Most experts seem to agree that the Federal Reserve will finally reduce interest rates this month. It’s been a long time coming, because most experts also believed that earlier in the year there would have been one or two cuts prior to this.
The reduction in interest rates will result in lower mortgage rates, but Joshua Mann, writing for the Business Journals network, suggests homebuyers may need to temper their expectations in regard to the impact that lower interest rates will have on affordability.
The reason? Even as rates come down, the glut of buyers a reduction would bring to a market that’s currently short of inventory would push the cost of homes higher, limiting the savings from lower interest rates.
Keep in mind that even as mortgage rates fall, they are unlikely to return to 3 and 4%. Rates that low were simply an anomaly — a response by the Fed to the pandemic.
The total value of U.S. homes gained $3.1 trillion over the past 12 months to reach a record $49.6 trillion. The total value of U.S. homes has more than doubled in the past decade, climbing nearly 120% from $22.7 trillion in June 2014, according to a recent Redfin report.
Home values are being pushed higher, the report says, because even now supply is still outweighed by demand. Home inventory levels remain low compared to before the pandemic, with many owners staying put due to the rate lock-in effect.
While today’s elevated mortgage rates are keeping many buyers on the sidelines, there are still enough of them competing over a relatively small pool of homes to create demand. And that drives values up. It’s been this way for quite a while. This of course is great news for the millions of Americans who already own property, but it’s a terrible situation for buyers, especially first-time buyers, looking to purchase a home.
Meanwhile, Matt Fuller, Co-founder at Jackson Fuller Real Estate, and former President of the San Francisco Association of Realtors, had some answers to questions about the city’s housing market in a recent interview.
Q: What’s going on with the real estate market in San Francisco?
A: In times of change, the S.F. market becomes a divergent market with different property sub-types and locations performing differently. The question to ask isn’t how the S.F. market is doing, but how’s the market for condos in Nob Hill or single-family homes in Marina, because depending on the neighborhood and property type, you’ll get very different responses.
Q: Is the insurance crisis really a crisis?
A: The insurance market is challenging. In the city, the issue hasn’t been so much the unavailability of coverage but the expense of insurance coverage. Buyers of single-family homes have been able to find a policy, but that doesn’t mean every insurance company they applied to was interested in underwriting the policy. Prepare to talk with multiple companies, be able to answer detailed questions about the property condition, and for it to be more expensive than anticipated.
Condo and co-op buildings have been able to maintain their coverage, and have seen their insurance premiums also go up, sometimes dramatically. Depending on the building’s approach to budgeting for shared expenses, many buildings have seen either one-time special assessments or noticeable increases in monthly maintenance fees to cover the increased cost of insurance.
Q: What’s this thing about deck inspections in condo buildings?
A: Yes, it’s true. SB-721 (apartments) and SB-326 (condos/co-ops) are state laws passed before the pandemic that require balcony/deck inspections every nine years in buildings with three or more homes. After passage, things happened and our attention moved on, but the first deadline for compliance is finally on the horizon: January 1, 2025. Buildings with exterior elevated elements (decks, porches, stairways and walkways) must have an inspection on file and repair or replace any issues that are identified. Lenders know about the law and are starting to ask, which is turning into an issue for condo buyers needing financing.
Q: Sounds like the fall market will be slow?
A: The expectation is the opposite. The spring selling season in San Francisco experienced high interest rates, expensive insurance, and a sour political mood, not to mention confusion around upcoming changes to real estate rules that went into effect on Aug. 17. Inventory remains constrained and buyers remain active if cautious. It’s a volatile world we live in, but our expectation is it will be a busy fall season.
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