The Weekly Update 12/15/2023
Written by Brittany Jarocki CFP, (Jim's business partner and daughter and the succession plan Jim hopes he never needs).
There’s no question that everyone was aware of the housing boom that happened from 2020-2022. Not only were people scrambling to purchase any home they could without paying *too much* over asking price, but those who were already homeowners were madly refinancing to the low interest rates that were available. Needless to say, realtors, banks, and mortgage brokers were BUSY!
From 2020-2022 we saw once in a lifetime low interest rates. However, the ramification of that was that more people could now afford homes and those who could already afford homes could now afford more expensive homes. This is because as the interest rate goes down, it costs less in interest to live in the home each month. BUT since more people could suddenly afford homes, the prices of said homes increased dramatically i.e. basic supply and demand. This led to people spending more money on a home than the home may actually be worth.
Fast forward to today with interest rates on a 30-yr fixed at over 8%. Now there are significantly less home buyers, as the monthly mortgage payment on the same home just went up 3x! But now home prices have stabilized due to decreased demand and homes are selling at more normal prices given the higher interest rates.
The other piece to the puzzle is the huge lack of housing supply. Everyone who purchased or refinanced a home with such low interest rates now wouldn’t even think of moving! Why would they trade their 2% mortgage in for a 8+%?!
This begs the slogan, “Marry the home, date the rate”!
It is likely that interest rates will not stay as high as they are for too much longer. We could even begin to see rate cuts in 2024. At that point, everyone who purchased homes at higher rates will refinance and their monthly payment will decrease.
I’m interested in your thoughts, comments, and observations. Feel welcome to call, email, or stop by the office and say Hi.
James O. Lunney, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.