I tell potential home buyers to keep looking because you never know when you will find the right house – which is the most important part of the equation. Most will convince themselves that it will be easier to find the right house if prices came down, and besides, the current crop isn’t that interesting.
To keep it simple, let’s just calculate how mortgage rates have changed the equation:
Purchase Price: $2,000,000
Loan Amount: $1,600,000
30-yr jumbo rate: 3%
Monthly pmt: $6,746
Buyers who expect the sellers to make up the entire difference with a lower sales price will have to wait until they can find a home that meets this description:
Purchase Price: $1,400,000
Loan Amount: $1,120,000
30-yr jumbo rate: 6%
Monthly pmt: $6,715
If home prices come down 30%, it will enable buyers to buy the same house for the same monthly payment – and with a $120,000 smaller down payment too. If it happened over the next five years, it means we only need to drop about 6% per year, and we’ve already dropped more than that in 2022.
Or let’s say you want to roll back to pre-pandemic pricing.
NSDCC homes that sold in February, 2020 closed at a median of $509/sf, and last month the median was $793/sf which means we’d need a 36% decline to get back to pre-pandemic pricing.
How are you going to play it?
Are you going to wait until you actually see homes selling for 30% to 36% off to get back into the game?
Are are you going to wait until rates come back to 3%?
Or do we acknowledge that the buyers who have more horsepower are going to jump back in sooner, and there’s not much chance of prices dropping the full 30% to 36%? The highly-motivated affluent folks will probably be satisfied with 20% off, and they will derail a full decline. It’s what happened in 2012.
Can you live with 20% off?
Because if you can, then you need to stay in the game.
If the #1 variable is buying the right house, then #2 is timing.
I think the affluent will be looking next spring, and if they find a suitable house, they are going to buy it. By then, some of the statistical pricing gauges will be showing 10% to 20% declines, either nationally or in isolated markets. Because the local pricing isn’t that nuanced and buyers just want a house, they will decide that’s close enough and go ahead with the purchase.
To support my suspicion, I’ll note that during the frenzy, it was the same mentality, just in reverse.
When people found the right house, they just paid whatever it took – even if it meant paying $500,000 to $1,000,000 over the list price! Nothing else mattered besides getting the right house.
Most buyers won’t believe their eyes, and the volume will be thin. But sellers will appreciate any momentum and be encouraged to price their home for about what they thought they could get, with not much discount. Buyers who want discounts will be relegated to scouring through the dent-and-scratch bin, or hope that moving during the off-season might be more fruitful. Great for them.
What are you going to do?
ok I will jump in here since you are looking for Realtime data.
I put an offer on a house in Dana Point for 1.7 million 35% cash down. The offer was 10% below overinflated list, since house had not been updated since the ice age. and it had deferred maintenance of at least 120K but was excellent location with partial ocean view from 2nd floor. I was willing to put my ego and intellect out to the wind (engineer and banker careers).
Tha agent was “begging for offer” home was 90day + on market, they come back with “we don’t need to sale” and agent just shrugged.( 2) Prior escrows fell through.
The “great standoff” is seller psychology more than buyer resistance (I am both sides so impartial_) Many are married to the rates and will age in place, unless they get their price.
Real estate is currently a miserable place stacked with lazy, incompetent agents, (not referring to you) and is unattainable and unstainable for most buyers and full of sellers who are delusional and denial.
2019 -2021 will be a asterisk in the history books. (We pulled 10+ years of forward appreciation)
Thank you for the great content for the years, and your blog will be following uncharted territory and should be getting invited for CNBC appearances for the truth.
Good luck to all.
Real estate is currently a miserable place stacked with lazy, incompetent agents, (not referring to you) and is unattainable and unstainable for most buyers and full of sellers who are delusional and denial.
Stacked. Loaded. Bulging.
Last month, there were 2,377 sales of all property types in San Diego County. If I had my pick of the 100 best agents in the county and formed The Super Group, we could close every sale ourselves.
There would be little or no stress, full communication and transparency, and lower costs.
Instead, we have 15,000 to 20,000 licensees who can’t help but be inexperienced and ill-equipped to provide expert help during the frenzy, let alone now.
Next year has disaster written all over it, unless buyers cave and just go along with the same old game.
Thanks for contributing, The Truth!
Poster “The Truth” says; “I was willing to put my ego and intellect out to the wind (engineer and banker careers).”
Wait. Shouldn’t that be:
“I was willing to put my intellect and ego out to the wind (engineer and banker careers).”
Thanks for sharing your experience.
Wall St’s expecting the Fed to increase the Federal Funds rate another 1.5% before the end of the year. If that takes mortgage rates up 1.5% to 8.5% – a level not seen in 1995, why would dropping prices stop at their 2020 level? You might actually go back to pre-housing bubble. I mean most economists are expecting us to go into a recession soon. That part hasn’t even started yet….