“If only we had a crystal ball” or some similar expression often makes its way into conversations with homeowners who are considering selling their properties. In the hot seller’s market that is Silicon Valley, homeowners have seen high levels of appreciation in the value of their properties over the past decade. Long-term owners who do not have to sell immediately have a hard time deciding to pull the cord and sell when that high level of appreciation could continue. While this is possible, there are indications “when reading the tea leaves today” that now might be an excellent time to cash in on all of those gains.
Mortgage Rates Are on the Rise
From December 2008 to December 2015, the federal funds rate was 0.00-0.25 percent, the lowest since the inception of the rate itself, as a result of the financial crisis of 2007-2008. As the American economy improved, the rate was raised once in 2015, but not again until December 2016, when the Federal Reserve signaled more rate increases were to come. This held true when they raised the rate again to 0.75-1.00 percent in March 2017, and again in June 2017 when the rate was increased to 1.0-1.25 percent.
Mortgage rates are driven by the federal funds rate, and as such, they have gone up in recent months. Many millennials have been waiting to buy their first home in hopes that the market would turn in their favor. However, as mortgage rates rise, the amount of homes they can afford has decreased due to increasing payment amounts. They are getting pushed off the sidelines to get into the market while still possible, locking in a still-low mortgage rate. In turn, the increase in the number of millennials buying homes has resulted in more offers and higher prices.
While the short-term impact of rising mortgage rates is positive for sellers, in the long-term it will serve to reduce appreciation levels or even prices as more buyers will simply not be able to afford the payments required to buy homes. The number of offers may decrease and prices may either drop or level off.
Stock Markets Are Near All-Time Highs
One of the most common sources for down payments in Silicon Valley are stock options. High prices require buyers to make larger down payments. The major local employers are notable for giving employees generous stock options, and those companies are traded on the NASDAQ. The NASDAQ is near historical highs, making these options more valuable, which allows employees more buying power by cashing out these options. This results in not just more buyers competing for homes, but also better-funded ones, yielding higher prices for sellers.
Volatility in National Politics
Regardless of political opinions, it is difficult to disagree that there is significant volatility in the federal government. The stock market rally, up approximately 20 percent in the last eight months, has been driven partly by the hope that President Trump and the Republicans in Congress will successfully repeal the Dodd-Frank security regulations. Sellers have also held off listing their homes, hoping President Trump’s promise to lower taxes would pass, which effectively would reduce the capital gains tax rate, and thereby the amount of tax sellers will pay on their proceeds. However, as President Trump has run into significant roadblocks in other legislative pushes, some are doubting his ability to achieve either goal. If it becomes more likely that these will not occur, the stock and housing markets will likely react negatively, impacting the results for sellers in the future.
While there is no way to read the future, many signs point to now being an optimal time to sell and cash in the gains that sellers have already seen. This allows sellers to avoid the risk factors that are looming as legitimate possibilities on the horizon.