The Answer to my Burning Question:
I’ve noticed interest rates are on the rise. (They already dropped .5% since writing this.) How interest rates will perform is as difficult to predict as the housing market; however, over the years, I’ve noticed they increase around December 8 and June 8, and they tend to be at their lowest around April 8 and October 8. The kicker is, even though I recognize this happens, it can always change. How can I not wonder if this will be the year they don’t go back down, because they were so low to begin with?
The fact that interest rates are on the rise can have two effects. 1) It can get those who thought they could wait forever, sitting on the sidelines to become serious buyers; or, 2) it could be that interest rates have increased so much that Buyers will feel as though they can no longer get what they want, and they will choose to rent. Which will you be? We may never see interest rates as low as they’ve been these past few years… Will the government get involved again and offer other incentives to get the market moving again, if necessary? Is this what Buyer’s are waiting for? Do Buyers not realize that if they all beginning at once, it pushes the price up higher and faster? Isn’t this exactly why California has experienced this phenomenon at least three times before? Then why would anyone believe that our market would not come back? This is the reason I cannot agree with those that believe we have hit a wall on buying our Orange County, California homes as an investment rather than as simply your home to live in and not expect anything in return.
One of the most important questions a Realtor can ask a Buyer when they get ready to make a purchase is how long they intend to keep this home they’re about to purchase. When the market is not as strong as we would like it to be, and since it is virtually impossible to tell when there will be a change in the market, the one good thing to keep in mind is, you can typically control when you sell… unless you have the ‘perfect storm’ of events, and this I know does happen. Under most circumstances, at worst you can rent your home should you find yourself relocating or unable to afford your payments, and still hold off selling until the return of a better market. The question is not if the market will come back, but when.
For someone looking to own shorter term and who might be uncomfortable with someone else living in their home or being landlords (while, hopefully, the home is increasing in value), than this is not the game plan for them. Because the market can change up or down on a dime, you may want to consider the following:
If you’re familiar with the Mathematical Rule of 72, it will be difficult for you to deny this fact. (For those of you who are not familiar with this rule, please do not hesitate to contact me for further explanation. Feel free to email me at firstname.lastname@example.org or visit my website by clicking here.) A study of Orange County’s past increases will demonstrate an average of higher than 7% increase a year, but for the purpose of this demonstration, I will use the conservative 7% number. Using this 7% number, the MR 72 determines that the value of your home will double in 10 years. There would be very few of you that have owned your home for that period of time in Orange County, CA that could deny that their home at least doubled during that period of time. What some lose sight of is it’s not the amount you put down on the home that doubles. Your 7% gain is on the purchase price of the home. Where else can your dollars work for you like this? In addition, the ocean isn’t going away; the desirability of living in Orange County will continue; there are a shortage of homes available in Orange County; and, we should be land-locked within a 15 year period. Besides that, I cannot imagine the government allowing the banks to get away with what they have for much longer! All of these factors lead me to conclude that home ownership in Orange County, CA is still an excellent investment.
I look forward to sharing with you my observations of the current market sometime between January 15 to February 15 so be sure to sign up below to receive notice as my new blog entries are posted:
I look forward to assisting you in all of your real estate needs. I can be reached at 949-929-6343 or email me at email@example.com.