Special Edition Market Report:
The Time is Now!
Despite mortgage rates eclipsing 7%, there are very few available homes, multiple offers are the norm, and home values are on the rise.
Waiting is Risky
As the economy eventually cools, mortgage rates will drop, fueling demand and leading to an even hotter housing market.
Many potential care home buyers are sitting on the sidelines, waiting for the market to become more affordable. Combining high care home values and significantly higher mortgage rates, the expectation was for care home values to plunge. Home affordability has collapsed due to rates rising from 3.25% in January 2022 to 7% today. Purchasing a care home is out of reach for so many buyers. The logic is simple: either incomes rise substantially, interest rates significantly fall, or care home values tumble. They believe that the only proper solution is for care home values to collapse.
Yet, the housing market has proven to be exceedingly resilient despite higher rates and low home affordability. Incomes have not suddenly spiked, mortgage rates have not plunged, and care home values have risen year over year. Housing has played out much differently than expected. Buyers new to the housing arena are shocked to find tremendous competition. Multiple offer bidding wars and sales prices at or above the asking prices are the norm, especially in the lower price ranges.
It is best to look at supply and demand to understand why care home values have not collapsed. Before and during the Great Recession, there was a glut of homes available across the U.S. There is now a scarcity of care homes available to purchase. With higher rates, demand has plunged just a bit. This time, lower demand is matched up against a chronically low inventory. This has resulted in rising care home values.
The 3-year average of available care homes before COVID (2017 to 2019) was about double what it is today. That is when housing was appreciating methodically from year to year. Care home values continuously appreciated annually from 2012 through 2019. The housing market was not out of control, and the supply of available care homes to purchase before COVID was at normal levels. On the other hand, today’s inventory is at chronically low, anemic levels.
Even with more limited demand, the care home inventory in most of the larger metro areas of California has struggled to grow. The main culprit is the lack of care homes coming on the market. When there are fewer FOR-SALE signs, it is challenging for homes to accumulate to grow inventory.
Low demand levels do not mean that the market is not exceptionally hot. When care home buyerscompete, bidding wars are the norm, and care home values are rising. This occurs with a scarcity of supply, which is precisely what the housing market is experiencing today.
Why is right now a good time to buy rather than waiting? Rates are expected to drop this year. In December, the Federal Reserve projected reducing the Federal Funds Rate three times this year. Their dual mandate is for both maximum employment and stable prices. The job market has been robust, and inflation is coming down nicely towards their 2% target. Despite plenty of positive numbers, the U.S. economy is facing many headwinds. Personal savings rates are low. Pandemic-era excess savings from government stimulus checks are running out. Credit card debt is growing at an abnormally fast rate. Credit card, automobile, and multi-family delinquencies have been rising rapidly. Eventually, the economy will slow from its current brisk pace. Most economists agree that a recession is not in the mix, but economic growth will slow. When this occurs, investors move their money to the safe haven of 10-year treasuries and mortgage-backed securities, resulting in a substantial drop in mortgage rates. At first, rates will drop between 6% to 6.5%. Eventually, if the economy remains cool with duration, rates could fall below 6% for the first time since August 2022.
Lower rates will result in an immediate boost in the number of care home buyers looking to purchase. Affordability will drastically improve. Demand readings will improve virtually overnight. Eventually, as rates drop, the number of homeowners willing to sell will increase. But remember, 85% of all California homeowners with a mortgage are enjoying a fixed rate at or below 5%. The dramatic increase in demand will outpace the number of additional care homeowners willing to sell. As a result of this mismatch, the housing market will get even hotter, the number of multiple offers will increase, bidding wars will get more fierce, and care home values will rise.
It was true a year ago, and it is true today: The time is now. Buyers who wait will face increased competition, and purchasing a care home will become even more challenging.
THINKING OF BUYING OR SELLING?
Let the RCFE Resource team of professionals bring proven expertise to help you get the highest price for your Assisted Living or Health Care properties. We are pleased to offer a complimentary, no obligation valuation of your home and business. Please call today for your FREE consultation.
Michelle (949) 397-4506 | michelle@RCFEresource.com
Melvyn (949) 500-3630 | melvyn@RCFEresource.com
