After a brief respite from previous highs, mortgage rates have again breached the 6% threshold. According to Mortgage News Daily, the national average of a 30-year fixed-rate mortgage is 6.37%. However, at a local lender's website, rates today show 6% and 6.168% APR, proof that shopping around is a wise decision. Additionally, after briefly peaking at over 7%, news of declining inflation has tempered rates considerably. Call me a skeptic, but I am hesitant to believe the heavily manipulated CPI numbers and have seen no sign of softening inflation in my grocery bill. Still, there is speculation that the Fed may raise rates next week by 50 basis points instead of the 75 basis points hikes of past meetings in 2022. Some have even speculated that the Fed will skip a rate hike entirely in January while the drum beats of recession grow louder.
This week's active inventory dropped dramatically from 782 single-family homes in Deschutes County to 745. In addition, pending sales rebounded from the Thanksgiving week low, with 41 pending sales. Sold homes doubled the pace of the holiday week at 70. The combination of strong buyer demand, moderated interest rates, and declining inventory keep prices relatively firm, despite the wave of price reductions about which everyone seems to be talking. Another data point that might take the wind out of the sails of those crowing about declining inflation is the median sold price of single-family homes. This week in 2021, there were 96 sold homes at a median price of 587k and the sold-to-list price ratio at 100%. This week, sales volume dropped by 27%, with 34 price reductions at a median of -7.29% and a sold/list ratio of 97.99%. However, the median sale price was 642k! So much for price reductions.
The unfortunate drop in buyer affordability is real. Using the median-priced sale this week of 642k, a 30-year fixed rate mortgage rate of 6.168%, $3000 in property tax, and $1000 for homeowners insurance (PITI), the monthly payment would be $3,472. The same calculation for last year's median of 587k and 3.23% interest, the rate from Mortgage News Daily for this week last year put the PITI payment at $2,372. At our current rates, the purchase price of a home would need to be 420k to match the payment from a year ago. Even the biggest skeptics in the business are not predicting a drop in home prices of 35%. However, most industry analysts believe the spike in mortgage interest rates won't last forever, and refinancing to a lower rate in the future when rates decrease would save significantly on a monthly payment. Today, many sellers accept offers well below asking, with each property having unique circumstances. For those of you without a sense of urgency, waiting could improve your situation. However, as long as inventory declines and buyers remain engaged in the market, the chances of steep drops in home prices are unlikely.
The best answer to today's market is to stay in close contact with your lender and real estate agent and to evaluate each option carefully. I am available anytime to run real-time numbers or make recommendations for local lenders who can help in these market conditions. Even with higher interest rates, waiting has proven to be the wrong strategy.
The Will Rogers quote, "Don't wait to buy real estate. Buy real estate and wait." is just as applicable today as ever. Home purchases should be a long-term decision, and the likelihood of the market correcting back to previous levels is low. While it may be correct that prices will continue to soften, if rates drop dramatically, prices may rise as buyers flood the market. Contact me if you need assistance navigating this balancing act!