Atlantic Realty’s Michael Rocha has been in the real estate industry for the past six years, working throughout Stanislaus County amid unique circumstances such as the COVID-19 pandemic and fluctuating interest rates. With 2022 coming to a close and inflation not expected to abate anytime soon, Rocha — who was voted Realtor of the Year by 209 Magazine in 2021 and 2022 — 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 individuals or buyers who are not sitting on a lot of money, people sitting on about $15,000 or $20,000.”
According to RedFin.com, the median home sale price in Stanislaus County was $445,000 in September, down from April’s all-time high of $480,000. That’s well below the $829,760 the California Association of Realtors (CAR) reported Friday as the statewide existing single-family median price. According to CAR’s Traditional Housing Affordability Index, a minimum annual income of $192,800 was required to qualify to purchase an existing single-family home priced at the national median 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 compound interest rate of 5.72 percent. The effective compound interest rate was 5.39 percent in the second quarter of 2022 and 3.07 percent in the third quarter of 2021. In anticipation of strong interest rate pressure from the Fed in recent months, the market continued to exert upward pressure on yields, resulting in the average fixed-rate mortgage the 30-year rate reached the highest level in the last 20 years at the end of September.
So why does Rocha believe 2023 could be a good year to buy? It’s a combination of the continued decline in home prices, high interest rates that are making many buyers hesitant, and the recent construction freeze that is expected to affect the markets in 2024 and 2025.
“What’s different in this market and in 2023 is that there’s less competition because of rates. Buyers are more than likely not going to be competing with 10 or 15 other people for the same house,” Rocha said. “But I fear what will happen in the future because we have stopped building houses and I think that is the worst that could happen. What happens when rates improve, there will again be demand for purchases and not enough supply. Then house prices will skyrocket back up.”
Rocha uses the 2008 recession and the housing market in subsequent years as a reference. He explained that home construction similarly stalled between 2009 and 2012, contributing to high demand and inflated prices.
Rocha noted that individuals sitting on $15,000 to $20,000 tend to be younger people, many of whom have recently dropped out of college. He said this demographic tends to rent rather than become homeowners. Rocha believes that could be a mistake in the coming years, given that the current average rental cost in the Modesto metro area is $1,657, according to RentCafe.com. He warns that he sees no end in sight to rising costs.
“Even though house prices are falling, rents are still holding up. And they’re not just going to stick, they’re going to keep going up,” Rocha said. “So if you’re in a situation where you think today’s mortgage might be a little more than you 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 the recession coupled with the increased cost of living in the Bay Area will be a huge factor in rising rent prices in the Central Valley.
“Rents will go up when people start losing their jobs and unfortunately they will have to be forced to sell. I also feel that rental demand will continue to rise as more people come through Altamont,” he said.
“I understand that it’s easier said than done, but a lot of people are afraid of doing something that will benefit them right now,” Rocha added. “It’s hard to find someone who bought a house and wasn’t nervous about the purchase. Everyone is nervous, everyone is scared when they pull the trigger on that house. But ask that same individual if they’re happy they bought when they did, and the answer is always a resounding yes.”