- The 30-year fixed mortgage rate is at 6.61%, down from a high of 7.08%.
- Sales of existing homes fell in October, down 5.9% from September and 28.4% from a year ago.
- Dottie Herman says we should not compare today’s real estate market with last year’s anomaly.
There appears to be some movement on the housing front as mortgage rates have fallen sharply.
As of Tuesday, the 30-year fixed rate is now at 6.61%, down from a high of 7.08%. The adjusted rates come on the heels of a softening inflation rate which measured at 7.7% in October, compared to 8.2% in September.
The 30-year fixed rates are expected to average 6.8% in 2023 and 6.1% in 2024, according to the November housing forecast from Fannie Mae.
But even when rates reached 7%, it was at a historical average, said Dottie Herman, the vice chairman of the real estate company Douglas Elliman and host of the radio show “Eye on Real Estate.” As of 2017, Herman had a net worth of $260 million, making her the richest self-made woman in American real estate, according to Forbes.
You can’t compare current mortgage rates to last year’s 3% push, which she noted was an anomaly she hadn’t seen in her 30 years in the industry.
“I’ll tell people on my radio show at 3%, you might as well buy something. It’s like free money. But historically we’re really not against high interest rates,” Herman said.
You can’t time the market, she added. But you can make a comparison with other asset classes. For example, look at what happened in the stock market, it was bad, she said. Year-to-date, the S&P 500 was down about 17% as of Tuesday. Banks also do not offer high returns to keep your money in cash.
“So if you don’t want to put your money in shares and you don’t want to put it in the bank, then housing is a good long-term investment,” said Herman.
A recent report from the National Association of Realtors (NAR), a real estate research and data firm, shows existing home sales fell for the ninth consecutive month in October, down 5.9% from September and 28.4% from ‘ a year ago
According to Herman, the steep dive from last year is not a cause for concern. Nothing should compare to last year’s unprecedented market buying frenzy. Everyone who could move during the pandemic did.
“Last year, I’m not kidding, there could be 15 offers on one [property] because again, they didn’t have a lot of inventory last year either,” Herman said. “And what would happen is, if you were a first-time buyer, if you didn’t have a lot of cash down, you wouldn’t even get ‘ not a chance Sellers didn’t even want to hear offers.”
We were in lockdown. People did not need to be in the offices and worked from home. They moved for more indoor and outdoor space, she said. Others were afraid of the pandemic and just wanted to get out of cities, she added.
Regardless of whether the Federal Reserve continues to raise interest rates or not, outcomes in the housing market will depend on available inventory, she noted. The median home sale price rose to $379,100, up 6.6% from the previous year, according to the NAR report. That’s because there are so many people still looking for homes, especially millennials, who are at the stage of their lives where they want to settle down, she said.
As we enter the holiday season, inventory is going to shrink further because people don’t want to be bothered to sell their homes at this time, Herman said. Historically, the next few months are the slowest for the industry.
Indeed, the inventory of unsold existing homes is shrinking after falling for the third straight month to 1.22 million at the end of October, down 0.8% from both September and a year ago, according to the NAR report.
As mortgage rates continue to remain high, many prospective home sellers are reluctant to make a move that would result in switching their current mortgage for one that may be double the interest rate. But Herman does not believe interest rates are what deter people from buying and selling. Rather, she attributes it to the fear of a potential recession next year, making people think twice about taking on new debt. Layoffs in many large companies are also underway, causing many to feel uncertain about their future. So homeowners just choose to stay there, she said.
As for those who have cash, they put it up front as part of their offer to secure a better deal, she noted. In most cases, sellers will accept less if it’s a cash deal because they know their home has been sold, she added. The percentage of all-cash buyers is at 26% of transactions in October compared to 22% in September and 24% a year ago, according to the same report.
Meanwhile, individual investors or second home buyers bought 16% of homes in October, up from 15% in September. The pandemic has subsided. People don’t need to escape the city as much. If you’re an investor, you might think it’s a good time to get some deals, she said. So if you want to buy, you have to be in the market and check the inventory, she added.