The Current Real Estate Market – Trump, Interest Rates, & Holidays
Strong real estate market predicted despite uncertainty
By Ed Fuller
One presidential election and so much change.
While the stock market reaches new record levels, interest rates have also made recent highs – increasing as much as 3/4 percent on 30-year mortgages – and our real estate market almost immediately slowed.
Prior to the election, single-family homes in the Santa Barbara area were going under contract (pending sales) at the rate of 108 per month. After the election that dropped to 73 per month or down 32 percent. The slowdown seems to be across the price spectrum as the median price of pending homes increased marginally from $1,185,000 to $1,259,000 or 6 percent.
Because of our wide price range locally, fluctuations in the median price are common and not necessarily indicative of actual increases or decreases in individual home prices. In line with this the average list price of pending homes increased 5 percent to $1,899,000. The average price better reflects aggregate demand across all price ranges.
Since mortgages are most typical at the lower prices, you would expect properties priced at $1,200,000 (mortgage interest deductibility is limited to the first $1,000,000) to slow more than higher-priced homes, but that is not the case. I speculate that most of those who can afford our more expensive homes were deeply disappointed with Hillary Clinton’s defeat and fearful of what President-elect Trump might do, as Santa Barbara County voted almost two to one for Hillary.
There is also a seasonal effect at work here. Typically as days get shorter and Daylight-Saving Time changes, people find it harder to view properties in daylight. Buyers also become distracted with the holidays, traveling, guests, and seasonal events. This is best illustrated by last year’s changes for the same period, when homes going under contract dropped from 85 to 66, or 22 percent.
While sales have slowed, inventory has increased from 303 single-family homes for sale to 371. At the current rate homes are going under contract, this represents 5 months of inventory. Historically, six months of inventory has been considered an equilibrium market. For the past couple of years we have generally had between 3 and 4 months of inventory.
But what of the future? While many buyers may be concerned with our incoming president, the stock and bond markets are predicting good economic times ahead. The rich are likely to get richer, through by increased economic activity, the stock market, and reduced taxes. This bodes well for our very expensive real estate market.
If mortgage safeguards that were instituted after the financial crisis are weakened, as part of the threatened deregulations, easier mortgage credit will also drive prices. My prediction is that real estate activity and prices will both be strong for the next couple years even while interest rates rise. If you were thinking of buying, don’t wait.
Ed Fuller is a broker at San Roque Realty.