Through May, the market has continued at its feverish pace, both in number of sales as well as price increases. Inventory continues to be very low, prices continued to rise and interest rates remained low. However, there are some indications that the market may be slowing a bit and heading in the direction of stabilization between supply and demand.
The End of the Spring Selling Season
Typically, the spring selling season peaks in May as the school year nears its close. Then there is gradual slowing through the summer. August tends to be one of the slowest months of the year as parents and kids get settled and ready for the school year to begin. Home buyers with children want to have a home selected in early summer so they can lock in the schools their children will attend in the fall. I expect we will see demand taper off a bit through the summer.
Buyers Priced out of Markets
Price increases are forcing buyers out of the market, or at a minimum, to reduce their requirements on a home to keep within a range of affordability. In some areas, average home prices have increased by 20% to almost 40% (in lower priced areas) over the last year. For example, in the neighborhood I live in at Whitney Ranch, it was possible to buy a home in the $400’s one year ago. Now, that’s just about impossible with the exception of a smaller home, or homes that have inherent issues or are in poor condition. As buyers are pushed out of areas, it will slow the rate of price increases.
Rising Interest Rates
Interest rates have been creeping up over the last several weeks and are about ¾% -1% higher than a few months ago. An interest rate of 4% compared to 3%, on a $350,000 mortgage equates to approximately $196 more in monthly payments. This is squeezing buyers and forcing some out of the market and others to reduce their sales price. Some areas of Roseville, Rocklin and greater Sacramento are now off the table for buyers due to increases in prices and loan rates. This will put pressure against rising home prices.
Increasing Inventory Likely
As prices have risen, there are fewer underwater homes. As a result, more homeowners can sell their homes without the need to resort to a short sale. This is and will cause more homes to be listed for sale to increase inventory and to trend the market toward stabilization.
While lowest priced homes in specific areas are still pulling multiple offers, the number of those offers is declining as well as the amount of offer price over list price. Frequently only one or two offers are received compared to double digit offers earlier this year. Through the remainder of the summer I expect to see a trend toward fewer multiple offer situations and longer days on the market to sell a home.
What Does This Mean?
Combine all of this and I believe it is likely we will see a trend toward stabilization which includes a slower pace of price increases, fewer buyers in the market, more homes being listed for sale and longer days on market. It is unlikely that we will continue to see annualized price appreciation of 20% and more. Don’t get me wrong here. I believe we will continue through the remainder of the year in a “seller’s market.” Market equilibrium between buyers and sellers is when there is 3-6 months worth of available inventory (homes for sale). It’s difficult to know when this will happen. But, we’re headed in that direction!
See the charts below for home sale activity through May of 2013 for both Placer and Sacramento Counties. If you would like more information regarding your specific area of interest, my contact information is at the bottom of this email.
If you are interested in data by specific areas, see this link to our website: Steve and Linette Market Trends Reports
Have a great Summer!
Steve and Linette Quaranta
Mobile: (916) 276-7653 /(916) 757-3569
Email: SteveQ@TeamQ-RE.com, LinetteQ@TeamQ-RE.com
DRE #s 01854924, 01153709