SGR-for-sale

Over the past 12 months, we’ve seen single family home prices increase by as much as 20% in some parts of the country. This is the most rapid increase since the housing bubble collapse, and largely driven by supply and demand. According to Zillow CEO Spencer Rascoff, nearly 44% of homeowners with a mortgage still owe more than their home is worth, thus even if they would like to sell they are unable. This, combined with fewer foreclosures, has created a scarcity of available homes on the market and helped push up prices.

So with home prices on the rise, if you do have equity in your home and have been considering a move-up, why sell now? Wouldn’t it make more sense to wait another year or so and take advantage of even higher prices?

Not necessarily. While low supply has been a factor in the recent price increase, it has been driven by demand created by historically low interest rates. However, mortgage interest rates are on the rise. Yesterday, in the fifth consecutive week of gains, the rate for a 30 year fixed mortgage rose to 3.91%. That is 18% higher than the lowest rate of 3.31% back in November 2012. According to chief economist for the National Association of Realtors, Laurence Yun, in an interview with Forbes magazine, “the rate will probably go up to 5% by the end of next year.”

The result of higher interest rates is likely to be a decrease in demand, especially in the higher priced areas of the country, such as coastal California, Boston and New York. Rascoff provided the following example in an interview yesterday on CNBC. “Imagine yourself buying a $300,000 home today, and in four years you may want to trade up to a $500,000 home,” he said. “That home is not just that much more expensive—but because mortgage rates are going to be higher—it’s significantly more expensive. So the trade-up market is going to be very troubled in a couple of years.”

So looking down the road a year from now, it is likely that interest rates will increase which will slow the demand, which in turn will put the brakes on home price increases. Thus, if you are considering selling your home, now may be the best time while demand is high and supply is low.

For more information about what this might mean for you and your San Diego County property, please give me a call.

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