Ramesh Rao Blog September 27, 2023


Buy on the Bad News and Sell on the Good News

This is a perfect time to invest in real estate as a way for wealth creation.  Being a Contrarian is a perfect strategy at this time.  Although the inventory of homes in the Bay Area is low, the sellers are willing to negotiate as the lower competition among the buyers reduces the offer prices.  If you have been waiting to buy a home, this IS your time.  Act now and not when every other buyer is also making an attempt to buy next year.  Call me for your free consultation.  I am at 408-806-6496.

Despite welcome news to the Fed that consumer prices eased more than expected in October, inflation remains a threat to the economy as it continues to erode Americans’ purchasing power. Housing affordability in Q322, for example, dipped again from last year, despite inching up slightly from Q222. Meanwhile, the average 30-year fixed-rate mortgage (FRM) jumped back over 7%, depressing refinance activity to a 22-year low. Purchase applications, on the other hand, made a modest improvement for the first time in six weeks, but still remained well below the level observed at the same time last year. With mortgage rates hovering near the 20-year high, consumer’s confidence in the housing market dipped further in October as affordability remains the top challenge for homebuyers.

Housing affordability in California inched up in Q322: The statewide housing affordability index (HAI) for existing single-family home sales increased to 18%, after hitting a 15-year low of 16% in Q222. Despite an improvement on a quarter-to-quarter basis, the state housing affordability index (HAI) dipped again year-over-year by 6 percentage points from Q321. The monthly mortgage payment for a median-priced home (including taxes and insurance) decreased 3.2% from Q222, as the statewide median price dipped 6.1% from the previous quarter but jumped 29.9% from Q321. With interest rates remaining near the 20-year high, housing affordability will continue to be a challenge for many homebuyers in the coming quarters.

Consumer confidence in housing hits new all-time low: According to Fannie Mae’s Home Purchase Sentiment Index (HPSI), consumers sentiment dipped to the lowest level since the inception of their survey in 2011, as persistently high home prices and unfavorable mortgage rates continue to fuel consumers’ housing affordability concerns. The index declined 4.1 points in October to 56.7, marking its eighth consecutive monthly decline. Compared to October of last year the index is down 18.8 points. Only 16% of respondents indicated now is a good time to buy a home, a new survey low, while the share of those who believe now is a good time to sell a home declined sharply from 59% to 51%.

Mortgage rates rise above 7% again, flattening mortgage demand: With the Fed tightening its monetary policy once again in the November meeting to fight against inflation, rates climbed back over 7%. According to Freddie Mac’s weekly survey, 30-year FRM averaged 7.08% as of November 10. This was up from 6.95% the week prior. With higher mortgage rates, total mortgage applications decreased 0.1% from one week earlier for the week ending November 4, 2022, according to the Mortgage Bankers Association (MBA) weekly survey. Refinance demand fell another 4% pushing refinance applications 87% behind last year’s level. Meanwhile, purchase applications increased 1% and marked its first gain in six weeks. Purchase demand was still down 41% from a year ago and dropped to a near seven-year low.

Consumer prices inch up slightly, but the inflation downshift continues in the right direction: The index measuring the typical basket of goods and services, also known as CPI rose in October by 0.4% from the month prior. Price pressures signaled signs of cooling off as the index grew at the smallest clip year-over-year since January, registering a 7.7% growth from the same time a year ago. While October’s moderation in inflation is good news, the Core CPI, which excludes more volatile food and energy prices, still rose 0.3% and kept the annualized rate of core inflation at 6.3% – well above the Fed’s 2% target. Shelter costs also posted their highest monthly gain since 1990. Based on this report, the Fed will likely raise the rate again in December.

More prospective buyers are actively searching for a home: Despite higher interest rates negatively impacting housing affordability and demand for homes, not all buyers have been sidelined. According to the latest Housing Trends report by the National Association of Home Builders (NAHB), in Q322 59% of prospective buyers had moved beyond the planning phase and had become fully engaged in the buying process. This was up from 46% in Q122 and 49% in Q222. The share of prospective buyers actively searching for a home rose in every region between the second and third quarter of 2022, with the West having the largest share at 68%. Less competition and more inventory were the driving force for the sharp increase in the recent quarter. (Courtesy of California Association of Realtors).