How quickly the market changes, especially when it comes to the San Francisco real estate market.
What is the one main item that was affecting real estate buyers last year? Ding Ding Ding, interest rates right? Followed by the speculation that the market will tank. Many of my buyer clients were worried about a correction in the market, and rightfully so. The bullish narrative from the Fed in 2018 and their policy was to push rates up to cool the economy Raising rates reduces the purchasing power of buyers, thus pushing prices down to more affordable levels. Also, the principle of supply and demand is clear when it comes to real estate.
Back in Nov. and Dec. I was worried the the Fed was not listening, however they were basically forced to make that one last rate hike in Dec. as it would send mixed signals if they didn’t raise the rate. If you recall, it was in that period of time the Dow started it’s nose dive, remember? Heck I even had Realtors tell me they are bracing for a recession, really?!?!
Where did that doom and gloom narrative go in the last few months? Many people in the real estate industry were thinking it would be as volatile this year then in Q3/Q4 of 2018, I however believe there is considerable stability taking place currently.
This assumption is based on the narrative that the Fed is pushing out. They are worried about a slowdown (that doesn’t mean a recession), which simply means there are headwinds in the economy, from global trade talks, a slowing European economy, China needing to stimulate their economy, etc. When have we not had headwinds?
Have you also noticed the 10 Year T-Bill is now at 2.533%, which is basically where we were in Jan. of 18′. Mortgage rates will go up and adjust, but they are still at very reasonable levels and I believe the Fed is in sync with the markets. Heck, if you are a client of Merrill Lynch or other financial institutions you know you can get a mortgage for less then 3% right now, which is fantastically low.
I believe the FED will not raise rates for at least 6+ months, many financial advisors and analysts are predicting zero rate hikes in 2019. Beyond the trade talks going on with China, which I believe we have the upper hand, most of the other economic issues are more on a global level. Which means the good ol’ US of A is still the worlds leading economy and the Fed is doing it’s part to stabilize it from volatility like back in Dec.
For real estate buyers, I do think as interest rates slowly go up that the price of homes will come down, it is just natural for prices to go up and come down in a normal market. However I do not believe there is a cliff around the corner like in 2008, I think there will be a gradual price adjustment down as rates go up in the long term.
For those waiting for a market correction and needing a home loan, you might miss the boat if you wait too long, as the prices may come down in a few years, but you will be paying more for your mortgage. Also, I think the IPO’s that will effect the city will only help to stabilize real estate values, not necessarily drive prices through the roof, but help keep demand and prices up.
I think regardless, buyers should have a longer term position when it comes to holding real estate. This is not a 3-4 year hold market, I would suggest you need to be in for closer to 7 or 8 years. If that is the case, it might be wise to buy into a unit that is not subject to eviction control, so buy into newer complexes if you can. If life changes come up, you can easily rent out the unit, get market rent and wait for the right time to sell the asset and not have to worry about eviction. Do what you can in the mean time to push the prices down if there is an opportunity. Make the opportunity happen for you as a buyer, push prices down in possible and follow the trends. Cheers. Jeff