The above chart is compiled by government entity Freddie Mac on 30 year fixed rate mortgages. See link for source. http://www.freddiemac.com/pmms/pmms30.htm. In November 2013, when mortgage rates went up to the low 4% range, I wrote a blog post on mortgage rates and highlighted key considerations for home buyers as well as offer historical and life perspectives on how to factor that into home buying decisions. I just re-read the post for 1st time in a few years, and I stand by all the key points mentioned. In fact, since it was published, rates for most of the last 3 years hovered below 4% and only recently increased to the low 4%. You can read my original blog post at https://taosiliconvalley.com/2013/11/08/mortgage-rates-have-risen-since-its-all-time-low-should-this-impact-your-timing-to-buy/.
As you can see, low 4% by historical standards is still incredibly low. I was cleaning out my garage last month and came across files from 1999 when I bought by first house. My first mortgage stood above 7% (yes, that is seven). No joke. Then when I refinanced later at 5-6%, I thought it was the lowest it would go, then refinanced again at 4-5%. Never during those times did I ever think it could ever get below 5%, let alone 4%. Two key considerations in today’s market would be 1) rates are still very historically low, 2) no one can completely predict where interest rates will go.
In my original blog post, I calculated payment differences on a sample mortgage based on an increase in interest rate. Will increase in mortgage rates affect average housing prices? Mathematically, yes. But there are other factors that also factor into housing prices such as local economy, supply and demand dynamics, stock market, and macroeconomic factors creating “noise” in housing prices.
This blogs most popular post was also from 2013 titled Microeconomics 101 for Real Estate. This post actually gets quite a bit of traffic, as if you Google “microeconomics real estate” my blog shows up in the #1 slot of Google results! SEO traffic baby! So basically, supply in SF and San Mateo counties is very low. That is somewhat to be expected as we are only in late January, but historically we do start seeing more listings come on the market starting about now.
There also seems to be a sentiment of uncertainty with respect to a new President. A highly controversial President is probably creating uncertainty as well.
I don’t have a crystal ball on what will happen. I continue to tell my friends, family and clients that no one can predict what will happen to the stock market or real estate prices. If they could, they’d be able to take advantage of it in the markets and retire from it. I’ve read many economists predict that there will be higher interest rates and inflation in 2017. I certainly believe this to be a strong possibility. However, some predicted that last year too. What I am bullish on is the overall strength of our local Silicon Valley economy. Who knows what will happen in 2017 as there could be short term movements in real estate values and stock prices up or down? But if the SF Bay Area is a medium to long term home for you, my belief is it’s a higher risk to try to time the market perfectly and be out of the market than it is to jump in. In my very 1st blog post, I wrote about buying my 1st house in 1999 in San mateo where I thought there was a high probability I was buying at the markets high point. Wow, 20/20 hindsight and the thought that I was worried I overpaid is quite amusing.
Here’s to a fruitful, safe and healthy 2017 to all.