2007 began the worst real estate crisis of our time. Loose lending policies brought on foreclosures, which caused already overheated home prices to plummet, causing more foreclosures. Here in Utah, post crisis, between 2011 and now, home prices have risen at high rates, sometimes double digits per year. Now, here we are again, with prices at a possible unsustainable levels, and talk of another bubble being bandied around.
Prices, here near the last part of 2018, are now seeming to flatten, thankfully, and possibly, not so thankfully, interest rates have now nearly crested 5%. So, where does that put us in regards to buying or selling recommendations. Buyers now should have legitimate concern about “buying at the peak.” They should also have concerns that, with what regulators have hopefully learned in the last crisis, we may still see level, albeit less heady, appreciation for the foreseeable future. Add to that the real possibility that rates could continue to rise, there we appear to be at an important crossroads: stay the course with buying recommendations, or hold back and see what happens.
Spoiler alert: I don’t have the answer!
But lets look a little closer at the what-ifs. First off, if we were to see a correction, how bad might it be? Economic fundamentals in Utah are strong. Demographic trends are also strong – Utah is growing, and people need places to live. All things being equal, an adjustment brought on by overpricing would probably be minor and short. However, rates are a national phenomenon, not a local one. There is a real probability, if not, perhaps, an inevitability, that rates will reach the 6% range and stay there for a time. A rate increase to 6% would take away about 10% of current buying power, or said another way, reduce affordability by 10%.
If you already own a home, buying and selling in the same market is usually a neutral action. However, some markets, due to inefficiencies, can be good for step-up buyers, or downsizers. There are some signs that the most overheated sector of our market is homes above 500k. It may follow then, that this is not a good step-up market. If you need a home, and don’t have one already, and need to borrow money, now may be a good time to buy a home.