Here's a good question many are asking...

Here’s a good question that many are asking… With demand for housing remaining so strong, why aren’t more homes being built?

From a demand standpoint, historically low mortgage rates are very tempting for buyers. This is exacerbated by demographically driven demand with roughly 9 million millennials hitting the age when they think about buying their first homes.

As for supply, up until the start of this year, we were actually living in our homes for twice as long as we did in 2000 and this means that homes aren’t turning over as frequently as we are used to; hence our supply problem.

More demand than supply should have pushed builders to construct as many homes as possible, but it’s not happening fast enough to keep up with our region’s recent growth.  The reasons for this are numerous, but it’s essentially all about cost.  Land cost, labor cost, regulatory costs, and let’s not forget building material costs.

In 2020, more than 11,000 new building permits were issued on residential units in the Sacramento-Roseville-Folsom metro area — the most in any year since before the 2008 recession. That reflects new developments that are going up — like Folsom Ranch, set to add about 11,000 homes over 25 to 30 years, and Lagoon Valley, a master-planned “conservation community” outside Vacaville that broke ground in June 2021 and will add about 200 to 225 homes a year through 2026 or 2027, according to developers. And in August 2021, the Greater Sacramento Economic Council announced it’s launching the Community Reinvestment Coalition comprised of five community banks to make $100 million in financing available to address the area’s affordable housing crisis. 

For all that, there’s little guarantee prices will stabilize anytime soon.  Yet another reason to consider jumping into the market now.


Just How High Will Mortgage Interest Rates Rise—and How Fast?

Looming large is the threat of increasing mortgage interest rates this year.  They went up twice in January, came back down once and are predicted to go up again in March. So if you’re thinking of shopping for a new home this spring, you probably feel a little anxious because the same size house you could have bought months ago will cost you more if rates increase. Buyers are very aware that they’re between a rock and a hard place with low inventory and the rising cost of money.  

The Fed’s ultimate goal is to control elevated inflation by slowing down consumption.  So what does that have to do with mortgages, you ask?  Not much, at least not directly. The Fed doesn’t set mortgage rates. The short-term interest rate that the Fed will likely raise in March is the rate at which banks borrow and lend to one another.  While this is not the rate that consumers pay, a higher rate for banks makes borrowing more expensive for consumers.  

The trickle down effect is this – As mortgage rates typically follow the trend of the 10-year Treasury yield, the rate on the conventional 30-year mortgage also tends to rise.  Thus, the Fed’s actions have a ripple effect.  So even though the Fed hasn’t raised interest rates yet, this likelihood of it happening has already caused mortgage rates to creep up over the past month.  The economists think that ultimately we’ll end the year closer to 4% – not the end of the world with all things considered, but if given the opportunity, many buyers and sellers are considering moves sooner rather than later to take advantage of the historically low rates while we still have them.  Predicting what rates will do and when is almost impossible but as long as the imbalance in demand and supply continues, there will be room for additional price gains.  The sellers in most situations are still very much in control of the market. 

So for now – it’s still business as usual with homes selling at premium prices and plenty of activity in the market.  If you or someone you know is thinking of making a move, it would be my pleasure to be of assistance!