Bummer Bob gripes over dinner, where most financial decisions get solved: “We just can’t afford a gorgeous river house in Brookdale now. Thirty-year mortgages are over 7%, and payments over three grand on $500,000 30-year loans daunt us buyers.”
Pretty Penny, serving salmon, answers: “But mountain prices haven’t dropped this low in ages. I’d hold if I owned and sell without panic if needed. Retirees with homes gather about 40 times the equity of renters! To help us, the Fed Reserve cut benchmark rates a third time since September.”
Bob: “Those wimps; they started cutting before inflation hit their own 2% goal and now we hover at 2.3%. Lately they cut interest while cancelling meetings for more rate cuts. No wonder the stock market tanked 3% this week (12/22/24).”
Penny: “Confusion lowers production and increases unemployment. Our realtor, Joyce Rudy, declared: ‘We are in a market where buyers are waiting to see what is happening with the change of political parties. We have more inventory than buyers. Agents need to live up the idea of reducing the price if no offers come in two weeks.’”
Penny: “How might Trump affect housing?”
Bob: “More confusion. At least he sees supply as the problem and he might cut energy prices and sell federal land. Of course, tariffs raise prices of construction materials while deportations raise both labor costs and government spending; resulting inflation causes the Fed to raise rates. Trump is already begging Congress to raise debt limits. So I wouldn’t count on quick interest rate cuts unless Mr. Gridlock defeats Trump.”
Penny: “Pass the dumplings, Honey Bummer? Stocks should do well if Trump really reduces government spending while cutting taxes for corporations and the rich. Unemployment is manageable at 4.5% with production rising. Wouldn’t buy bonds if I favored market timing. As for our river house, a banker named Rothschild once screeched: ‘The time to buy is when there’s blood in the streets.’”
Bob’s greasy knife clattered to the floor as Penny argued: “We’ve got income, credit and a down payment that qualifies—so let’s chance it.”
Bob: “We barely qualify, and it is dangerous to count on rising home values or to expect mortgage rates to fall so we can refinance later. What if we lose a job or wreck our credit? Then we’re stuck with high rates for years. And we then can’t move soon to be near your parents.”
Penny: “Housing prices will rise, must rise, because we haven’t built enough houses. Zillow says ‘America needs another 4.5 million homes, but zoning and planning departments fail to accommodate.’ Silicon Valley is hardly out of great ideas and the mountains will house workers. If we wait on interest in a rising market, prices will leap and lower interest likely would be the reason for the leap.”
“Not in my back yard!” they shout until the housing supply crisis brings sufficient discomfort. Septic regulations and insurance price controls exacerbate seller’s problems but leave opportunity to buy low for those who can finance.
Bob: “Pass the dessert. I guess you found your dream home and the price sure does seem right. We date the mortgage, hoping to refi, but marry the home. If we get a discount of a couple hundred thousand, we will make up the interest in essentially a forced savings plan for leveraged investments. It is risky, but you won me over with the argument that homeowners retire with 40 times the wealth.”
Penny: “Let’s seek advice from a senior realtor at a green-roofed Boulder Creek office.”
Joyce Rudy sums up a buyers’ market, which “always comes back”: “I am starting my 57th year in real estate, mostly in the Santa Cruz Mountains. In the past 20 years, it has been a sellers’ market 90% of the time. We are more or less in a par market with a slight advantage to the buyer. It’s a good time to be buying: you have bargaining power because of the lack of competition.”
Robert Arne, EA, CFP, MS, of Carpe Diem Financial Life Planning, gives holistic financial advice as his client’s fee-only fiduciary. This Mortgage Loan Originator (NMLS #2565162) serves mostly Santa Cruz Mountain dwellers. These articles must not be read as personal financial, mortgage, tax or investment advice; consult appropriate professionals. Learn more at www.carpediem.financial.
