Housing prices are a key component of the Consumer Price Index, when home prices go down this could help drive down inflation

Higher Mortgage Rates Are A Key Factor in Lowering Home Prices

Mortgage rates have continued to rise as Southern California heads closer to the Fall season and that has had an effect on home prices in the area as reported by The Los Angeles Times.

Rising mortgage rates are hardly a local phenomenon but are definitely starting to change the once strong seller’s market into more of a buyer’s market. For a change, buyers have had to start to drop their prices to try and attract an increasingly reluctant pool of buyers into considering a purchase. 

One of the biggest changes are my buyers look at homes and they have some time to think about it now. It’s a normal market.”

According to Forbes.com, mortgage rates are two points higher than they were at the beginning of the first quarter of the year and that was after the rates had already increased more than they had at any other time in the last 28 years. 

Inflation is part of the reason that mortgage rates are increasing after the consumer price index also rose to a historically high level. Part of the reason for this is the Federal Reserve’s attempts to combat inflation by raising the benchmark interest rate. 

Joel Kan, an economist at the Mortgage Bankers Association (MBA) said, as quoted by Forbes.com, “Higher interest rates resulting from the Fed’s efforts to combat inflation, as well as the persistently high rate of inflation, are causing stresses for households and businesses.”

Mortgage rates, for the average 30-year, fixed-rate mortgages were as high as 5.81 in June but have gone even higher in late August. The current 30-year, fixed rate mortgage is 5.90% according to Bankrate.com. 

Countries all over the world are having to do the same to combat inflation but in the United States, financial experts predict a slowdown. Wharton business school professor Jeremy Siegel said, as quoted on CNBC’s “Squawk Box Asia, “I think we only need 100 basis points more. The market thinks it’s going to be a little more — 125, 130 basis points more. My feeling is we won’t need that much because of what I see as a slowdown.” indicating that the Federal Reserve will only have to raise the consumer price index by 100 additional basis points. 

Siegel points out that, according to CNBC, housing prices have dropped and in fact have “gone down by a record amount exceeding any six-month period.” These are one of the key indicators of whether inflation will continue to rise or slow and Siegel believes that this shows that a slowdown is on the way.

June 26, 2022

California Housing Market

Once again, during May 2022, the housing market in California has seen a reduction in home sales while prices continue to rise.

House prices rose in May by 1.6% and that is up 9.9% in the last 12 months.  Condo sales declined too, and in fact condo prices bucked the upward trend by falling 3.1%, although still up 14.5% vs last May of 2021.

California home prices soared 4.1% higher than March’s levels to a new record again at $884,890. Sales are slowing and fell 1.9% from March and are down 8.5% from last April.

Judging by declining sales which are uncharacteristically slow at peak buying season, Realtor’s latest outlook this month, and expected rising interest rates, the prediction is for a cooling California real estate market. Market velocity is falling at a faster rate.

The average price of a house sold in California reached another all time peak at $898,980.

When Will Home Prices Drop in California?

Californians are constantly asking if and when home prices will drop, just as the outlook for the summer is perhaps for further new records. Mortgage rates have doubled, pushing up mortgage payments, and it is hurting homeowners besieged with other record high costs. Inflation and a souring economic outlook will begin to show in home prices by summer’s end.

Rent prices too, having reached record heights are beginning to show slower growth.  The rental market suffering from exceptionally low inventory will likely not show mercy to Californians for sometime.  New housing development is once again slowing.

Higher priced homes in the state continue to sell well, while the low supply of affordable homes continues to shrink, making purchases less likely. The share of million-dollar home sales rose again in April to reach the highest level on record at 34.7% Homes sold below $500,000 hit and hit the lowest level recorded.

Supply is still a key matter even as prices and mortgage payments soar.  California Realtors are reporting increased activity up to the week ending June 25th.  Looks like a rise in new listing so the picture may be brighter for buyers desperate for a home.

Home sellers are cutting list prices as more buyers take pause: ‘The market is not the same’

Home sellers are increasingly cutting their asking prices as buyers, constrained by higher mortgage rates and overall inflation, have become less willing to jump into the housing market at any cost.

The growing number of price cuts, a trend showing up in data from Southern California and across the nation, is one of the strongest signs yet that the previously red-hot market, fueled by low mortgage rates and all-cash bidding wars, is cooling.

The price reductions don’t mean overall home values are dropping. In Southern California and the wider U.S., they make up a minority of listings, and most homes still sell for more than the list price.

Industry experts, for now, do not see a plunge coming in the housing market, catapulted to record-high prices in the first two years of the pandemic as many people sought out more space and had new savings to spend.

Values could come down modestly, some experts said, if the Federal Reserve’s actions to tame inflation send mortgage interest rates significantly higher — or tip the economy into recession.

For buyers, the market already feels significantly different from the frenzied competition of several months ago.

BENEFITS OF INVESTING IN A MULTI-FAMILY PROPERTY

Multifamily properties play a vital role in the real estate industry. Multifamily housing is viewed as the best and most affordable housing option. And, not just affordable for families, but for people at various stages in their lives. Highly preferred among real estate investors ensures a lower vacancy rate due to the high demand for these properties. Therefore, it is a fantastic option for anyone looking to diversify their real estate investment portfolio.

A multi-family project often referred to as a multi-dwelling unit (MDU), can be a type of house with two or more units under one roof or a few buildings in a single collection/complex.

Investing in a multi-family property is altogether a different experience when compared to investing in single-family properties. Here are some tips that will help you to obtain a deeper sense of how to buy property in multi-family real estate, and what things to keep in mind while you get started.

A true investor always focuses on the numbers while making a multi-family property deal, as he/she knows it is quite different compared to other real estate deals. These financial numbers will expose the bottom line of an investment property, as well as reveal its real market value.

Why Invest in a Multifamily Property?

Increased Cash Flow

The cash flow advantage is one of the main reasons why real estate investors should consider putting their eggs on multifamily properties. As mentioned above, multifamily properties are in high demand. You can expect a high occupancy rate on your property, especially when in a strategic location.

Eventually, this can translate to higher monthly revenue. One strategy to boost your monthly cash flow is to invest in this type of property in a variety of geographically diverse markets. This will enable you to gain multiple income streams from the same type of investment.

Affordable Acquisition Cost

When you base it on a per-unit basis, the cost of constructing a multifamily property is more affordable than other types of real estate properties. It is, therefore, a more cost-efficient investment and relatively risk-free for first-time investors. If you choose to apply for a mortgage loan to build or purchase this type of property, you can expect lower mortgage financing rates. 

The foreclosure rate on apartment buildings or other types of multifamily properties is lower as compared to a single-family unit. This explains why mortgage lenders can offer competitive rates for investors of this type of property. This reduces operating costs will bring more revenue to your pocket in the long run.

Easier to Manage

It is easier to manage 12 units in one roof than it is to handle 12 different rental units spread throughout the city. This is a practical reason that makes multifamily property investment makes a lot of sense. Also, it is a type of investment that would justify hiring a property manager. 

If you own just one property or a rental unit, hiring a property manager might not make a lot of sense, especially if you consider the cost of hiring an expert. But with a multifamily property, you will be able to optimize the investment on a property manager. 

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