Is it a coincidence that as mortgage rates dip below 5% this past week pending sales rose? While the Fed raised rates the long-term markets took a break and the yield curve inverted further. This was not unexpected, and it caused a temporary reprieve for home buyers, and a unique opportunity.
Mortgage Rates Dip Below 5%
We’ve been telling readers how buying real estate is one of the best hedges against inflation. Home prices over time tend to rise faster than the rate of inflation. Let’s introduce another concept, and why right now may be a great opportunity.
The Real Mortgage Rate
Mortgage rates dip below 5%. The latest inflation rate is running about 9.1% This means that you can borrow money right now for about 4% under the rate of inflation. Typically, the cost of borrowing exceeds the cost of inflation, so something must give. Either inflation has to come down or the cost of money has to go up. This is similar to the Bunching Effect on real estate prices we’ve written about many times.
Many believe 5% mortgage money is expensive, and it sure feels that way after experiencing sub 3% rates recently. It wasn’t long ago that rates were over 6%, so sub 5% rates seem like a bargain compared to 6% plus. We live in a fast-paced changing world right now and the new normal can change quickly. Just visiting the grocery store from week to week proves this point as we’ve noticed some tremendous price increases recently.
Opportunity
Rapid change brings opportunity. It always does. The biggest money made on Wall Street is usually when there is volatility. It’s hard to make money in a flat market.
If home prices over time rise faster than the cost of inflation, and the cost of borrowing is less than the cost of inflation, it seems to me that people should leverage this opportunity. Other people’s money can be used to bolster your long-term financial situation.
We also tell people not to borrow more than you can afford. Just because there is an opportunity for long-term financial gain shouldn’t be a reason overextend and borrow beyond your means.
Money Mindset
Investing is a mindset, and the people that adjust their mindset are the ones that see opportunity when others see doom. We have a saying that says, “Change the way you look at things and the things you look at change.” Opportunity is all around us and few will see it and act on it. Our country is full of millionaires who saw opportunity where others saw risk.
Last week pending sales jumped to 922 from 853 the previous week, and pending contingent sales rose to 915, up from 891. This was the first week since May 31st that total pending sales increased week over week. We believe the dip in mortgage rates may have contributed to this, along with a nice supply of homes to choose from.
Supply
Speaking of supply, this past week was the first week since Feb 25th that single family home inventory declined. The jump in pending sales played a large part. We noticed a few expired listings that came off the market, but not a significant amount. We will be watching next week’s numbers along with interest rates.
30-year interest rates may again creep up in the coming weeks, so buyers will hopefully capitalize on this opportunity while they can.
If you’re thinking about selling your home, call Brett or Sande Ellis at 239-310-6500 and let’s have a conversation. Or visit www.SWFLhomevalues.com and see if your home went up or down in value last month.
You can also search the MLS at www.LeeCountyOnline.com and find your next home. Always Call the Ellis Team at Keller Williams for all your real estate questions. Good luck, and we’ll keep an eye on the market for you!