I would be remiss if I didn't mention the bank failures last week, with Silicon Valley Bank leading the way, followed by Signature Bank and Silvergate Bank. The ramifications of this are still unknown, especially since more banks will fail in the coming weeks. While most of the deposits held by SVB were more than FDIC insurance limits, the Federal Reserve and US Treasury said depositors would be made whole. Unfortunately, this is terrible news for the "fight" against inflation, as more government spending will only exasperate the problem. I haven't been shy about my skepticism of the Fed and its true motives for rate increases, which are not all about fighting the inflation they created. However, some analysts have predicted the Fed would raise rates until "something breaks," which seems to have happened. Before the failure of SVB, analysts expected at least a 25 basis point rate increase at the coming FOMC meeting or even a 50 basis point increase if job numbers came in strong. However, many now believe the Fed may hold firm and not raise rates. What a difference a week makes!
This tumultuous activity in the financial sector is driving even more people towards hard assets like real estate. As a result, it will likely apply downward pressure on mortgage interest rates, 6.75% for the 30-year fixed-rate national average yesterday, down from over 7% just a few days ago.
I have documented the increase in buyer activity the closer rates get to 6% as buyers on the edge of affordability gain some breathing room. However, not every segment of the market is dependent on financing. For example, thirty-six homes are listed in Deschutes County at or above $2.5M, with nine more under contract. Since September 15, 2022, 26 have sold, with sixteen cash sales.
Deschutes County inventory increased slightly to 527, up sixteen from last week. However, the days on the market for actively listed homes decreased again, now at fifty-two. Pending and sold homes exactly matched last week at sixty-four and thirty-eight, respectively, and in another sign of solid buyer demand, the days on the market for pending sales dropped to thirteen. As a result, the median price reduction for pending sales decreased to -2.9%, with only twenty of the sixty-four pending sales reducing the list price. Two-hundred-twenty-one active listings have reduced the list price (41%) as prices firm up and new listing prices more closely reflect today's market without adjusting. Sixty-six homes hit the market in the previous seven days in Deschutes County.
It is impossible to predict whether the current economic climate entices sellers to list their homes, although the steady demand and firm prices are good motivations. However, there is no indication that a flood of inventory is coming. On the contrary, if mortgage interest rates begin to cool, more buyers will make offers, and without enough homes for sale to satisfy demand, prices will likely stay firm.
I regularly speak with buyers that expect a significant drawdown in home prices. Unfortunately, home prices have steadily increased for several years, and the current conditions are not applying downward pressure. Moreover, nothing in the data today indicates a change in the pricing dynamic. I understand buyers want a reasonable price on a new purchase, but a better question may be, "what will the home be worth in ten years?"
Whatever your opinions on the market, I have tools readily available on my website and up-to-date knowledge of our current market. Don't hesitate to contact me for any of your real estate needs or if you think I am wrong about my interpretation of the market! Together we can strategize the best way for you to achieve your goals.