RATES WERE ALREADY DOWN

Did you know that mortgage rates are 1.5% lower than 12 months ago?

I wanted to share one of my favorite real estate truisms that I share with clients: There’s never the right time to buy the wrong house, and never a wrong time to buy the right house.

Many times the perfect house comes on the market at the wrong time for the perfect buyer: they are heading out for a long vacation, just started a trial or a major business project or sprint, or had a life event mucking things up with their schedule – and their psyche.

The buzz was that the Fed was going to cut rates so mortgage rates would drop. However, when the Federal Reserve cut its fund rate this week for the first time in four and a half years, mortgage rates ticked up a fraction of a percent. 

Why? Because mortgage rates are not directly tied to the Federal Reserve's fund rate, as many might think. Instead, they tend to follow the yield on 10-year Treasury bonds as the image below shows perfectly.

The bond market moves much faster than the Fed fund rate, and for months the 10-year yield has been dropping in anticipation of future Fed rate cuts.

In other words, mortgage interest rates have been falling for months in response to the economic data.

The key to understanding when mortgage rates will drop is to watch the job market and economic data – not rate cuts. Recently, housing starts came in stronger than expected, signaling economic growth, which pushed the 10-Year bond yield higher. Coupled with jobless claims data that came in better than expected, we saw an uptick in mortgage rates.

But how much do interest rates matter for the Bainbridge Island home buyer? If you are waiting for mortgage rates to drop to buy that home on Bainbridge, it could mean you miss that right house. Is missing out on buying the right house worth the wait for a drop in rates?

On a $750,000 home loan, a half-percent decrease in mortgage rates from 6.5% to 6% translates into about $240 a month or a little over $2,900 a year. Considering this, the lower federal fund rate feels more psychological than financial. This is even more true when considering that my clients all agree and understand when I say that $10,000 and $25,000 is often a rounding error in the price points folks are buying and selling property on Bainbridge Island.

If you are ready to buy and waiting on the fund rate to fall further, I’d love to help empower you to pencil out the best financial strategy for your particular circumstances.

Considering housing inventory is higher than it’s been in years, showing activity & pending sales are down, days on market are up and the percentage of homes selling in a week is less than it has been in over 5 years… this is a great time to consider writing an offer on a home.

Believe me, many sellers are waiting for you to bring an offer to negotiate. 

And of course, if you are buying an investment that you plan to utilize by living in, consider that our real estate values have, historically, been stunning; over the last 10 years the YOY increase in average sale price has averaged 10.8%. To show how desirable Bainbridge Island is as a real estate investment, a home purchased in 2014 for $1,000,000 would have an approximate value of $2,350,000 today.

But before you accuse those two pandemic years of being responsible for much of that gain via irrational year-over-year increases such as the 19.3% seen in 2021, let the record show that the four years of 2014 to 2017 saw an average YOY growth of 12.8% (high of 17.2%, low of 10.6% and two years just under 12%. And for comparison, 2020 saw 14.8% – less than 2014).

As the famous actor, Will Rogers, said once: “Don't wait to buy real estate. Buy real estate and wait.”

Thanks,

Jason

P.S. Sharing the love of some clients

In the 30 years that we have been buying and selling properties, Jason is by far the best Realtor with whom we have worked. We know Jason from various boards and community organizations, and hired him specifically for his integrity. We wanted an agent who we knew would always do the right thing and know him to be altruistic and truthful with an approach that is not formulaic or reactive, but intentional and analytic. He met every challenge with thorough investigations, provided a range of solutions and added a good sense of perspective to both our transactions. We recommend Jason as a true real estate “professional” in every sense of the word."

• Dana and Steve Webber, 8 transactions and counting