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Scorching Weather, Cooling Market

Scorching Weather, Cooling Market

As Labor Day weekend wraps up, the record high temperatures refused to ease, unlike the real estate market which started its own cooling down months ahead of the fall season. August was an absolute roller coaster when it came to interest rates and consumer sentiment of the market. The beginning of the month saw a drop in interest rates to slightly under 5% (which is a four-month low), prompting buyers to take advantage of the decrease. However, by mid-August rates started rising again and the month ended averaging 5.66% which is almost double compared to the FRM average of 2.87% the same time a year ago as reported by the California Association of Realtors.

In contrast to the rising interest rates was seller’s sentiment of the market. Based on the latest poll by CAR, 52% of sellers felt that it was a good time to sell, which is a steep decline from August 2021 when 72% felt positive about the market. On the other hand, buyers continue to enjoy the larger inventory and less competition. For the third month in a row, more and more buyers have felt that it was a good time to buy, though the overall percentage is still only at 19%.

As seen on the chart above provided by CAR, sales have continued to slow by double digits in the Central Valley, while days on market continue to increase from 13 days in June, to 25 days in July and 31 days as of last week.

Builders are also feeling the change in the market. With sales declining in the residential sector, so did construction spending and start-up of new builds. In fact, new home build start-ups dropped to the lowest level since the beginning of the pandemic. With standing inventory in place, this is a good time for buyers to check out new builds where in many cases they are able to secure incentives from the builder while still enjoying the benefit of working with their favorite Realtor.

In the overall economy, job growth has continued to stay strong, and earnings are up about 5.2% from twelve months ago. Of course, with the job rate growth above 5%, it is likely that the Fed will continue to raise interest rates to moderate inflation. Buyers who are on the fence about purchasing until prices drop should be cautious. If interest rates continue to increase, their monthly payment could be higher on a cheaper home than what they would be paying right now at higher prices but lower rates.

While these are important factors of the overall market, it is your local Realtor that can give you the best advice regarding your specific situation.

This article is written by Tunde Baker, Senior Vice President at RE/MAX Grupe Gold. Tunde is a broker with over 21 years of real estate experience. Information was provided by the California Association of Realtors and Trendgraphix.