Market Update and Current Trends
Local vs. National Picture: While specific market conditions vary by town, national metrics like interest rates play a key role.
Interest Rates and Buying Power: Back in 2021, with interest rates at 2.65%, a household with an income of $120,000 had a purchasing power of around $600,000. Today, with rates at 7.25%, that buying power has shrunk to $355,000, even though monthly payments remain similar. A 1% rise in rates means an 11% decrease in buying power. Historically, rate increases are followed by property value decreases after about six months.
Low Inventory: A prevalent belief is that property values remain high due to low inventory. People are staying in there homes unless driven by factors like death, divorce, and life changes. This has led to fewer properties available, with cash buyers often dominating the market. Moreover, sellers are hesitant as selling a high-priced home but not being able to afford a new one doesn't make sense.
Bank Lending Ratios: To keep the economy fluid, banks have started adjusting their lending ratios. Initially, a consumer's monthly house payment was supposed to be below 35% of their gross monthly income. But as buying power decreased, banks have adjusted these ratios, pushing some consumers to allocate up to 51% of their income towards housing. This has increased buying power back to prior levels, but it has also increased financial strain, making many homeowners "house poor".
Consumer Debt: Many homeowners, unwilling to downgrade their lifestyle, resort to credit cards, leading to skyrocketing credit card debt. In Connecticut, the average individual holds about $9.4k in credit card debt, which is concerning.
The Advantage of Information: At Seaport, our strength lies in our data-driven approach, helping clients make informed decisions, rather than basing choices on emotions. It's crucial in these volatile times to have a trusted source of information.
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