Happy New Year! And many blessings!
Market watch 1.
As we start this Near Year, the question on the mind of anyone who works in real estate, is looking to sell or buy is; what will happen in 2011? Will interest rates continue to go up? Will home prices continue to do down? Shall I buy now? Shall I sell, Shall I wait?
Since I get asked these sorts of questions all the time from clients and colleagues, I wanted to share my thoughts with you these very important questions.
While none of us has a crystal ball, certain market elements and indicators give us an idea of where the market could potentially be going. Based on my research, here’s what I see.
Will Interest Rates go up and will home prices continue to go down?
Traditionally, when interests rates go up, home prices go down. However, the current market has broken this pattern (after all, this is not your typical real estate market). Today, we enjoy record low mortgage rates and record low home prices. The prediction is that both interest rates and home prices will continue to go up together. The reason being that as the economy continues to improve in 2011, interest rates will continue to rise and people who have been waiting in the side lines to get into real estate market will finally jump in causing home prices to go up. This should create a more balanced and healthy real estate market.
Now let’s take a closer look at interest rates:
According to E. Scott Reckard from the Los Angeles Times in an article published on December 10, 2010, titled “Mortgage rates jump to 6-month high.” Mortgage financing giant Freddie Mac reported a fourth straight week of increases in fixed rates, with lenders offering an average 4.61% to well-qualified buyers with 20% down payments, or 20% equity in the case of refinancing.
According to Mr. Reckard, “That means it now costs borrowers an extra $100 or so a month on a typical 30-year fixed-rate loan for $400,000, from four weeks ago when In plain language it means, that any barrower will now pay higher monthly payments due to higher interest rates.
Therefore since interest rates have been going up already, as the economy continue to recover, adding more jobs, and increasing industrial output and busting the public confidence; the Fed will have no choice but to start to put on the breaks on inflation and continue to let interest rates high.
I’ve spoken to some friends and colleagues that say, “It doesn’t matter if interest rates go up if prices come down”.
Will home prices continue to go down?
As mentioned earlier, history tells us that if interest rates go up, home prices will go down but the interesting thing about the current real estate market is that this may not be the case. In actuality, the prediction is home prices will go up! Thanks in part to the immense drop in real estate prices over the last four to five years and the continual increase in demand for housing.
According to Alejandro Lazo from the Los Angeles Times in an article written on December 23, 2010:
“Sales of previously owned U.S. homes last month rose 5.6% over the previous month”. Also, according to the Westchester-Putnam Association of Realtors, home prices increased in the four quarters of 2010.
Therefore, based on what theses sources are telling us, we can say that the market is heating up and that home prices are likely to not go down.
Should I buy, should I sell or should I wait?
Every buyer and seller that I speak to asks this question and with good reason and the answer is a bit tricky, but in my opinion, this is the time to both buy and sell.
For buyers, this is a great opportunity to buy real estate at insanely low prices and interest rates. As I discussed above, the prediction is that both interest rates and prices will go up and therefore I feel this is a great time to buy. As I always tell my clients, in this economy, don’t wait to buy real estate, buy real estate and wait.
Although the market is still considered a buyers market, for folks who need to sell and have not been able to due to a bad-housing market, the good news is the market is heating up and the real estate market is becoming much more balanced. As we discussed above, the fact prices have gone up but interest rates are low means you can sell your home for a higher price and are more likely to find qualified buyers. Therefore you should consider selling now.
What will 2011 bring?
Given how busy the first few weeks of the year have been, the recent news and analysis provided above, I predict the real estate market will make a decent start towards normalcy in 2011. I also predict that a lot of buyers who have been on the sidelines waiting for the market to continue to deteriorate will realize the market is actually recovery and will jump in.
Here’s to a great 2011!