Ochomebuyer
New member
Do you think inventory levels will increase when mortgage rates drop?
When do you think mortgage rates will drop?
Which one would you choose and why?
- Thread starter hskim17
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When do you think mortgage rates will drop?
I think rates would have to drop into the 5s in order to unlock materially more inventory. That being said, when rates come down that much you'll get a lot of financed buyers that have gone to sidelines come back into the market which will increase demand more than supply increases. Some of my buyers who are buying today think rates will come down in the next 2-3 years so they rather lock down the price now and then refi the rate later (as the saying goes...you can refi the rate but you can't refi the price).
I don't think that rates will materially come down until 2025 and 2026 as inflation is a bit sticky so the Fed will need to stay tighter for longer than most people think.
It will be minimal in Irvine and in most parts of Orange County.
Maybe rates come down. Maybe they go higher and then they come down to where we are now.
The advantage to an ARM is you can pay additional principle (forced savings which most won't do) and when it comes time to refinance you owe less. If the loan recalculates and you can't refinance, your payments may actually drop with higher rates and a lower principle. I did that with an arm in the late 80's (payments changed every 6 months which was common with ARMs in those days). My neighbors struggled every six months while my payments required actually went down.
People who buy now are in danger of losing their houses imo. The stress of high payments will put pressure on marriages, etc and there would be no ability to refinance lower. 3% loans can't move anywhere cheaper so they'll just stay put.
The only ones at risk are the ones who bought after summer 2021. That's when housing price started climbing and mortgage rate started rising as well. At this point, 30-year fixed were around 2.5% already. Those who bought after 2022 were even worse off. I locked in my rate in March 2022, when it was already at 3.25% for jumbo loan. Fortunately, I was able to use bank relation to bring it down to 2.875%.
However, I think even Martin can agree that most of the ones buying after mid/late 2022 were cash buyers or put down 30% to 40%. So I don't think those are at risk.
Again, I would say the percentage of people being forced to sell even with high unemployment is very small. Especially in Irvine and most of OC. You would be a fool if you don't think most Irvine/OC homeowners don't have enough cash to last several YEARs without a job. The fact that 30-40% of these homeowners paid CASH should convince you of that.
When do you think mortgage rates will drop?
usctrojancpa
Well-known member
I think rates would have to drop into the 5s in order to unlock materially more inventory. That being said, when rates come down that much you'll get a lot of financed buyers that have gone to sidelines come back into the market which will increase demand more than supply increases. Some of my buyers who are buying today think rates will come down in the next 2-3 years so they rather lock down the price now and then refi the rate later (as the saying goes...you can refi the rate but you can't refi the price).
Ochomebuyer
New member
When do you think rates will come down?
the more astute question is what will drive spreads back to their historic levels from current 300 bps level?
The Motor Court Company
Well-known member
Need a deep recession for Fed to lower rates and when that happens it will curb demand as job losses ramp up and when price starts to fall more sellers will rush to the exit and buyers will hesitate to buy and making a positive feedback loop as prices keep dropping
CalBears96
Well-known member
Again, this may happen in other parts of the country, but not in OC, especially in Irvine, since they refinanced at super low rates so they have no incentive to sell.
B2FiNiTY
Active member
My guess is late next year at the EARLIEST. At most one more rate hike to go... finally starting to see some tightening in the market lately after such a run in 2023.
CalBears96
Well-known member
I agree. Either late next year or 2025.
usctrojancpa
Well-known member
I don't think that rates will materially come down until 2025 and 2026 as inflation is a bit sticky so the Fed will need to stay tighter for longer than most people think.
usctrojancpa
Well-known member
It will be minimal in Irvine and in most parts of Orange County.
Liar Loan
Well-known member
Then you should be advising them to take an ARM loan with the shortest fixed period possible. They would save money on the starting rate (about 5/8 percent) plus they wouldn't have to waste money on the refi down the road.
Ready2Downsize
Well-known member
But no one on this board knows anything other than rates coming down. You'd have to be at least 65 (more likely older in most cases) to have known anything but rates coming down. 65 puts you at 23 when rates peaked in 1981 and most people were not looking to buy real estate at the peak when they were 23.
Maybe rates come down. Maybe they go higher and then they come down to where we are now.
The advantage to an ARM is you can pay additional principle (forced savings which most won't do) and when it comes time to refinance you owe less. If the loan recalculates and you can't refinance, your payments may actually drop with higher rates and a lower principle. I did that with an arm in the late 80's (payments changed every 6 months which was common with ARMs in those days). My neighbors struggled every six months while my payments required actually went down.
Ready2Downsize
Well-known member
I think we need a deep recession to curb labor clamoring for more money but I don't think even a high unemployment rate will do much to drop prices. If it didn't in 1981 (unemployment was higher than 2008 and there was no government bailing us out, except Lee Iacocca, lol), why would it now? Houses went sideways. Inflation keeps the value up, it's just hard to find buyers.
People who buy now are in danger of losing their houses imo. The stress of high payments will put pressure on marriages, etc and there would be no ability to refinance lower. 3% loans can't move anywhere cheaper so they'll just stay put.
Not true! I will be putting 60-80% down on my OC retirement pad after I sell my 1.99% Bay Area chateau so I’m not too concerned about the rate on my small mortgage. Our area truly has tiny inventory and is the school district Asians that can’t afford Saratoga or Cupertino flock to so we seem to have a floor on prices, especially in my entry level development. A really small SFR around the corner just listed at $950/ft2 and sold with 7 offers - waiting to see the sales price but I imagine over $1K/sf
sleepy5136
Well-known member
because if unemployment is high, it will be difficult to find jobs and people will end up selling their homes that were locked at 3% rate. payments locked in at 3% rate is still significantly higher than 1980s mortgage with higher interest rates. unless you're assuming everyone that owns a property at 3% have savings to last through a recession.
CalBears96
Well-known member
Those who refinanced did it at 2%, not 3%, and I would say that their loans were relatively small. These are the ones who bought years ago.
The only ones at risk are the ones who bought after summer 2021. That's when housing price started climbing and mortgage rate started rising as well. At this point, 30-year fixed were around 2.5% already. Those who bought after 2022 were even worse off. I locked in my rate in March 2022, when it was already at 3.25% for jumbo loan. Fortunately, I was able to use bank relation to bring it down to 2.875%.
However, I think even Martin can agree that most of the ones buying after mid/late 2022 were cash buyers or put down 30% to 40%. So I don't think those are at risk.
Again, I would say the percentage of people being forced to sell even with high unemployment is very small. Especially in Irvine and most of OC. You would be a fool if you don't think most Irvine/OC homeowners don't have enough cash to last several YEARs without a job. The fact that 30-40% of these homeowners paid CASH should convince you of that.
sleepy5136
Well-known member
the housing market does not revolve around Irvine.
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CalBears96
Well-known member
I said especially Irvine and most of OC because that's what concern us the most. Who gives a shit about housing market in Alabama? It has no effect on the housing market around Irvine and OC.