Did we overpay for our home?
Question of the week: Did we overpay for our home?
Answer: Probably not.
The answer, of course, depends on when you purchased your home. If you purchased your home in 1998 then the answer is certainly, “No.”
However, if you purchased your home in the past year, you may feel like you may have paid more than you could have if you waited.
Here is a chart of the median home prices, courtesy of the California Association of Realtors website, in each of the past five Junes (2019 to 2023), for single family homes statewide, and in Los Angeles and Orange Counties.
As you can see, if you purchased the median priced home in 2022, in 2023 the value of your home has decreased in value by 2.3% statewide, 3.25% in Los Angeles County, and 0.40% in Orange County. Keeping in mind the large territories covered by this data, results may vary depending on zip code and neighborhood.
As you may have read, the total number of sales of single family homes has declined significantly from 2021 to 2022 and from 2022 to 2023. Because of this, statistically, the chances you have purchased your home in the past year is extremely small.
For the vast majority of WR&MU readers, the answer is “no,” you did not over pay for your home. If you overbid the listing price to purchase your home in June 2020, or June 2021, during the buyer-feeding frenzies, as you can see, the median price of that home is either significantly higher than it was in 2020, or somewhat higher than 2021.
This data is where I have an issue with many real estate writers who have spent the past year writing about falling home prices, which may be true year to year, but not in more of a historical context, which is relevant for most homeowners, the current period of declining prices is not negatively impacting those who purchased prior to 2022—which, again, is the overwhelming number of home owners.
But what if we did purchase your home in the past year, we over paid, right?
Perhaps. However considering the current market, where there is scant inventory, in most markets less than two to three months of inventory (how long it would take the listings currently on the market to sell if no new listing came on the market). The lack of inventory has created bidding war market in several areas, homes averaging about two weeks on the market before being sold, and buyers being frustrated as they were three years ago when trying to purchase their new home.
As I have mentioned in prior WR&MUs, because of high mortgage rates real estate markets are missing inventory from move-up buyers who are understandably reticent to sell their homes with rates at or below 3% to purchase a new home with a rate near, or above, 7%.
When rates decline, more buyers will enter the market, inventory will be slow to catch up, and prices should increase.
Which should result in you being happy you purchased your home in 2022 or 2023 before prices took off again.
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A great week for writers and pundits who cover economics as there was some important data release every day. The three headline items were Fed interest rates, economic growth, and consumer prices.
Another rate increase from the Federal Reserve. As expected, the Fed increased its benchmark interest rate by 0.25% (one-quarter of one percent), this week, after no rate increase at its meeting in June. The increase pushed the prime rate to 8.5%, impacting those with Home Equity Lines of Credit. At Fed chair Jerome Powell’s press conference following the rate announcement, we learned that the Fed is no longer forecasting a recession. Which provides cover for more rate increases as members of the Fed can see the economy slowing to a “soft landing” on their current pace. The rate hike cover is my opinion as Powell did not answer any questions about possible hikes at it next meetings in September or October.
Supporting a possible rate hike was the initial estimate for 2nd quarter GDP, which showed 2.4% growth in the economy. Fueled by consumer spending increasing from April through June, the economy appears to be feeling few effects from rising interest rates. The news was not mortgage, or interest rate, friendly.
Supporting no rate hike was the PCE index (personal consumption expenditures), the preferred inflation index for the Federal Reserve. In June the index rose 0.2% from May, and 3.00% from last June, down from an annual increase of 3.8% last month. The annual increase was the lowest since October 2021. With inflation only 1% off the Fed’s 2.00% target, the speculation is that the Fed will back off rate increases if the PCE for August shows further decline. The PCE index data was favorable to rates.
Good news for real estate, somewhat in line with the Question of the Week, pending home sales are up 0.3%, the first increase in pending sales from the prior month since March.
On the other hand, (cliché statement for economists) personal spending jumped in June, up 0.5%, giving sentiment that 3rd quarter GDP may come in hot since consumer spending is 65-70% of our economy. The data is not favorable to rates as it not only puts fuel in the economy’s tank and can push inflation higher.
Rates for Friday July 28, 2023 Conforming rates popped yesterday on the GDP data resulting in rates being up for the second Friday in a row. High-balance conforming rates are flat for the week.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS FOR PURCHASE TRANSACTIONS:
30-year conforming 6.875% Up 0.125%
30-year high-balance conforming 7.500% Flat
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.
I am an avid reader. My routine is to read 30-40 minutes first thing every morning with some coffee, reading at lunch (where Kindle comes in handy as you don’t need something to weigh down the pages), if possible in the evening, and then in bed before lights out (me or the lamp—also Kindle friendly as when you fall asleep the Kindle hitting you is lighter than a thick hardbound book).
My reading passion supports me being a U.S. history buff, particularly the Revolution to Constitution era and the Civil War era. Yesterday I finished the final book in a trilogy of the Civil War by Bruce Catton. The books were written in the 1950’s and provide insight to the Union Army and the war that I had not known before. If you, or someone you know, enjoys learning about the Civil War, I highly recommend Catton’s books. Spoiler alert, had the command of the Union troops not been so inept and won the war in the early years, our country would be considerably different, likely two countries or more.
Stay cool, hydrate, have fun.
Have a great week,
Dennis
Past Weekly Rate & Market Updates can be found on my blog page at my website www.DennisCSmith.com/my-blog
