Psychology and Effect
Instead of “cause and effect”, there are times when changes in the price of a house can be correlated to the change of the cost of loan funds. But the reaction to the change in mortgage rates was psychologically driven – 3.99% is not much different than 4.26% but it’s a coup to get a rate “below 4%”.
Our government loves to help and the reduction of mortgage rates (specifically the 20 months from November 2011 through May 2013) were below 4% for the first time EVER! Those same 20 months saw a total increase of 57% in the median price in Sacramento. And Cash buyers peaked during that same time. Investors were betting that prices were at a relative bottom.
Since September ’13, the total increase in that same median price has only been 21%. For the entire period since November ’11, the increase in that Sacramento median price has only been 85%. In my opinion, the reduction in mortgage rates below a “psychological low” of 4% in 2011 led to a sharp increase in prices when inventory was very low – BECAUSE most sellers still had a psychology of “no equity” so didn’t try to sell and the foreclosures were drying up. There was no source of inventory to mitigate the demand in those 20 months except foreclosures which were starting to decrease. And cash buyers were outbidding borrowers every time. And then there was Blackstone and their ilk.
In fact, all 3 county median prices hold to that same increase – in the first 20 of the 67 months from November ’11 through now (May ’17) is when 50% of the price increases occurred. That is 30% of the time (20/67 months) accounts for 50% of the appreciation (SA $165K-$344K, ED $240K-$467K, PL $245K-$462K).
The good news is that buyers have refused to be lured into the price wars that resulted in the peaks in 2005-07. The bad news is that the momentum has been stalled since the end of 2013 and continues in a lackluster way today – except for the nice homes under $400K (screaming off the market with multiple offers).
Even though most of us have more equity now, employment opportunities (minus the costs and impacts of relocating) are still needed. Jobs are still lacking. Sure, there are a lot of jobs but not the kind of jobs that justify TWO mortgages (one being health insurance). Gift letters are more common and some lenders are even providing the gifts.
There are loan programs. There are fewer jobs. There is more expense in a buyer’s budget. Sellers must have an opportunity, too. Affordability is not improving.
Jobs would be the best solution to our market “pickle”. But congress is too comfortable to think and act big.
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