Real Estate News: Spring Update

By M.C. Dwyer

As the flourish of spring blossoms cascades across plant species – beginning with fragrant daphne and tulip trees, on to native western redbuds and cherry blossoms, through my personal favorite lilac, climbing old fashioned roses and dogwood – one can almost forget man-made issues like inflation, rising interest rates, and global unrest…

But economic change is upon us. The Fed’s fight against the frightening inflation rate of 8% is finally fast and furious: they’ve signaled plans to squelch inflation, including increasing interest rates the fastest rate in over a decade. Economists forecast multiple additional rate increases of 0.5% at a time (above the typical 0.25%). As a result, the average 30-year fixed rate mortgage jumped from around 3.25% during the 4^th quarter of 2021, to just over 4% in March, to about 5.25% mid-April.

As home buyers raced to lock in low rates, home sales accelerated during February and March, and prices escalated as multiple offers pushed bids an average of 6% over asking price – and often much more. Now with mortgage rates around 5.25%, the Mortgage Bankers Association reported refinancing fell by 8%, with a lesser 3% decline in their new purchase mortgage application index.

Why only 3%? Home buyers see that rates are expected to keep climbing until inflation is under control. And, a 5.25% 30-year mortgage rate is still very attractive: rates averaged 8% during the 1990s for example. Veteran real estate agents will remind you, mortgage rates went as high as 18% back in 1981. Back then, borrowing money was expensive! In contrast, borrowing money at 5.25%, when inflation is 8%, is cheap. Still, the recent 2% increase means a lot of lesser qualified buyers, especially first timers, got disqualified.     

As the spring home selling season warms up, more homes are coming on the market, yet they’re still selling quickly. So far in April, on average, homes that sold across SLV took only 11 days to go into escrow with a buyer, selling for an average price of about $90,000 over asking, or about a 12.5% premium. Scotts Valley was about 10 days, average price of $1.7 million, about $140,000 over asking – about a 9% premium. Santa Clara County, the source of many of our home buyers, was also at 10 days, but buyers offered a whopping average of $243,000 over asking, for an average sales price of $1.9 million. Looking at the chart below, it feels like the housing market is experiencing an anomaly as prices across Santa Cruz County rose another 16% since the fourth quarter of 2021, and 22% over the first quarter of 2021.

After the bond yield curve inverted a couple of times recently, which also happened before many recent recessions, more economists are discussing the possibility of a recession. A recession is roughly defined as two quarters of contraction in economic growth. There are indications this is happening across the globe. Many experts aren’t terribly concerned, since US employment has recovered from the pandemic, and lending practices became much stricter than they were leading up to the last, deep recession. Core Logic reported that January 2022 marked a historic low in mortgage delinquencies, meaning a repeat of the 2008 housing crisis is less likely.      

Our Rebuild 

My husband’s geotechnical engineer finished his report, so now the structural engineer can finish the foundation plan. Now the hope is to submit building plans; first we were hoping for October, that became March, now it’s May. These delays alone cost my husband another $23,000 in mortgage payments. We’ve been told the IRS won’t allow him to deduct his mortgage interest now that the property is just land. It also pushes him six months closer to the IRS deadline to have a tenant living there by August 2023 or risk a capital gains nightmare. These IRS rules seem unimaginably cruel to impose on someone who lost the home they built themselves by hand, don’t they? These stories, and worse, are repeated everywhere as many who want to rebuild face delay after delay, expense after expense, hurdle after hurdle. As of 4/20/22, just 103 permits to rebuild homes have been issued of the 900+ homes lost to the August CZU Lightning Fire, a glacial pace of about 10 permits a month.  

Double Takeaway

Revisit your homeowners’ insurance ASAP, and annually. The standard rebuild cost, which we were advised to insure for in early 2020- the year of the CZU fire- used to be $300-$350/square foot. Now, that figure is closer to $500. Consult a tax expert. There may be tax consequences for those who aren’t rebuilding but have not sold their CZU fire parcels by August 2022. 

California Department of Insurance: insurance.ca.gov

Santa Cruz County Recovery Permit Center: santacruzcounty.us/FireRecovery/RecoveryPermitCenter/RecoveryPermitCenterDashboard.aspx

Featured photo of Blue Abutilon by M.C. Dwyer

 

“M.C.” (MaryCatherine) Dwyer, MBA, REALTOR®  
CA DRE License 01468388
EXP Realty of California, Inc.

Serving San Lorenzo Valley and Scotts Valley since 2005                                                                                                                 
(831) 419-9759    E-mail: mcd@mcdwyer.com   Website: https://mcdwyer.exprealty.com

Sources: MLSListings.com Commercial and Single Family Homes data, Mortgage Bankers Association, California Association of REALTORs, Reuters, CoreLogic, REALTOR.com, Mercury News, through press deadline April 20^th 2022.

The statements and opinions contained in this article are solely those of the individual author and do not necessarily reflect the positions or opinions of eXp Realty, LLC, or its subsidiaries or affiliates (the “Company”). The Company does not assume any responsibility for, nor does it warrant the accuracy, completeness or quality of the information provided.