Be careful what you wish for…

It was not too long ago that the potential borrower was hoping for a decrease in real estate prices.  Over the last year we have seen a downward trend in home prices and median home sales value but with that, came the constant increase in home loan interest rates.  As the US Federal Reserve (The Fed) tries to make a push at controlling the nation’s growing inflation rate the pain inflicted on home buyers has been a substantial blow that has slowed down consumption over the past year.  The process of purchasing a home has not changed but what is incredibly noticeable is the purchasing power decrease that the consumer faces due to higher interest rates.  Industry forecasters feel that we have reached, or are relatively close to, the peak of mortgage rates and that we should see low 5’s again before the end of the year. Those who waited for the Housing Market to adjust down are now having to pay more for their homes due to the higher rate market.

The entire home purchasing process has changed dramatically over the past year in the Las Vegas Valley.  As of February 2023, the median days on market rose to 74 days.  That is 53 MORE days than last year when homes were averaging 3 weeks on the market.  The number of homes being sold also decreased 27.3% year over year in the month of February while the median sales price dropped 8% to $382,000.  These numbers indicate that buyers can still take advantage of the trends by requesting seller concessions or possibly getting an offer accepted below listing price.  The longer length of time for homes listed on the market has also created an increase of 27.1% in Price Drops over the last year.  Buyers still have the upper hand over sellers at the moment, but their purchase capacity has substantially decreased with the constant increases in the interest rates.

During the last two weeks of the first quarter, mortgage rates decreased after five consecutive increasing weeks, bringing a slight pause to the interest cost pain being incurred by all potential buyers.  Home loan interest rates are still being indirectly effected by the current battle between high inflation and the Fed’s actions to fight and try to control inflation.  The 30-year fixed rate mortgage average was  6.60% mid-March and has slightly decreased to 6.42% in the week ending on the 23rd of March.  In early 2022 the average 30-year fixed mortgage rate was about 3.22% and it is currently, more than double, at around 6.87%.  This goes to show that the cost of waiting one year to purchase a home has cost the consumer 100% more in increased interest.

Forecasting the direction of interest rates is a tough task but one thing is for certain: when rates do come down we’ll be sent into another HOT housing market.  Inventory will be low and buyers will once again be submerged into bidding wars, which in turn will drive prices up.  Rates will come down again, but the question is; When? 

Home buyers have the choice of hanging on in hopes that interest rates go down and they experience a little less pain on the bank account.  Real Estate will continue to be a good investment tool regardless of the rate industry due to the fact your only other alternative would be renting, which in turn is 100% interest on a home that you will never own.

Daniel Herrera is the Branch Operations Manager at Residential Bancorp. He can be reached at 714.878.3112 or daniel.herrera@bancorp.com.