Real Estate Shake Out

Although foreclosures and the fall of the subprime loan market were bumps in the road of Bay Area real estate, what has happened in the past few weeks in the financial markets look to perhaps have a longer lasting impact.

The economy's too good. At least that's one explanation for the downward pressure on the stock market. Investors were betting that the economy was going to stay strong but also cool off in terms of growth giving the Fed reason to lower rates later this year. Good for the stock market and seemingly good for the real estate market (though mortgage rates aren't so much tied to the short term Federal Funds rate). But a funny thing is happening, okay so maybe not so funny, but the slowing economy is now facing increasing inflation worries. Okay so gas costs more and food seems to be catching up, I get it, so what does that have to do with houses? Shouldn't my home price increase as well then?

The problem that we are facing is that the market is getting ahead of the Fed on this one. The 10 year bond yields have gone up about 70 basis points or .7% in the past few weeks. As one investor put it, it's like the Fed making three quarter point rate hikes in a month. The idea is the higher rates will curb borrowing which will reduce investing and limit inflation. So what does this have to do with real estate? As I've written in the past, mortgage investment dollars competes for the same dollars as the 10 year treasury bonds so as those yields increase, so do the standard 30 yr mortgage rates, which have gone from the low 6% range to the high 6% range in less than a month.

A more expensive loan means buying less house, or getting a cheaper price on the original house a buyer wanted. And there you have it, money is getting more expensive so home prices might have to get less expensive. I think this is going to effect the lower quality properties more, not the less expensive ones, but the properties that aren't as well taken care of. Sellers can't just dump their homes on the market without taking some care in preparing it to be sold anymore and expect to get full market value.

A little leg work and elbow grease will get you a long way. Take the advice of your Realtor or get a home stager. Spend the few hundred dollars and a weekend of work to make your home more appealing. And don't forget, you only get one chance to make a first impression.