First and foremost, happy holidays! We’re starting off the month of December in a really interesting situation with the real estate market. As you may have guessed, a lot of today’s content is around the low inventory levels we’ve been seeing in November coming into this month. I will also go over what’s happening with interest rates, the new strain of COVID and how it may affect the market, and Fannie Mae’s 2022 predictions.
Inventory remains low
We entered November with inventory down 41% compared to the same time last year. The actual inventory numbers are quite shocking with just 1,033 new homes hitting the market in the past month, while 2,857 homes were sold. This continues the imbalanced trend of new inventory vs sold homes. The trend is unlikely to change this month as December is generally a low inventory month due to the holidays. People tend to want to spend time in their homes during this time rather than put them up for sale.
What’s happening with interest rates?
Interest rates took a bit of an uptick at 3% which did not slow down the market at all. It was a great time to take advantage of such rates to find a good home. In November, the Fed announced that interest rates would be increased every 3 months for the next year. This resulted in a lot of trading happening in the bond market which in turn caused interest rates to rise. We saw this rise to just a bit higher than 3.25%. December brought some stability with the rates coming back down to 3-3.2%.
Is this bad news?
Not at all, considering that the buyer demand was hugely outpacing the available inventory. A healthy market correction like this was needed. This was also the reason behind the huge appreciation of 15-20% this year.
How will this affect our market next year?
First off, there’s always plenty of buyer demand in San Diego. And secondly, even if demand fell by a whole 50%, there still would not be enough inventory to cover it. Hence, the increased interest rates won’t affect our market too much.
Fanny Mae’s 2022 predictions
They predict that there will be a nation-wide appreciation rate of 7.9% between now and the fourth quarter of 2022. This level of appreciation is healthy, but how can we see more appreciation than we’ve already seen this year? At the end of the day, this is a function of supply and demand and as long as inventory levels continue to hover around the 3 month mark, prices will continue to rise.
Will the new strain of COVID affect the market?
Thankfully, we now have some data to be able to predict this outcome. When we were opening back up, I expected the secondary markets to lose some of their steam, as when COVID hit, people moved away from the cities and when things opened back up, demand for city dwellings bounced right back up. So if the new strain does result in restrictive measures, we will likely see secondary cities continue to thrive. It’s unlikely to make a huge impact as we’ve already seen what happens with the real estate market before and it tends to be quite resilient.
There is huge demand right now for a ‘move in ready’, renovated property. Buyers understand that we’re facing a shortage of materials, labor, etc. which makes it difficult to renovate at the moment. This makes readied homes go for a premium. Does this mean you need to go and do a full remodel? Not necessarily, but as long as the place is cleaned up, in terms of new countertops, carpeting, flooring, a painting, etc. it should give buyers the impression that they don’t need to do any immediate remodeling and can start living in it right away.
As I mentioned, it’s unfortunate that buyers are overlooking properties with ‘great bones’ that simply need a little bit of work to get fixed up. Houses that need some upgrading are typically less competitive to get an offer accepted on. It would be well worth your effort to do some remodeling on a property that’s solid.
We hope you enjoyed this article!
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