The real estate market, like the financial market, is interesting to watch. Subtle changes often signal bigger shifts are on the way. Two things are occurring at the same time which I believe will lead to a change in the San Diego real estate market.
The first item is the increase in interest rates. There has been a rise in mortgage interest rates of 1% over the last 3 weeks. For those of us who have watched the market for decades, this spike in interest rates was mind-blowing. Usually interest rates rise in small increments of 1/8% to 1/4% at a time. This last run up happened so quickly it caught many buyers off guard and caused many transactions to fall apart. Buyers who were buying at the top of the approval range found they could no longer qualify for the same mortgage amount. It is interesting to note that a 1% change in interest rates equals a 10% change in buying power. A buyer who qualifies for $500,000 at 3.5% interest will only qualify for $450,000 at 4.5%. Small wonder that we saw a big increase in cancelled escrow.
The second item is the number of homes coming on the market. July is typically a big month for home owners to put their homes up for sale. School ended in June and with a couple of weeks to fix up the home for sale, pretty quickly we are in July. I am finding at the broker’s previews I attend each week a larger number of homes available for sale, almost twice as many. I am also hearing about a larger number of homes getting ready to come on the market as agents pitch upcoming listings. We have been so starved for inventory that this increase in available homes is very exciting.
All of this brings me to my original statement that the San Diego real estate market is changing. I am now seeing reductions in asking price for homes, over the last week the number of reductions is running 80% over price increases. I am also seeing homes staying on the market for an increased number of days. Recently I was helping some first time buyers with a home. In the past, homes in this particular development were selling within a couple of days and for much more than the asking price. For my buyers, the home has been on the market for 2 weeks and the only offers have been low-ball. We had a chance to view the home twice, they had time to discuss the positives and negatives of the home to decide if this was the right home for them. Let me add that this is a nice home, in a nice complex at a fair price, this isn’t a tumbled-down, over-priced shack. My buyers were able to spend the time necessary to make a decision unlike just a few weeks ago when buyers were just throwing in any offer just to get a home.
The San Diego real estate market is changing, it is my belief this change is for the better. A stable housing market is good for everyone. I look forward to the last half of 2013 and a return to buyers and sellers once again enjoying the home buying and selling process.