The number of closed sales and the ratio between listings and sales (the “gap”) are in line with the start of Q4 for each of last three years, with 2014 having fewest sales vs listings. The arrows above demonstrate this inventory “gap” year over year at this time. Both inventory and units sold should taper off month over month as the year draw to a close.
We’re all on particularly pointy pins and needles as we close out this year. Not only are we enduring the wackiest presidential election ever (elections always throw everyone off balance) but also our long run of super low interest rates is almost certainly coming to an end.
Never have rates been this low. EVER. And even when they were nearly this low, rates were never suppressed for this protracted a period. EVER. As in NEVER. We’re talking a 7 year stretch versus 1 or 2 years. Here’s a chart dating back to 1952 – see for yourself. Low interest rates make buyers happy. When rates rise, buyers often withdraw and wait.
When I ask the smartest folks I know (and I’m asking them all) what is going to happen to rates next, I get the exact same reaction – None. Blank. Crickets. No one has a clear idea what to expect, except that most agree that rates will start to rise soon. Prognostications range from a rate hike in December to predictions of a later hike in Q1 2017, to multiple rate hikes in the next 12-18 months.
CNBC recently reported that the Fed is likely to raise rates a quarter point later this year stating, “General consensus seems to indicate that the Fed wants to slowly lift rates so inflation doesn’t climb too swiftly. Additionally, it’s principal ammunition during an economic downturn is to lower rates, which can’t happen when they are already this low.”
Robert Johnson, President and CEO of the American College of Financial Services, states that a rate hike in December is likely. And a Wall Street Journal survey of 62 economists earlier this year reported that 71% of them expect the Fed to wait until December 2016 for a rate increase.
So the question of rising interest rates seems to be about ‘when,’ not ‘if.’
Whenever this does happen, you can bet your bottom dollar that the massively huge population of Millennials, our favorite new phenom, will have a collective freak out and pump the brakes on purchases. I’ll bet home sales and all large ticket item sales will get stalled for a time, as these super-digital, cloud sharing, data-obsessed buyers start to analyze the market data and try to determine when the rates will come back down.
As smart as these young people are, I do not for one moment believe they will look at a chart like the one above and note the freaking obvious. This has NEVER happened before. There is no past precedent. We’re all watching and waiting to see what’s around the next corner.
Because most every market analyst sees a rate hike is coming, it shouldn’t be too impactful. Technology has changed the way our markets respond to changes and analysts note that the markets are widely expecting interest rate hikes and therefore have been responding in advance.
That also makes it rational to assume that even though home buyers will likely have a collective panic attack in the near future, it probably won’t mean a thing.
I’m pretty sure even fewer homes will sell from now through February, than in past winter seasons. Possibly even record low numbers of homes will sell. Buyers need to remember that fewer homes sold is NOT an indication of market instability. And it does not mean sellers will drop their prices. A few sellers who absolutely can’t wait for their price may sell for less than others. However, most won’t.
By Q2 2017, both inventory and sales should pick up and resume their normal pace into summer.
For sellers, this means get your homes sold for a reasonable price as fast as you possibly can, before any interest rate hikes. Or hunker down until next spring sometime. If you own property in any of the entry level priced communities including Aliso Viejo, Cypress, La Habra, La Palma and Garden Grove, it’s your market! It’s taking less than 45 days on average to sell property there, and multiple buyers are still competing for the privilege to buy homes there.
Buyers, buy NOW. Right this very minute if you can. You’ll get good prices and the best rates if you act now. A quarter percent increase in mortgage interest has a lot more impact here in Orange County where prices are much higher than in other US regions. The luxury communities of Laguna Beach, Corona Del Mar, and Villa Park are all over-inventoried. It’s taking 5-6 months to sell a home in these areas. The highest priced homes are taking even longer. You should do well in these areas – if you strike now.
Note: As if to deliberately foil my efforts to extract historical sales data, the MLS has undergone another recent upgrade. They added all kinds of additional data fields, including about a dozen new property classification codes. But they’ve also restricted the data search criteria to the prior 4 years. Sadly this is all we’ve got to work with. I was hoping to go back 10 or more years for my reports. No such luck anymore.