Collins: Will this market offer homebuyers an opportunity?
A single-family home in Los Gatos. Photo by Tran Nguyen.

Based on past market cycles, one would predict the recent wave of volatility in the stock market would cause hesitation among would-be homebuyers that are considering cashing out their stock options in order to purchase a house. Another prediction would be that the Federal Reserve would consider withdrawing scheduled interest rate hikes to keep the economy roaring. If both scenarios happened concurrently, the average homebuyer might have a limited window of opportunity to compete in this red-hot housing market.

Unfortunately, our local housing market is anything but predictable.

In our local Santa Clara County market, the No. 1 driving factor is available inventory and we have consistently had record low numbers of available inventory for the past several months. A balanced market would mean we have at least six months worth of inventory. We currently do not even have 30 days worth of inventory.

Sales this year have been trending down nearly 30% off last year’s numbers, but this is not a reflection of a soft market. There simply is not enough inventory of homes for sale on the market. We are already aware there is a significant lack of housing production. In addition, homeowners are refraining from listing their homes on the market. To read more about why more homeowners are not moving, check out my previous column.

“As the stock market continues to get beat up, investors will look to housing as a safe bet as compared to the negative returns they are getting in stocks as housing locally and nationally continues to rise,” Dave Campagna of Fairway Mortgage says. “Simply put, there is not one economist that thinks that the housing market will slam on the brakes and go in reverse.”

Unfortunately, there is also no sign at this point that the Federal Reserve will hold off future interest rate hikes to hedge against inflation, which is at a 40-year high. These higher interest rates will lead to higher mortgage rates and decreased buying power.

“The 30-year fixed-rate mortgage exceeded 4% for the first time since May of 2019,” according to Freddie Mac’s Chief Economist Sam Khater. The Federal Reserve is expected to be fairly aggressive in the coming months and raise rates multiple times this year. Rates are currently over 5% on conforming loans.

However, Campagna shares there is some good news as it pertains to affordability.

“Lending is loosening a little on jumbo loans as lenders are allowing more people to go from a 43% debt-to-income ratio to up to 45%, so they are losing the standards of what income is needed to qualify,” Campagna says. In addition, despite the rising rates, mortgage rates are still quite affordable by historical standards.

Our members are repeatedly asked the same questions. Is this a good time to buy or sell? Will the housing market crash? While I understand many readers will be critical of my response, it is actually a great time to sell because the market continues to be quite hot. However, it is also a good time to buy provided you are in a position to do so.

While there are no guarantees in life, there is a very high probability that our local housing market will continue to experience high levels of price appreciation. Unfortunately, the competition for housing will continue to exist, multiple offers above asking price will continue to be the norm and homebuyers without healthy cash reserves will continue to be left behind.

San José Spotlight columnist Neil Collins is CEO of the Santa Clara County Association of Realtors, a trade association representing more than 6,000 real estate professionals in Santa Clara County and surrounding areas. His column appears every fourth Thursday of the month. Contact Neil at [email protected] or follow @neilvcollins on Twitter.

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