Since the beginning of 2022 we’ve seen some changes in the real estate market. As of this day, the mortgage interest rates are the biggest challenge. We’ve seen a huge shift from being in the low 3% to now approaching 6%. Do you think that has had a bit of an affect on the buyer's purchasing power – humm… you bet it has. As an example, if you qualified in January for a payment of $3,500 a month, I could have sold you a home for $807,000. Today, that same $3,500 payment will only qualify you for a home priced at $643,000. This is based on a rate of 5.11% (which is no longer available – rates are even higher as of today). Can you say “Ouch!” So far this hasn’t slowed the buyers from wanting to buy, but it has obviously sent some shock into their expectations of what they’re going to qualify for.
I am seeing the spring selling season starting to blossom with more homes coming on the market every week. This is, of course, the traditional time that people make a move, but I predict that we’ll be seeing more than the normal amount of activity in the coming months for a variety of reasons. I know that a small percentage of sellers are moving out of the area. Others are wanting to downsize into a more manageable/affordable home. Whatever the reason, I do think it’s a good time to make that move. Values may not have reached their ultimate peak. I anticipate that we’ll continue to see prices increase moderately, but that wild, frenzy market we experienced in 2021 won’t be repeated this year. I expect to see more modest increases in values and as interest rates continue to climb (as they are predicted to do), we could see property values level off as qualifying becomes more of a challenge for buyers. I definitely don’t, however, think we’ll see them fall off a cliff like we did during the mortgage meltdown – our economy is far too stable for that – but instead a more ‘neutral’ market could be on the horizon sometime later this year; something we haven’t seen in a decade or more!
Let’s talk about what’s happened in the past decade. Our median price in Sacramento County just ten years ago was $160,000. Median is defined as the 'middle' -- an exact number of homes sold above as below the median price. Right now, the median sales price is $570,000. in Sacramento County. But just 90 minutes away, San Francisco County's median is $1,600,000.
California housing is a problem. We clearly didn’t anticipate the housing boom we’ve experienced in the last few years and unfortunately builders stopped building during the meltdown. It takes a tremendous amount of time for a builder to go from start to finish on a housing project, so housing starts are way behind what we need to fulfill all of the buyer need. It could take years for them to catch up with the demand.
Supply and demand will always be what continues to drive our market. The “anything goes” ship I feel has sailed. Yes, we’re still seeing multiple offers, especially on rare or unique homes; but it is taking longer for homes to sell, so setting appropriate expectations is very important. Our Sacramento region is very lucky to have The Greater Sacramento Economic Council which is doing a tremendous job promoting our city. Check out their newest video:
https://www.youtube.com/watch?v=1RCY6kFpBXk
Here’s some more good news. Home equity has proven to be one of the strongest ways for families to build and pass on intergenerational wealth and CalHFA is committed to improving equitable access to homeownership for all Californians. The Forgivable Equity Builder Loan gives first-time homebuyers a head start on this with immediate equity in their homes via a loan of up to 10% of the purchase price of the home. The loan is forgivable if the borrower continuously occupies the home as their primary residence for five years.
The Forgivable Equity Builder Loan is a forgivable subordinate loan program that may only be used with the CalHFA first mortgage. For more information, reach out to me. I’m happy to connect you with a lender who can explain the program.
As for the future of our market, a common question I get is, “Should we wait?” My answer is “NO”. We don’t know exactly what interest rates will do but we do know they’ll continue to go up, which has a negative affect on your purchasing power. For sellers, expect to see fewer buyers for your home as that continues to happen.
So as we come into the spring selling season, whether you’re thinking of buying or selling real estate, I hope you’ll think of me! It would be my pleasure to be of service to you and those you know.
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