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Defiant Housing Market

Updated: Jul 19, 2023

We are still feeling the effects of COVID and the COVID response. COVID caused significant disruptions in working options, crime, government policy, internal migration, interest rates, the appeal of the suburbs, and on and on….. These disruptions caused inflation and increased housing prices over the past three years. The Federal Reserve Bank (FED) has been increasing interest rates to fight inflation, which should hurt the housing market; however, the housing market has been resilient.


While California home prices have come down from the July 2022 highs of $777,000, the graph below shows that California home prices increased from ~$560,000 in January 2020 to $738,000 in May 2023. That's over a 31% increase in three years (Data taken from Federal Reserve Bank).

The price increase is only part of the story. Mortgage payments increased even more than housing prices. In January 2020, the average mortgage payment (principal and interest) was $2,037/mo. This increased to $3,702/mo in May 2023. That's an 81% increase. Furthermore, the payment doesn't even include taxes & insurance, which are both higher. I assume the buyer is putting a 20% down payment with a 30-year fully amortizing loan. Higher loan payments should spell doom for the market; however, home prices haven't corrected as much as one would think.

Inventory for resale homes hasn't increased even though home prices have. A refinancing boom started in the second quarter of 2020 and ended in the fourth quarter of 2022. Approximately one-third of all outstanding mortgages were refinanced. Most homeowners who refinanced their homes purchased their homes at a much lower basis years ago. Therefore, their payments are even less than those who bought in 2020. As a financial advisor, I don't feel anyone should sell a home with a sub 3.5% mortgage unless there is a death or divorce in the family. If you need to move, it is better to rent your home and rent a house in a new location.


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