Due to consecutive interest rate hikes by the Federal Reserve, the real estate market has rapidly cooled down, leading many to believe that now is not the time to buy a house. But is this the case? Let's analyze the data below.
According to data released by the California Association of Realtors in July, the median price of homes in the San Francisco Bay Area is around $1.3 million. Based on last year's experience, almost every buyer had to engage in bidding wars to secure desired properties, with winning bids often surpassing the asking price by more than 10%. To acquire a house priced at $1.3 million, one might need to offer as much as $1.5 million. Assuming a 20% down payment and a mortgage amount would be $1.2 million. Based on last year's interest rate of 3.25%, the monthly mortgage payment would be approximately $5,222, with property taxes averaging $1,563.
However, since this April, as the housing market began to cool off, many transactions have shown without extra markup, and some sellers are even willing to lower their prices. Taking the same $1.3 million property as an example, at the current interest rate of 5.5%, an 80% mortgage would result in a monthly payment of $5,905, with property taxes at $1,354 per month. Compared with the previous example, mortgage payments have increased by $683, but property taxes have decreased by $209. In other words, the monthly expense is only $474 more, which is $5,688 a year.
Reviewing the recent history of the Silicon Valley Bay Area housing market, it has consistently been characterized by high demand and low supply, favoring sellers. Despite the future market may not be as crazy as in the past two years, according to data from the past 20 years, the average annual growth rate of home value still exceeds 3.5%. Therefore, the property's appreciation exceeds the former expenses by more than ten times. Furthermore, the purchased price determines property taxes, with adjustments up to 1% annually. Once the bank starts to lower the interest rate, refinancing becomes an option, mitigating the situation from being as dire as imagined.
In conclusion, sometimes a crisis heralds an opportunity. Currently, many are hesitant due to high mortgage rates. However, from another perspective, this signifies less intense competition in the real estate market, providing buyers with more options. If a buyer can secure a favorable price now, even with a slightly higher monthly payment, it remains financially beneficial in the long run. Buyers need to either deal with high-interest rates or high housing prices. Waiting for the rate cuts may lead to another round of intense competition. Therefore, individuals searching for primary residences might find the present moment favorable, though this depends on individual financial situation and needs. This insights are provided from my extensive experience in the real estate business. While there's no way to guarantee the accuracy, I welcome your comments and differing viewpoints for further discussion.
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