Hurray! Interest rates finally started dropping and Wall Street is betting on more drops to come in 2024. Good news for buyers! The interest rate dropped over 1% point which allows you to afford 10% more in house price with the same payment. We are ramping up for a busy sales market this spring.
Demand is ready to rise
Looking at the low red demand line below compared to the black supply line you might mistake it for a buyers market. The black line shows inventory slowly building for the past 21 months since the interest rates started rising. The red demand line has been flat but what it doesn’t show are the many people waiting to buy. These are buyers who have been prevented from buying because of the high interest rates. Add to that homeowners waiting to buy because they don’t want to give up their existing 3% loan to get a new 7%+ loan. Together they make up quite a bit of pent up demand.
Insurance is costly and tough to get – as insurers pause, restrict and leave the state
There has been a rapid rise in home insurance costs and a big drop in coverage availability. A huge swath of San Diego homes are considered to be in “High or Very High” fire risk areas and are being refused for fire coverage by Insurance companies. At one time the rule of thumb was that properties east of highway 15 on canyons were hard to insure. That trend has moved west of Highway 15 and in places even west of Highway 5.
These homes pay more as they have to apply for a fire insurance policy through the California Fair Plan in addition to a second private Insurance plan to cover non-fire risk to the home. If that wasn’t bad enough, multiple home Insurance companies have begun disassociating or pulling out of the state by pausing or restricting their underwriting of new insurance coverage, cancelling existing policy holders or ending their programs in the state. Farmer’s Insurance has a cap on new policies. Allstate no longer sells new policies. State Farm is no longer selling new policies. AIG and Chubb have declined to renew thousands of policies in the state.
California is the only state that requires insurance companies to take into account 20 years of historical data when setting their premiums. That means property insurers in California have to use old years with few losses and can’t adequately price for risks from wildfires or other catastrophes that have ravaged the state in recent years. And as a result, they are leaving the state at a rate not seen in other parts of the United States.
You Still Have Time
Interest Rates are likely to continue falling. If you are buying get ready. You may be able to purchase with a short term loan and refinance out when rates drop. If you are selling, now is a good time to project out what interest rates would need to drop to so that your sale and purchase make sense. While you are at it give a call to learn about how to avoid higher property taxes and what you should do months in advance of selling your house.
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