Interest rates have gone from 2.67% to 5.78%.
In April showings in the West have dropped by 35.3%.
Compass and Redfin announced a 10% and 8% cuts to their workforce.
Affordability is expected to hit 17% once the Q2 numbers have been posted.
Affordability in California last hit 17% in 2005. Right before the end of the last market cycle. Do you know what happened in 1980, 1989 and 2005? A change in market cycle.
According to a report by the Norris Group, California’s affordability index is the single best indicator for identifying a shift in California’s market.
So what does all of this mean?
Are we heading into another huge real estate crash?
Unlikely.
Home owners have a huge pile of equity due to skyrocketing home prices.
Even many FHA home buyers that used a low down payment have equity after a year of home ownership.
There was no wide scale fraudulent lending environment like 2005.
It’s been a huge pain to get a loan the last 6+ years and we haven’t seen a large number of overleveraged home owners. People that got a loan deserved one.
We just went through a huge refinance boom with the lowest mortgage rates in history. This means many homeowners will not want to move because their interest rate or monthly payment could increase significantly.
Forbearances have dropped from 7.8% in 2020 to under 1%.
Banks don’t want to foreclose on homeowners. Banks are more forgiving than 2008 and many are letting people refinance in 40 year mortgages!
What’s next?
Inventory is already at record lows and it looks like there’s no large increase in sight.
Homes will be harder to sell, due to reduced demand and will sit on the market longer.
Less home owners will want to sell. If you have a 3% rate, do you want to trade it for a 6% rate?
There is no appetite from the banks to foreclose and the government has made foreclosing on homes significantly harder.
Without a large volume of distressed sales, a crash is unlikely.
The good news is the bidding wars have gone down significantly and homeowners can still get a great price for their home.
It will be easier for buyers to purchase a home because there won’t be 10+ offers on every listing.
The market has softened significantly and price might go down slightly, but a systemic crash looks unlikely.
Let’s hope.
What do you think?
Sources:
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