Michael Rocha of Atlantic Realty has been in the real estate industry for the past six years, having worked throughout Stanislaus County amid unique circumstances such as the COVID-19 pandemic and fluctuating interest rates. As 2022 winds down and inflation not expecting to be eased any time soon, Rocha – who was voted Best Realtor by 209 Magazine in 2021 and 2022 – has made some bold predictions for the housing market in the coming year.
“I think it's going to be a phenomenal market for certain individuals for most of 2023,” Rocha said. “The individuals I’m talking about are the individuals or buyers who are not sitting on a whole lot of money, the people sitting on about $15,000 or $20,000.”
According to RedFin.com, the median sale price of homes in Stanislaus County in September was $445,000 – a decrease from April’s historic peak of $480,000. This is far below the $829,760 listed by the California Association of Realtors (CAR) on Friday as the statewide median-priced, existing single-family home. A minimum annual income of $192,800 was needed, according to CAR’s Traditional Housing Affordability Index to qualify for the purchase of a statewide median-priced, existing single-family home in the third quarter of 2022.
The monthly payment, including taxes and insurance on a 30-year, fixed-rate loan, would be $4,820, assuming a 20 percent down payment and an effective composite interest rate of 5.72 percent. The effective composite interest rate was 5.39 percent in second-quarter 2022 and 3.07 percent in third-quarter 2021. In anticipation of the Fed's strong push on rate increases in the past few months, the market continued to put upward pressure on yields which resulted in the average 30-year fixed-rate mortgage reaching the highest level in 20 years in late September.
So, what makes Rocha believe that 2023 could be a good year to buy? It’s a combination of housing prices continuing to decrease, high interest rates leaving many buyers hesitant, and a recent halt on construction expected to impact 2024 and 2025 markets.
“What’s different about this market and in 2023 is that there is less competition because of rates. More than likely, the buyers won’t be competing against 10 or 15 other people for the same home,” Rocha said. “But I fear for what's happening in the future because we stopped building homes, and I think that's the worst thing that could have possibly happened. What's going to happen is once rates get better, there's going to be demand again to buy and there won't be enough supply. Then, home prices are going to skyrocket back up.”
Rocha uses the recession of 2008 and the housing market of the following years as reference. He explained that construction of homes saw a similar stoppage from 2009 to 2012, which contributed to high demand and inflated prices.
Rocha noted that the individuals sitting on $15,000 to $20,000 tend to be younger people, many who are recently removed from college. He said this demographic tends to rent rather than become homeowners. Rocha believes that this could be a mistake in the coming years considering that the current average cost of rent in the Modesto metropolitan area is $1,657, according to RentCafe.com. He warns that he sees no end in sight for the rising costs.
“Even though prices on houses are softening, rents are continuing to hold. And they’re not going to just hold, but they’re going to continue to rise,” Rocha said. “So, if you're in a situation to where you think that today's mortgage might be a little higher than what you'd want to pay, you have to be willing to ask yourself, ‘Am I willing to pay what today's mortgage is for rent? And in the next five or six years?’”
Rocha believes that a recession paired with increased costs of living in the Bay Area will be huge factors for the rising rent prices in the Central Valley.
“Rent will get higher as people start to lose their jobs and they’re unfortunately going to have to be forced to sell. I also feel like the demand for rentals is going to continue to rise as more people cross over the Altamont,” he said.
“I get it, it's very easier said than done, but there's a lot of people having fear push them away from doing something right now that's going to benefit their life,” Rocha added. “You'll be hard pressed to find somebody who bought a home and was not nervous about the purchase. Everybody’s nervous, everybody's fearful when they're pulling the trigger on that home. But ask that same individual if they're happy they bought when they did, and the answer is always a resounding yes.”
