- The 30-year fixed mortgage rate is at 6.61%, down from a peak of 7.08%.
- Existing-home sales fell in October, down 5.9% from September and 28.4% from a year ago.
- Dottie Herman says we shouldn’t be comparing today’s real estate market to last year’s anomaly.
There appears to be some movement on the housing front as mortgage rates have steeply dropped.
As of Tuesday, the 30-year fixed rate is now at 6.61%, down from a peak of 7.08%. The adjusted rates come on the heels of an easing inflation rate which measured at 7.7% in October, compared to 8.2% in September.
The 30-year fixed rates are expected to average 6.8% in 2023 and 6.1% in 2024, according to November’s housing forecast from Fannie Mae.
But even when rates reached 7%, they were at a historical average, said Dottie Herman, the vice-chair of real-estate company Douglas Elliman and host of the radio show “Eye on Real Estate.” As of 2017, Herman had a net worth of $260 million, making her the richest self-made woman in US real estate according to Forbes.
You can’t compare current mortgage rates to last year’s print of 3%, which she noted was an anomaly she hasn’t seen in her 30 years of being in the industry.
“I would tell people on my radio show at 3%, you might as well buy something. It’s like free money. But historically we are really not at high-interest rates,” Herman said.
You can’t time the market, she added. But you can make a comparison with other asset classes. For example, look at what happened in the stock market, it’s been bad, she said. Year-to-date, the S&P 500 was down by about 17%, as of Tuesday. Banks also aren’t offering high returns for keeping your money in cash.
“So if you don’t want to put your money in stocks and you don’t want to put it in the bank, then housing is a good long-term investment,” Herman said.
A recent report from the National Association of Realtors (NAR), a real estate research and data firm, shows existing-home sales fell for the ninth straight month in October, down 5.9% from September and 28.4% from a year ago.
According to Herman, the steep plunge from last year isn’t a cause for alarm. Nothing should be compared to last year’s unprecedented market-buying frenzy. Everyone who could move during the pandemic, did.
“Last year, I’m not kidding, there could be 15 offers on one [property] because again, they didn’t have a lot of inventory last year either,” Herman said. “And what would happen is, if you were a first-time buyer, if you didn’t have a lot of cash down, you didn’t even get a chance. Sellers didn’t even want to hear offers.”
We were in lockdown. People didn’t need to be in the offices and were working from home. They relocated for more indoor and outdoor space, she said. Others were afraid of the pandemic and just wanted to get out of cities, she added.
Regardless of whether the Federal Reserve continues to raise interest rates or not, outcomes in the housing market are going to depend on available inventory, she noted. The median home sales price rose to $379,100, up 6.6% from the previous year, according to the NAR report. This is because there are so many people still looking for homes, especially millennials, who are at the stage of their lives where they’re looking to settle, she said.
As we enter the holiday season, inventory is going to shrink further because people don’t want to be bothered with selling their homes during this time, Herman said. Historically, the next few months are the slowest for the industry.
Indeed, inventory of unsold existing homes is shrinking after they fell for the third straight month to 1.22 million at the end of October, down 0.8% from both September and one year ago, according to the NAR report.
As mortgage rates remain elevated, many would-be home sellers aren’t inclined to make a move that will result in switching their current mortgage for one that could be double the interest rate. But Herman doesn’t believe interest rates are what’s deterring people from buying and selling. Instead, she attributes it to the fear of a potential recession next year, which is making people think twice about taking on new debt. Layoffs in many large companies are also underway, causing many to feel uncertain about their future. So homeowners are just choosing to stay put, she said.
As for those who have cash, they are putting that upfront as part of their offer to secure a better deal, she noted. In a majority of cases, sellers will accept less if it’s an all-cash deal because they know their home is sold, she added. The percentage of all-cash buyers is up, at 26% of transactions in October compared to 22% in September and 24% a year ago, according to the same report.
Meanwhile, individual investors or second-home buyers purchased 16% of homes in October, up from 15% in September. The pandemic has calmed down. People don’t have to escape the city as much. If you’re an investor, you might think it’s a good time to get some deals, she said. So if you want to buy, you should be out in the market looking at inventory, she added.
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