The real estate market post midterm elections
By the time this is submitted the midterm elections will be finalized. Hopefully that means some sense of stability will have returned to the marketplace and economy as a whole, or at least the winners will be guiding us toward controlling inflation and avoiding a recession, the dreaded “R” word! However, at this writing, the various sources including California Association of Realtors (CAR) and our National Association of Realtors (NAR) are pretty pessimistic and state the first quarter of 2023 will see the country as R-Land and it might take 16-18 months to turn that around.
What does this mean to homebuyers in California and especially the Owens Valley market? Briefly, it doesn’t take a rocket scientist to know that inflation of somewhere north of 8% is at play, especially with Washington having sent out “stimulus” checks to most of America following the major impacts of COVID-19.
In an attempt to help households with spending money after massive layoffs and downturns starting back in 2019 and continuing into 2020 and 2021, combined with historically low bank borrowing rates, that confidence cash drove buyers into the goods and homebuying mood. There followed an “inflation” fighting spending package as well, distributing more “easy,” “found”, “free” money into circulation.
Prices increased substantially during that approximately three-year time period, to the point the data from the Bishop Listing Service/Inyo Listing Service shows residential asking prices were many times exceeded by multiple offers in a bidding process driven by reasonable rate bank loans and an abundance of qualified buyers, such that some final sales “values” were 5-15% over asking. Those days have evaporated from all indications with the Fed having raised discount rates since Spring 2022 substantially.
There was a guideline in the 1970’s that for each 1/4-point increase in the Fed discount rate approximately 100,000 would-be homebuyers were priced out of the market. That number has certainly changed with modern economics and demographics since but the point is made that more costly bank loans cause hopeful homebuyers to drop out.
Movement Mortgage (week of 11-7-2022) had 30-year fixed mortgage rates at just below 7%
“on average” as reported by Freddie Mac. Other institutions have indicated variable rate loans with flexible “locks” are getting strong use in trying to “play” the interest rate ups-and-downs. Borderline would-be buyers might look at VIR’s rather than fixed rate loans, but certainly should consult with their available lender(s) and real estate broker.
As an example, CAR reports California home sales in September 2022 numbered 305,680 which was down 2.5% from August 2022 and down 30.2% from September 2021. If you combine that with lender information from various sources indicating household savings down, credit use growing and lenders tinkering with credit scoring techniques so risk-taking is reduced in banking circles as the economy cools and employment-unemployment arguments continue, even into the midterm elections, you can see a very unsettling picture and “forecast” locally.
Recent publication of employment opportunities in Inyo and Mono Counties revealed what appears to be strong job opportunities in our area. If you dig deeper my suggestion is that the jobs being offered are for specific professional levels or general service level jobs. When you cast that against scarce inventory and still-overheated pricing that hasn’t reacted yet totally to the diminishing demand caused by fewer qualified buyers, you almost have a standoff between willing buyers who want good value for their dollar and increasingly cautious disappointed sellers. Some sales currently are still being driven by job or health or family status changes but “elective” sales including upsizing and downsizing seem to be cooling. Reports from lenders and institutional forecasters indicate even sales transactions pending currently will fall out due to rising loan interest rates and expiration dates for “locked” loans loom on the horizon.
As Scotsman Guide reports, “Buyers are looking for affordability elsewhere.” What that has meant for our local market has for years been that Mammoth’s prices having outstripped many buyers, they’ve slipped down the hill to Bishop and its neighborhoods. As long as there was sufficient inventory nobody seemed to pay attention or care enough to take a strong look at the resulting impacts. We’ve seen market changes in the Bishop “metro” area for years drive qualified buyers to less-expensive properties in Big Pine and out to Chalfant and Hammil and Benton. Close-in neighborhoods such as Lazy A and Rocking W and Manor Market have seen explosive prices, appraised values and closed sales, even for housing stock that is now 45-55 years old.
One of the hidden impacts in the market downturn is loss of equity, at a time when some economists are telling homeowners to look to a home equity loan instead of using credit cards or going the personal loan route. Scotsman Guide indicates “...more than $ 1 trillion in equity shed during third quarter (2022)...” It’s early yet but predictable that home equities will drop as sales are made and appraised “comparable values” are used for a home loan at the new higher rates and that amalgam has produced a lowered neighborhood value. It’s also predictable and is already happening that repossessions and “short-sales” will increase, which again further impacts and lowers home values.
But it only “hurts” on paper until the home is sold!
So, as the increased bank loan rates take effect and prices wobble, is it time for potential homebuyers to wait for price drops in the market and take advantage of somebody else’s misfortune? There was a slight ripple in lowered loan rates this week which brought (Wells Fargo Mammoth Lakes) a brief flurry of buying for those ready and pre-qualified for a purchase to bring about some happy campers! But their forecast predicts a further recessionary drop into 2023 and no recovery until some time maybe mid2024. Even with all of that numbo-jumbo WellsFargo points out supplydemand will most likely produce a 3.1% annual appreciation factor in our market, while the normal long-term annual appreciation level averages
4.0% that seems to indicate value rise in the face of inflation and possible recession due to scarcity factors. Backing that up, PulseNomics predicts 2.6 - 4.0% rise in housing values due to pent-up demand. This has multiple factors dependent upon the economics of politics, scarcity, population shifts, the age and equity of the buyer, and housing supply available in that region.
(Stan Smith is owner/ broker of Pleasant Valley Associates Real Estate in Bishop and has been a California real estate licensee since 1975, with 35 of those years as a full-service real estate broker in Bishop, including specialties in residential, condominium, commercial development and leasing, investment and exchange properties. He has been president of the Bishop Lions Club twice, served on the Bishop Area Chamber of Commerce Board of Directors, the Salvation Army Board of Directors, and is currently chairing the Bishop Lions Club’s Student Speakers Contest for 2023.