Shopping for a house in SLO County? Here’s why mortgage experts say you should buy now
With high demand and limited supply in San Luis Obispo County’s housing market, mortgage experts are advising potential home buyers to act now — for a number of reasons.
Jeff Tanaka, a sales manager with Envoy Mortgage in Cambria, said homebuyers should “buy versus rent, if you can,” in San Luis Obispo County — despite the high cost of local homes.
Housing prices are likely to stay high in SLO County, Tanaka said, because it’s a “very desirable” place to live.
“People want to be here,” he said, “So let’s just hope that prices will remain the same, if not come down a little bit.”
Mike Hardy, a managing partner at Churchill Mortgage in Orange County, said it may make more financial sense for buyers to secure a fixed mortgage than it does to continue renting.
“People buy a home because it improves their life and it gives them more stability, and it helps them build wealth long-term,” Hardy said. “So the caveat is, ‘Can they afford it? Does it fall into kind of a third or less of their income?’ If the answer is ‘yes,’ I think that’s a much healthier way to go than being a serial renter.”
Hardy said the current lack of available housing is rooted in the Great Recession in 2008, when many builders saw significant losses.
That resulted in the current housing market being underbuilt by around 5 million homes nationwide by 2022, he said.
“We had a glut of supply and not enough buyers, a horrible economy and a horrible job market (in 2008)” he said. “Today we have not enough homes for buyers, a super strong job market — the strongest we’ve seen in 50 years — but we do have an affordability issue.”
The housing market, which Hardy said is driven by “greed and fear,” was stretched even more during the beginning of the COVID-19 pandemic, he said.
“We had ... low interest rates and low affordability,” Hardy said. “It was part of a perfect storm of a buying frenzy, with a supply of housing and a wave of millennials coming into the marketplace.”
Although Hardy said the market will likely gradually transition out of a seller’s market into what he described as a more “normal” state, Tanaka believes that SLO County sellers will continue to have an advantage due to the area’s natural attractiveness.
Median home prices dropped slightly between June and July 2022 in SLO County, according to a new report from the California Association of Realtors, falling from $980,000 to $950,000, though that mark is still higher than July 2021’s median of $869,500.
How rents and sales prices are linked
For prospective home buyers making the decision between renting or buying a home, Hardy said rents and housing costs are “tethered,” meaning that sales prices will increase at the same pace as rents.
Since there’s a shortage of places to live in both markets, both rental and sale prices are bound to rise, he said.
“If people can’t buy or they’re afraid to buy for whatever reason, they’re gonna rent,” Hardy said. ”We have more people than homes, so that’s inevitably gonna cause rental pressure to increase (and the) cost of renting to increase.”
Tanaka said local investors are likely to keep paying high costs for houses with the knowledge they can make a return on their investment by renting those properties.
Renting, Hardy said, is much like an adjustable rate mortgage, meaning renters can face uncertainty in their cost of housing over the short term.
With a fixed mortgage, that year-to-year uncertainty is eliminated.
“(Mortgage rates are) going to continue to escalate year over year — somewhere from 3 or 4%, up to 8 to 10%, depending on what’s happening in the market,” he said.
Recessions have historically caused interest rates to drop, Hardy said, so there’s a good chance buyers can refinance their homes, allowing for a more favorable long-term mortgage.
For home buyers following his advice, Hardy said most 15- or 30-year mortgages are a safe investment because of the potential to refinance at a later date.
However, he noted, no one type of mortgage works for all buyers.
Tanaka advised buyers looking to get into a home in SLO County to find lower down payments that work for their budget.
“Most buyers are under the impression that they have to have a 20% down payment” to purchase a home, Tanaka said. “That’s just not accurate in our county. We have programs where they could come in with as little as 3% or 5% down payments.”
This story was originally published August 19, 2022 at 9:00 AM.
