By Datta Khalsa, Broker
I got a blog this week from one of our local mortgage professionals who put forth the novel suggestion that it is a more advantageous time to buy now than it was during the height of the market when interest rates were at 3.5%.
Using the example of a Zestimate for a home in Soquel which had reached a high valuation of $1.3 Million earlier in the year and is currently showing up at a value of $874,000 on Zillow, he ran the numbers and ended up with lower monthly payments at 6.5% than 3.5% at the peak.
He referenced a similar drop comparing our peak County Median home price of over $1.6 Million in March of this year to its current level at about $1.2 Million, and arrived at around $600 in savings even when factoring in a 3% jump in rates, based on the lower loan amount and lower property taxes, using the premise of the $400K drop.
A review of Median prices shows they were generally in the $1.2’s to high 1.3’s the remainder of the past year, barely clearing $1.4M on their way back down the following month before settling in where they are now, making the $1.6 Million a one-time blip that belies the premise of values being down by 25% over the past 6 months. And I suspect that Zillow’s algorithm is blindly tied to the County Median which would explain the Zestimate’s identically exaggerated trending.
By my observation we have seen declines more in the range of 10%-15%, so the savings he references are likely not as dramatic as stated in his blog, but they are nonetheless enough to get buyers closer than they may think to the buying power they had when rates were at all-time lows.
As well, he points out that tax deductibility is greater now with interest rates up by 3.5 to 4%, increasing the yearly mortgage interest tax deduction benefit by $8,000 per year on an average-priced home in our county, which is certainly another factor worth considering. And, of course when rates come back down, the low price and tax base you get today will remain, while your high interest rate will go away, so it could be worth making the stretch.
He also rightly notes that the current market has returned to a more dignified environment, where Buyers can once again ask for home inspections and an appraisal as conditions of the purchase without the fear of losing out to a more desperate competitor willing to waive their rights and submit a non-contingent offer.
Only one thing is certain, and that is the uncertainty of the future of the market. On one hand, this has led an increasing number of buyers to abandon their transactions, sometimes walking away from deposits in the tens of thousands of dollars because they’re convinced the home won’t be worth what they were initially willing to pay when they wrote the offer.
On the other hand, buying a home at its current dip in value may pay off for the next buyer as a particularly smart play if inflation gets back under control and interest rates come back down to around 5% by next Summer, as Fanny Mae and others are predicting.
Time will tell.
