By Mike Bodeen · 18 November 2024
May it Become the Norm – even the Bottom?
In the late spring of 2023, my wife and I decided to bite the bullet and help our daughter get into a home of her own – along with our granddaughters, their two dogs and a cat. Actually Miss-Chief the Bengal cat was mine, but I lost that fight 🙁 Our reasoning to help them into their home was totally selfish. We liked the idea of being empty nesters again.
But the financial cost (not the familial one) was great. Rates had been hovering around 7%. And then they began to trickle down over the next month and we negotiated for a 3 BR home in Anthem which included some buy-down money and we were able to get a 6% mortgage on top of a decent price for the home. Oh, that 6% was hard. I mean, hard. I cringe each month when we help our daughter pay that mortgage. But each month I am thankful for the home our daughter’s family has.
My expectation was that in the near future, rates would drop, we would refi and live financially cringe-free lives forevermore. Amen. Nice try big guy!
It has been nearly 18 months since we pulled that trigger. Rates have not dropped below 6% since we bought the home. Oh, they made a run at it recently getting under 6.5% for a brief window, but then got jerked northward as if to mock the Fed’s first Federal Funds rate drop in 5 years. The 30 year fixed rate mortgage currently resides at 7%.
So I got to thinking, why would the government, the Fed, or whoever, want to significantly reduce rates? That would be inflationary. This one issue most altered the results of our recent national election. As we have expounded before, once rates drop, buyers will pop. Once sales pop, so will home prices (read: shelter costs). Shelter costs are currently part of our national inflationary pricing that’s resisting a price drop. And across the country home prices are still rising, (nationally at 4.2%) though it’s a dead sales market with mortgage rates out of the affordable reach of most buyers.
The Phoenix Metro Median Sales has remained stable at about $450,000 for over a year now (see chart). If rates ever got near 5%, “Katie, bar the door.” Prices would launch, and things would be worse than the first. It seems like a rate of 5.5% to 6% would induce enough buyers to jump into the market perhaps without stoking an inflationary fire.
I would be hugely surprised (shocked) if rates ever dropped below 5%. But then again, I’ve gone on record telling my friend and real estate colleague, Jim Orebaugh, in Truckee, CA back in 1982, saying, “Jim, if rates ever drop below 13%, we’ll be rich!”
So my friends, consider the source.