The silence was deafening...
Once upon a time when I was a kid, my Dad went out of town to visit family in the Midwest. I was a senior in high school and he let me drive his car while he was out of town. He drove a 1974 Chrysler 300. It was a big heavy beast of a machine, with a massive 440 engine in it. Being a kid, I did exactly what you would expect a kid to do, I screwed up. A squirrel ran out, my inexperienced self jerked the wheel and I spun it out on Paseo Padre Parkway in Fremont. I remember hanging on for dear life as that beast got sideways on me and then kept going sideways. And backwards, and sideways again until it came to a rest in the center divide. The silence after something like that happens is deafening. I didn’t do much damage to the car and no one else was hurt or affected. I started the car back up and drove home. Shook up, but no worse for the wear. I hope that squirrel lived a long healthy squirrel life.
Interest rates spiked last month and spun out the market. The silence was deafening. Just like my 17 year old self, we all sat there for a minute, taking stock on what just happened. Then we fired the beast back up and drove off just a little more carefully. Some sellers freaked out a little more than others. Some buyers freaked out a little more than others. Then they started to figure out ways to move forward and the real estate market is once again lumbering back into action.
We’re having a hard time getting our heads wrapped around the new mortgage rates. We went from fourteen years of what I call essentially government subsidized mortgage rates, to a more realistic reflection of the market. As of this writing, they’re back well within tolerances of traditionally good interest rates. The issue buyers are facing is the rapid appreciation that has occurred over the last two years. First quarter alone, home prices went up an average of 20.6% which, while great for sellers, it’s a dreadfully unhealthy market. For our little corner of the world the average price per square foot hit an all time high in June, 6% more than the May 2022 price.
The best homes that are right priced homes in the best neighborhoods are moving. Buyers can afford to be picky now and that’s what they’re doing. We’re seeing homes that need updating not flying off the shelf like they used to. Sellers are now offering credits for closing costs in some areas and situations. We’ve been in one of the longest seller’s markets of all time, and now we’re heading towards the illusive balanced market. It’s bay area real estate so I would expect we’ll be in a balanced market for about 20 minutes. We do everything here as if we’re juiced up like Bash Brothers.
Economically speaking, if there is a canary in our coal mine, it’s still singing. Recessions are always driven by a failure in one or more sectors of the economy. Right now, the failure hasn’t revealed itself. I’ve been watching carefully, I’ve been on recession watch since 2019, there are signs that we’re heading that way, but with full employment not really budging, it’s hard to tell where it’s coming from. I’m going to keep my seatbelt on and my seat in the full upright position for this July and we’ll see where we are at the end of the month.
If you have questions about the market, your home or mid-70's Chryslers, I'm happy to chat with you. I'm here to help.