How can we time the market?

Question of the week:  How can we time the market?

Answer: You can’t.

Some people will manage to hit the low price or rate when they buy a home, others will manage to hit the high price when they sell their home; but this is almost always due to the “right place, right time” theory than strategically knowing when that low or high will occur.

With rates up 2.125% from one year ago this week, median home prices up 8.7% statewide, 10.0% in LA County, and 20.5% in Orange County from April 2021 to April 2022, a lot of families are waiting for “the market to drop” before they purchase their next home.

Will that happen? If so, when and how much?

What happens if prices do drop but rates move higher?

What happens if rates drop but prices move higher?

With inflation well over 8%, and the Fed having stated it will take significant actions to lower inflation, primarily by increasing interest rates, what scenario will lead to lower interest rates in the near, or medium, future?

Listing inventory for single family residences and condos (i.e. homes actively for sale) is up about 30% from January statewide, but even with the recent increase inventory is still 45% lower than pre-pandemic January 2020, and 68% lower than October 2018 when homes on the market were at their highest in the past five years (and interest rates were very close to where they are today). With the market still experiencing extremely low inventory, are rates going to cool demand enough to push home prices lower? Is so, how long will it take for the supply and demand to flip for this to occur?

When prices are going up, the media pundits fill the airwaves and social media feeds with opinions that the market is going to drop. For days, weeks, months, in our recent market years. At some point one of them if going to be right at the right time. When the markets are going the other way the same “experts” opine that they will turn in the near future because…and some point, repeating themselves daily, they will be right.

Having written the WR&MU for about two decades, long (long, long) time, thus through boom-and-bust real estate markets, spiking and dropping interest rate markets, my view is still the same. We will know when prices have peaked, or bottomed, in any cycle about three to four months, or longer, after the peak or valley. A few will enter or exit at the appropriate time, not due to some amazing insight, but because they happened to be in the right place at the right time.

You cannot time the market. There are too many factors that impact our economy, from external forces, such as a demagogue invading a neighboring nation, or a shut down in the largest manufacturing country in the world due to a viral outbreak, or government intervention into the markets to control prices.

What you can do is buy your new home for the price you can afford at the time you can afford it.

Today with a rate around 5% you can afford a home valued at $800,000. Next month that $800,000 home maybe $810,000 and the rate may be still be 5.00%; or it may be $815,000 and the rate 4.75%, or $815,000 and the rate 5.25%. No one knows what the combination of value and rates will be in a week, a month, six months…

From thirty-five years’ experience in the industry, I can strongly attest to the sooner a family purchases their home the better off they are in the long run. Over time, prices go up. Over time rates will go up and down and while today’s rates seem high relative to a year ago, heck three months ago, over the period of homeownership there is a good chance that lower rates will appear enabling the opportunity to refinance and lower monthly mortgage payments.

Yes, real estate prices may decline in the future. And yes, rates may decline in the future. But when, and from what price will the decline occur, from what rate?

Finally, if you do buy your new home, a home you intend to live in for several years, maybe until your elementary school age children graduate high school, will it matter if prices drop in six months, a year, two years? From what level will they be dropping, and more importantly, what difference will that drop make when you intend to sell your home is six, seven, eight years?

If buying a new home is something you wish to do, contact me to go through your options today, and to go through “what if…” for possible future scenarios and the impact on your purchasing power. That way when  you do feel you have timed the market you will be prepared.

Have a question? Ask me!

Recession? Not according to U.S. consumers. Consumer spending is approximately 70% of the American economy. Perhaps the best gauge of our economy is retail sales data—how much are Americans spending on goods and services for personal consumption.

In March and April, cash registers were ringing. In data released this week by the Commerce Department showed that retail sales in April were 0.9% higher than March sales; and sales data for March was adjusted up to 1.4% higher than February from initial estimate of 0.7% increase.

With inflation for April around 0.3%, adjusted retail sales still increased a very strong 0.6% for the month. A very strong indicator of how consumers feel about their current and future economic well-being is expenditures at bars and restaurants; discretionary spending as opposed to spending for needed goods and services for daily living. In April bars and restaurants saw a 2% increase in sales from March.

Rates for Friday May 20, 2022: The retail sales data should be a negative for interest rates as it shows no let down in demand, therefore continued pressure on prices to rise, or remain high. However, investor concerns about the economy continue to push stocks lower, which has benefited rates with funds being diverted to mortgages and Treasury debt. Conforming rates dip for two consecutive Fridays for the first time since the end of October and beginning of November.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS FOR PURCHASE TRANSACTIONS:

30-year conforming                                         4.875%      Down 0.115%

30-year high-balance conforming                   5.50%         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.

Today’s update comes to you from Boston, where I type in the early morning looking out to Fenway Park. We are here for our oldest daughter’s graduation having arrived on Wednesday. It is truly spring weather here; we have temperatures in the 50’s yesterday with off and on sprinkles. Graduation on Sunday will be in the track/soccer/lacrosse stadium, with the high predicted to be around 95 degrees.

While thrilled she is graduating, even more thrilled she has a job starting in mid-July and an apartment. In other words, she is self-supporting!

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