Today's Mortgage Rates- Fallout Felt From Starbucks Baristas to Tech TycoonsMay 22, 2021
By now almost everyone has heard about how crazy the housing market is here in San Diego County. There are no shortage of articles being written by news outlets outlining the lack of housing inventory and its subsequent effect on home prices. However, what many people do not know is the ramifications of the housing crisis are being felt by people who are not even trying to buy. Today's mortgage rates are affecting the rental market too, driving up prices as sellers have little inventory to chose from and found scrambling to rent a home after selling.
The housing market has always been hot in San Diego. Even during the recession when so many people lost their homes due to default, the San Diego market was resilient. The market bounced back quicker and stronger than in almost any other city in the country. Due, much in part to the endless amounts of people who want to enjoy all that San Diego has to offer, home prices have seen a steady increase ever since. While home prices have increased over the years inventory has failed to keep up. Towards the end of the recession in 2010 the median price for a home in San Diego County was $399,541. Compare that with May of 2021 where the median sales price has grown to a whopping $740,000.
The onset of the COVID-19 pandemic only exasperated the situation. In attempt to keep the economy moving during such a trying time the Fed slashed interest rates to all time lows. In January of 2020 mortgage rates were 3.62% and by December of the same year had fallen to 2.68%. What was interesting about 2020 regarding home purchases in San Diego was that they slowed ever so slightly but people were buying. Fast forward to today and rates are still low, inventory is really, really tight and people are buying or at least trying. It makes for the perfect storm.
On paper this seems like a great time to sell, and it is, if you are moving out of state, selling an income property, or already have your new home lined up. However if you decide to cash out on your property's value, but don’t you have your ducks in a row regarding your next home to buy, you may find yourself in the non- envious position of having to compete with the multitude of potential buyers competing for limited supply.
When sellers need more time to locate a new property and move after they sell their home, typically they will request a leaseback. Essentially, once the new owners close escrow, they are asked to lease the home back to the original owners for a period of time. In the past this practice, while not terribly common, this act was typically measured in days... maybe weeks. However welcome to the new normal…now, where leasebacks are measured in months, and it is becoming more commonplace than not to counter an offer with a Seller In Possession Addendum. Sellers who are attempting to take advantage of the red hot market are now asking for the maximum leaseback allowable, 2 months, to secure a new residence. Unfortunately, competition for available homes is so steep that many sellers are forced to enter the rental market while they continue to do battle with the masses for what available inventory is for sale.
When sellers who have closed escrow have exhausted their leasebacks they are in some cases forced to enter the rental market. The rental market is and has always been competitive, but now with the influx of sellers turned buyers who can’t find a home, competition is increasingly fierce. And the demand for rentals increases so do the rents, sometimes exorbitantly. These newcomers to the rental world have large sums of money from their recent home sales to pay more and in some instances pay the whole lease term up front. Career renters are forced out as available rentals become too expensive and scarce, and many renters are having the very homes they have rented throughout the pandemic sold out from underneath them.
This volatile housing market has a trickle down effect, touching the lives of almost all that live in San Diego County-from your local Starbucks barista who had to relocate 20 miles away from his/her work to be able to find an affordable apartment, to the affluent tech entrepreneur who moved here from San Jose and is forced to pay $150k-$300k over the asking price in order to beat out the other 25 offers on a property. Affordable housing is becoming more and more scarce. While low interest rates fuel the buying power of potential home owners, it also enables current sellers to ask more and more for their properties. All of which begs the question, what will happen when interest rates go back up?
Should buyers move forwards and take advantage of low interest rates... but risk being forced to overpay due to demand?
Should homeowners sell and take advantage of overinflated prices but risk overpaying themselves on their next home?
Is buying or selling in this market a smart thing to do right now, or is this market a wolf in sheep’s clothing?
The answers to these and many more questions regarding the lunacy surrounding the current housing market are not clear. However what is clear is that people will continue to come to San Diego to enjoy everything it has to offer, but at what cost, we are not sure.
Stay connected with news and updates!
Join our mailing list to receive the latest news and updates from our team.
Don't worry, your information will not be shared.
We hate SPAM. We will never sell your information, for any reason.