The residential real estate market in the US is having its biggest boom since 2006. Of course, we all recall just a few years after that when, in 2008, the housing bubble burst, igniting a global recession. But real estate and mortgage experts say that in nearly every way, the current housing market conditions are the opposite of that last ill-fated boom. That being said, there are some early telltale signs that the market may be cooling.
If you are a senior who is considering a move to a retirement community, this could be an indication that now may be the ideal time to list your home for sale. A number of factors are still present maintaining a hot real estate market for sellers. Let’s take a look at some of the reasons for this situation and if those reasons are beginning to show signs of change.
High Demand, Low Supply – but Changing
According to the National Association of Realtors, the median single-family existing-home sales price rose 22.9% nationwide in the second quarter, a record in data going back to 1968. Fallbrook is no different. As of the end of August, the median list price was $854,950 with even larger homes on an acre or more selling for well over $1,000,000.
A big reason for the current boom is the low supply of existing homes for sale, causing prices to spike. In Fallbrook, at the end of August only 94 homes were actively listed in the 92028 zip code. Although that is historically very low volume, that number is already 12% higher than the previous month. As inventory grows, prices could stall.
New Construction Slowdown – for Now
Adding to the low supply issue and the resultant higher prices, new home construction hasn’t been able to keep up with demand as shortages of land, skilled labor, and materials hit homebuilders. Only a few months ago, because of supply issues, the cost of lumber was at an all-time high, up a whopping 188 percent since the same time last year, according to Fortune.
New housing starts did rise nationwide in 2020, but they were still more than 20 percent below average. And that lumber shortage and resultant higher lumber prices? It’s adding at least $24,000 to the price of the average new single-family home, according to estimates from the National Association of Home Builders.
With lumber prices correcting however, and labor beginning to return to the market, home builders are picking the pace back up to meet demand. A good example locally being in south east Fallbrook where the new home development project by Citro is underway and plans to add nearly 850 new units. It won’t be long until higher inventory begins materializing putting possible downward pressure on home values.
Low Interest Rates – but Upward Pressure in Sight
Although mortgage rates have inched up recently, and experts expect them to continue to creep up this year, they are still extremely low. The Federal Reserve is forecasted to maintain ultra-low interest rates until certain employment and inflation goals are met, which may not happen for quite a while given the state of the nation’s job market and overall economy. These low rates make it an attractive time for homebuyers to enter the market, increasing demand.
That said, rates can’t stay low forever. Just a 1% uptick in home borrowing interest rates causes an approximately $140,000 reduction in what a buyer can pay to buy a home while still have the same monthly mortgage payment.
Nesting Millennials & Pandemic Fatigue
The so-called “Millennials,” who were born between 1981 and 1996, are currently the largest living adult generation. Members of this group are now reaching their mid-20s to late-30s — prime years for settling down and purchasing a first home. Because the housing market is so under-supplied, these young homebuyers are vying for a limited number of homes, further driving up sale prices.
The pandemic also has contributed to the current suburban real estate boom as some city-dwellers looked to escape crowded urban areas. With more people than ever working from home, many sought homes with more space in the suburbs. This includes families relocating from other more costly markets like the Bay Area. Relative to what they’re leaving, their buying power is much stronger.
However, as more and more businesses begin to ask employees to return to work at least part-time in office, longer commutes back to urban center from more distant communities will once again factor into locations buyers are prioritizing. It may also limit how many out-of-town families can relocate to less expensive markets further reducing demand.
Other Telltale Signs the Market May be Cooling
There are numerous other factors that when combined may show signs of a cooling housing market. Despite a peak in Fallbrook’s median list price, the upper-end quartile of homes listed in the 92028 zip code peaked in May and has fallen approximately 12% since. Often that segment of homes is a trend leader with other lower-priced quartiles eventually following.
Over the last two years, the average price per square foot in Fallbrook has increase nearly 35%. Back in September 2019, the 90-day average price per square foot in Fallbrook was just under $275. This past May it peaked at over $370 per SF. However, it has plateaued ever since with even a slight decline in August.
Lastly, the median days on market for all sized homes in Fallbrook, a common metric affecting sale prices, has tipped upward nearly 17% in less than a month from 18 to 21. Looking deeper, for Fallbrook home in the 3,000 SF size market, the median days on market is up nearly 50% from 14 to 28. Still amazingly low, but perhaps another indicator that change is in the wind.
How Seniors can take advantage of this sellers’ market
One of the few challenges for sellers in this market is how to afford their next home. For most, despite the opportunity to sell their home for record prices, the same is true for how expensive their next home is to buy. Unless families are moving out of state to a lower cost area, it can be hard to take advantage of this “sellers” market without taking on significantly more debt.
Not true however for seniors considering a possible move into a retirement community. In fact, now may be the ideal time for seniors to take advantage of a peaking real estate market and to lock in their significant equity gain before the market cools. For many seniors, their home represent their single largest asset. And with home values in Fallbrook up over 35% in the last two years alone, these hard-earned equity gains can be used to financially secure the next chapter in retirement living worry free.
This is especially true for retirement communities like Silvergate Retirement Residence that offer a monthly rental basis model without sizable upfront “buy-in” fees sometimes exceeding $1,000,000. This allow seniors the ability to both invest and to remain in full control of their home sale proceeds. When invested properly, these home sale proceeds can generate an entire new source of dividend income for seniors to help afford retirement while still retaining control of their largest asset.
If you are a senior considering selling your home, reach out to an experienced realtor to discuss the market in your specific geographic area and what price you might expect to garner from selling your home. Talk to a financial expert about how those proceeds can be safely invested help afford retirement living. There’s never been a better time for seniors to unlock the value in their home and pave the way for the next phase in life.
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