East Bay Market Update - June 2024

Thinking of buying or selling a home in Berkeley?

At Calia Homes, we specialize in helping East Bay clients navigate the Berkeley real estate market with confidence. Whether you're a first-time buyer searching for the perfect home near the Gourmet Ghetto or a longtime homeowner preparing to sell in the Elmwood or Northbrae neighborhoods, our experienced Berkeley Realtors offer trusted guidance, local expertise, and a people-first approach. With decades of experience and a reputation built on referrals, we’re here to help you make smart, successful real estate decisions in Piedmont and the surrounding East Bay communities.

Real Estate and the Impact of Inflation

The word inflation brings up negative sentiments for many. However, for real estate owners with fixed levels of debt, inflation can have positive financial benefits. Real estate assets can benefit from “inflation-induced debt destruction, ” a term popularized by real estate investor and coach Jason Hartman. Both homeownership and real estate investments can act as a hedge against inflation and have tax advantages. As inflation rises, so does the price of goods like gas, energy bills, groceries, and rent (salaries may also go up with cost of living increases). Yet, your housing costs remain the same if your mortgage payments are fixed. Over time, this reduces the cost of your property ownership expense relative to other expenses. For a simple explanation of this concept, let’s look at the chart below. Because of inflation, $1,000 in 2003 is the equivalent of more than $1,693 in 2023 (inflation averaged 2.55% per year during that 20-year period). If the cost of a mortgage payment was locked in at $1,000 in 2003, twenty years later that $1,000 payment would be a lower percentage of your household budget than it was in 2003. What’s more, if you had invested that $1,000 in Bay Area Real Estate, your asset would have appreciated at approximately 6.2% per year or to a 2023 value of $3,330!

While inflation-induced debt reduction can benefit homeowners, Jason Hartman believes the greatest return from inflation-induced debt destruction comes from rental properties. Like with your personal home, you can obtain a fixed-rate mortgage that will decrease in value each year as inflation increases, and you can use rental income to make payments toward the mortgage. Yearly rent increases and marketplace appreciation can contribute to the increased value of your investment. If this topic is of interest to you, here is a link to more information: https://www.jasonhartman.com/inflation- induced-debt-destruction/. As always, please contact your financial advisor for guidance. We are available for discussions about what’s happening with values in the current housing market and are also happy to share our insights as a real estate investor. What’s Happening with Interest Rates? As of Wednesday, June 19, per Bankrate.com, the current average 30-year fixed mortgage interest rate is 7.01%, decreasing 4 basis points over the last seven days. The national 15-year fixed refinance interest rate is 6.50%, down 12 basis points over the last seven days. Bankrate suggests that mortgage rates are expected to ease downward throughout 2024. Source of Data: Microtrends.net/World Bank Chart: Carrie McAlister “I will forever believe that buying a home is a great investment. Why? Because you can’t live in a stock

certificate. You can’t live in a mutual fund.”

- Oprah Winfrey

approximately 6.2% per year or to a 2023 value of $3,330!