How is Inflation Affecting the Central Coast Real Estate Market

The craziness continues in the housing market. Mortgage rates are rising, inflation’s rising, buyer demand is still high and the inventory is still low.

Orcutt, saw a 24% increase in sales price over Jan, 2021. The average housing price in Jan, 2022 was $627,000 and last year we were at $507,000. Days on the market dropped 19% compared to last year. Jan of this year took 22 days to go under contract.

Santa Maria, we saw a 16% increase in the housing price over January, 2021. This year, it costs an average of $526,000 to purchase a home in Santa Maria. Last year, we were at $455,000. The inventory actually dropped 41%. In 2021, 49 homes were sold in January in the Santa Maria area. This January, we only had 29 homes sold. Days on the market decreased, we had a 40% reduction on the days on the market. It only took 12 days to get a home under contract in the Santa Maria area this January.

Let’s talk about the elephant in the room, inflation. We all see it happening, we feel it happening when we’re at the grocery store or the gas pump. We also see it in the home prices and the rent rates as well. When things start to rise, one of the silver linings that we look at is being able to lock in your fixed monthly cost of home ownership. This will actually help you against hedging against the inflation.

Home ownership outperformed inflation quite a bit. Renters, we know that mortgage rates are projected to keep rising and we know that rental prices are rising as well. Somebody who continues to rent but could buy, is taking on the additional increases in rent year after year. It’s going cost them more to buy a home down the road. So it’s really important for renters to understand this dynamic. Homeowners are shielded from mounting rental prices because their cost is fixed. Regardless of what’s happening in the market, they’re locking in that payment at today’s cost. Tangible assets like real estate get more valuable over time.

Interest rates, where are we at? We were at a super low rate in the thick of the pandemic but things now are starting to change a bit, right? We can feel that happening. We have seen rates tick up in a quote according to Freddie Mac. As mortgage rates rise, we do expect some moderation in housing demand, causing the housing price growth to temper a little bit. However, the combination of a large number of entry level home buyers facing a shortage of entry level inventory of homes for sale, should keep the housing market competitive.

We are expecting the purchase market to grow and the refinance market to constrict a little bit. For the last 50 years, the relationship between the mortgage rate and the 10 year treasury yield has been almost the same. When the fed raises the rates, it does not control the interest rates, however it helps to influence it. So keeping an eye on the treasury yield is a good idea to see what is coming down the pipeline for the housing interest rates. Now, about forbearance, only about 1.4% of all mortgages are in forbearance. So we’re definitely heading into a better position as we are coming out of the pandemic crunch that we experienced earlier. 38.1% of homeowners are exiting the forbearance plan paid in full. 43.7% are working out plans.

Lastly, let’s talk about foreclosures. We are at an all time low for foreclosure activity as a whole. We may see a bit of the uptick in foreclosures a little bit in 2022, but we’re not expecting a big increase and still way below the average in, you know, the normal years that we saw in the last few years before the pandemic. As always be social and share with somebody that might find this beneficial. If you have any real estate questions at all, please don’t hesitate to reach out to us. Our team is always ready to help.