If the media started bottom-talking, there would be MORE over-priced turkeys than today because sellers would be quick to tack on an extra 5-10% on top of their already-inflated sense of what their house is worth.
Here’s an example of how San Diego sellers reacted lately – note how quickly the list pricing goes up:
Rising mortgage rates might cause prices to come down, making the wait worth it for buyers. But they’d have to go way up to tank the market – probably above 6% and closer to 7% – and Helicopter Ben has said that he has more tricks up his sleeve. Because sellers would be slow to react to higher rates, and most would probably just cancel and wait, there would be a limited number of sales at drastically-reduced prices.
How much would sellers have to come down to compensate for rising rates?
For illustration, here are the loan amounts that have roughly a $2,684 per month payment, P&I:
5% = $500,000
6% = $446,000
7% = $405,000
8% = $366,000
If rates went to 7%, how many sellers would cut $95,000 off their price to compensate?
Those that did probably wouldn’t be selling premium properties, they’d be giving away their junk.
Prices around NSDCC have been fairly stable the last two years, what else besides higher rates might cause them to drop? Natural disasters, wars, terrorist attacks, country going bankrupt, and other major negative events would cause sellers to cancel their listing, not dump. About the only thing imaginable would be banks ramping up the foreclosure machine and then giving them away on the open market – and we’ve seen lately how adept they are at kicking the can down the road.
Things that could help improve the market (but all look very unlikely): Better unemployment, tax revolution, creative financing, additional well-priced inventory, etc.
An improving market might cause buyers to heighten their efforts, but in the end, almost all will be patient until they find the right house, at the right price.