More Boom, Less Gloom?
The market has been on quite a ride. With continued historical low interest rates we have seen values exceed that of the last boom peak of 2008. Fortunately, interest rates are still approximately 1.5% lower than the same time in 2008, but with many experts betting on the rates inching up we are left at a crossroads: take advantage and lock in the low rates or bet the rate increase exceeds affordability. Keep in mind the local affordability in 2008 was in the 18-22% range. I think this is a timely topic because a reasonable argument can be made for either decision.
One thing is for certain; if I had a property to sell I would want to take advantage of high prices and low interest rates and sell now. According to the California Association of Realtors economic data the affordability is in a downward trend. That’s not much of a surprise when you look at some of the recent sale prices. With so much strength in our local job market, a younger demographic buyer and a solid stock market, I am not surprised to see young buyers take advantage and purchase a long term home for their newer families. As a Seller, the affordability is crucial to realizing a top price for your home. If buyers can afford more (driven by interest rates) then they can pay more for your home and less to the big banks. When rates exceed their affordability, the prices either have to come down or the buyer will look in a less expensive neighborhood.
In the last boom I knew a number of families that were betting on the market position. They sold homes, moved into rental properties and waited for the market to drop.
SANTA CLARA COUNTY AFFORDABILITY INDEX HISTORY
In some cases the market continued to excel and the families found themselves out of the market and struggling to get back in during a double digit appreciation year. Timing the market is practically impossible, but being diligent about understanding the signs is paramount.
I think there are still opportunities in the market to buy your home, but if you are looking to flip houses or have a short window before selling I would not advise currently buying. This is a long-term market and if that’s your goal, then let’s get you a home!
The plan you ultimately take should take into account your long term goals, risk tolerance, and stage of life. If you are starting a new family you may want to lock in a historically low interest rate on a home you will occupy for the foreseeable future. Maybe you want to buy neighborhoods you think are under-valued. Whatever the rationale I am here to support you and provide advice, guidance, and execution of your goals.