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Sales, Interest Rates, and What Spring May Bring

Posted by Greg Moser on April 1, 2017
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Good morning! The past few days have been gorgeous; we have seen 80+ degree temperatures, blue skies, and most importantly, NO RAIN! It looks like we have finally made it through this record setting wet winter; I was beginning to feel like I was living in Seattle. Luckily I am still here in San Diego and I am glad to be headed towards the spring season, which brings me to the point of this blog. I wanted to touch on three topics: summer sales forecast, the Fed’s move on interest rates, and what to expect as we approach spring – so let’s get started.
As most of you know, if you are looking to buy this summer, there really isn’t much out there. Inventory levels are still near record lows. Most market area average list times continue to hover around the 3-5 day timeframe before moving into pending status. In some areas, the average list time is more like a 24-48 hour timeframe. Oddly enough, some of the most expensive market areas, such as Carlsbad, Encinitas, and 4S Ranch, are the communities you will most commonly see houses flying off the market within hours. In San Marcos, most if not all of my listings sell within the same day. It has become a common occurrence to obtain multiple offers that are either at or above list price from very well, qualified buyers. The primary difference between today’s buyer and that of the “bubble era buyer” is that buyers are willing to money down and are seeking long-term financing. The days of the 100% no money-down, two-year interest only loans are long gone. These days loans are full-doc, the buyer(s) must have good credit and show the ability to repay the loan.
Now let’s move on to the second topic: The Fed’s move on interest rates.
On Wednesday, we got the much-anticipated rate increase, which Wall Street had been pricing this in since the meeting in January. So this is nothing new and by no means is this surprising. This was ‘baked in’ several months ago, when the Fed met in the beginning of the year. So, what happens now, do rates go up? Do we see a pull-back? The answer is yes and no. Here’s my take, or more so, a forecast moving forward. The chart below shows what Wall Street expects to happen based on future Fed meetings.

As it relates to interest rates, the key factors are jobs and consumer confidence. With stronger-than-expected job creations that occurred in February, we expected the market to react. It turns out that the market didn’t react the way some felt it would and Wall Street didn’t even really flinch. It seemed as if consumers were more upbeat about the numbers than the folks who manage our money. So why would that happen?
Typically, a strong jobs report is bad news for rates. However, and in this case, the market appears to be benign. The majority of the times, markets mirror what is released; if the Jobs Report is higher than expected, we (again in most cases) see other key markets react in a similar fashion. In this particular instance, nothing really happened. Some investors think hesitation is an indicator of trouble to come, but some say the opposite. In either regard, it is important to maintain a watchful eye as we navigate through uncharted waters. The best way to stay in front of the market is to speak to a seasoned professional and never overact.
To echo what I always say, “Money is still very cheap”. If you are a buyer, go buy a home. If you are a seller, there is a buyer waiting to purchase your home. Real estate is the single best investment you will ever make – well, maybe unless you were friends with Bill Gates or Mark Zuckerberg back in college. . .
This time of year is usually when we see things begin to pick-up. Tax season is in full swing. The weather is improving, well, at least for us ‘west-coasters’, and those people that are ready to start looking for a new home need to begin actively looking. Last year we saw a very robust spring; we had record sales in several areas as buyers who were taking advantage of low rates and a strong economy. This year, I expect more of the same. Albeit rates are slightly higher, but overall, I think buyers are still looking to get into the market. With the obvious changes that are happening in the White House and the changes that are being made by the new administration, with a little luck, some of those changes will continue to bolster the economy.