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Real Estate Market Trends: Placer County

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After a booming 2013, the Placer County real estate market has been somewhat subdued so far this year. While actual sales are down each month this year compared to 2013, the larger impact has been the increase in available homes for sale.

In July 2013 there were 930 homes available for sale in Placer County compared to 1454 in July 2014. Closed home sales were at 583 in July 2013 vs. 528 in July 2014. Perhaps the good news is that pending sales were up with 488 home gone pending in July 2013 vs 586 homes pending in July 2014.  The real estate activity in Rocklin, Roseville and Lincoln is also in line with Placer County.

The pendulum is always swinging and what I believe we are seeing is a somewhat typical transition to a normal market. 2013 was so strong that it is reasonable to see the pendulum swing in the other direction. In fact, it’s probably a good thing when you think of the alternative being a run-away market with prices escalating and pushing us into another bust cycle too early.

Of course, all this data is generalized. Lower priced homes have maintained momentum better than higher priced homes, as is to be expected. In addition, the change on January 1, 2014 in the maximum FHA loan limit (dropping from $580,000 in 2013 to $474,950 in 2014) took a hit on home prices mostly in the $500’s.

To further challenge the market, many home sellers expect to be able to sell their home for more than the neighbor’s home that sold earlier this year. While this may be appropriate in the $250K price range, we have seen little or no price appreciation this year in the $400,000+ market in 2014. So these homes hit the market overpriced and ultimately the prices must be reduced to market level. It doesn’t necessarily mean that home prices are declining, but it does infer that if you want to sell your home in today’s real estate market, you must price it using good comparable properties and not shoot for “pie in the sky dreams.”

The remainder of 2014 will give us a good idea of how the selling season will take off next year. I expect that we will see sales pick up over the next few months and will likely drop off over the holidays. By February 2015 I expect to see inventories start to drop again and that we will see marginal appreciation next year. The one wild card is whether or not interest rates stay low. A 1% increase in interest rate will put pressure on home values since this will push buyers into lower priced homes.

Hope this gives you an idea of where our local real estate market trends are heading.

To see charts for Placer County as well as Roseville, Rocklin, and Lincoln, please click on this link:    Real Estate Market Trends for Placer_Rocklin_Roseville, Lincoln

Real Estate Market Trends – Rocklin, Roseville, Lincoln

trend chart_012014 As we approach the 2014 selling season, I’ve received questions about how this year will unfold compared to the banner year we had in 2013. In a normal market, the main selling season runs from about February through May or June. Last year we experienced a strong market that carried over from 2012. Prices increased substantially, inventory levels were extremely low, and it was common to see homes selling in the first week of being listed with multiple offers; many offers above the asking price.

As prices have risen, more homeowners are now sitting in equity positions. Many wanted to move but sat on the sidelines waiting for the opportunity to sell their home as prices rose. In June/July 2013 interest rates jumped up. That event, and the fact that we were exiting the selling season, slowed market absorption. In the 2nd half of 2013, many owners put their homes on the market after the run up in prices. In many cases, these homes were priced with the assumption that prices were continuing to increase every month as was experienced in the first half of the year. Where does that leave us?

Every area is different. Lower priced homes in Placer and Sacramento Counties continue to see high demand and low inventory. However, homes in higher priced areas are trending toward (or perhaps are already in) what is typical of normal market conditions. In higher priced areas, home appreciation has been very subdued over the last six months. These homes are not seeing multiple offers as they did one year ago, it’s taking much longer to sell those homes, and inventory levels are up.

Don’t get me wrong. I’m not saying the market is declining. But I am saying that indicators point to higher inventory levels in 2014, slower price appreciation, and sellers should expect that it will take longer to sell their home than it did in 2013; unless the home is in the lower priced areas or offers something highly desirable and considered a one-of-a-kind offering. Those owners who are considering selling their home will do well to find an excellent real estate agent who will guide them in pricing their home appropriately. Otherwise, “frustration” may be the word of the day.

Below I’ve included some charts for the 95765 zip code. This demonstrates where we are in the market now as we approach the selling season. If you would like to view charts on other surrounding areas, please visit our website: www.quarantarealestate.com. Click on the Market Trends Reports in the left column. If you have questions about these or other areas, feel free to contact us.  And remember, Real Estate Market Trends are fluid and can change on a dime.
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FHA Lowers Maximum Loan Amount

FHAI’ve had several people ask me about the change in FHA loan limits and what impact it may have on home buyers and home sellers. Up until December 31, 2013, the maximum loan amount that a borrower could receive under FHA was $580,000 for Sacramento and Placer counties. Starting in January 2014 the maximum FHA loan amount is now $474,950 for FHA in the same areas. The only exception to the new loan limit is if a home was assigned an FHA case number prior to the end of 2013. FHA gave little notice of this change with a formal announcement occurring in early December 2013.

FHA doesn’t make loans but does insure lenders against defaults that have been funded using FHA. There are many reasons why a buyer may choose to use FHA as a method of financing a home.

• Only 3.5% down payment (with max loan of $474,950)
• Lower FICO score requirement than Conventional Loans
• Higher DTI (debt to income ratios) allowed vs Conventional
• After short sale, able to purchase sooner than Conventional
o FHA has a “back to work” program that allows qualifying buyers to purchase a home 12 months after a short sale.

How will this affect the market is unclear at this point in time. Homes priced under $500,000 should experience little negative impact. However, homes selling in the mid $500,000 range and up could be negatively impacted if FHA is heavily used in the area. Some home buyers who must use FHA may have to reduce the purchase price they have been considering.  This could negatively impact demand for higher priced homes.  If we see strong demand, the change in FHA loan limits may have little impact.

We’ll have to see how the selling season unfolds in the coming weeks to ultimately understand the impact of the change in FHA loan limits. In the bigger picture, the overall real estate market is moving toward equilibrium. Communities with higher priced homes are seeing slower appreciation and some increase in inventory leading to a balanced market. Lower priced homes will likely continue to be in a seller’s market in the short term. Most experts suggest that home prices will continue to increase in 2014, though not at the rate we’ve seen over the last few years. Instead, they are predicting an appreciation rate of around 6%. Interest rates by the end of the year are expected to be somewhere between 5% and 6%. If you would like to find out what the maximum FHA loan limit is for your area, click the link below.
https://entp.hud.gov/idapp/html/hicostlook.cfm (all you need to do is put in the county and hit send).

Contact me if you would like more information. Hope that helps!

INTEREST RATES JUMP 1%!

rising interest ratesAfter Fed Chairman Ben Bernanke’s address last week, stocks dropped and interest rates increased.

As recent as a month ago, it was still possible for a home buyer to purchase a home with an interest rate of between 3% and 3.5%. Today, rates are generally floating around 4.5% or higher. In the big picture of housing interest rates, 4.5% is still an excellent rate, but we’ve all been spoiled in recent years and this change does impact the housing market. Let’s take a look at how this rise in interest rates is affecting the purchasing power of potential homebuyers in the marketplace by way of an example.

Let’s say that a buyer is qualified to purchase a home priced up to $400,000, assume that the buyer is putting 10% down and then look at payments under two interest rate scenarios as follows:

Purchase Price: $400,000
10% Downpayment: $ 40,000
90% Loan Amount: $360,000

Monthly Principle & Interest Payments
At an interest rate of 3.5% : $1617
At an interest rate of 4.5%: $1824
Increase in Monthly Payment: $ 207

Assuming that $360,000 was the maximum loan amount that our buyer could qualify for at 3.5% with a payment of $1617, what is the new price that our homebuyer can now afford? The new maximum loan amount based on a payment of $1617 and an interest rate of 4.5% is $319,133. With 10% down, the buyer’s maximum price is now $354,592 or $45,408 less in price.

Is it reasonable to think this will affect demand on the housing market? IT SURE IS! Our homebuyer’s purchasing power just went down by more than 11% with a 1% increase in interest rate. Whatever risk concerns have been in the past about price declines in the market, a 1% increase in rate overshadows to a great deal any decline in market price.

Will prices continue to increase at the rate we seen over the last several months. I’m seeing a change in the market now with prices leveling off through the summer. While it’s reasonable to assume we will see prices continue to rise, I don’t believe we will see the rate of appreciation continue at the fevered pace of the last year. Will interest rates be higher than 4.5% by June of 2014. Who knows? I have talked to several lenders and they are at odds with each other on this point.  Any potential buyer or seller should at least be prepared for the potential of higher rates over the next year.

If you are looking to buy a home in today’s market and have been pre-approved on a home loan through a lender, it’s a good idea to huddle back up with that lender to determine if you need to adjust your considerations on price, square footage and potential location.

If you are a homeowner thinking of placing your home on the market, it is important to understand the impact of rising interest rates, buyer’s purchasing power and negative impacts on demand.  Bottom line: Price your home appropriately and rely on the advice of a Real Estate Agent you trust who will provide you the facts about pricing and marketing your home.

Steve Quaranta
Better Homes and Gardens Real Estateimage003
Email: steveq@teamq-re.com
Phone: 916-276-7653

Are Home Prices Stabilizing??

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.


Fewer Offers

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 Quaranta

 

Steve and Linette Quaranta
Realtors
Mobile: (916) 276-7653 /(916) 757-3569
Email: SteveQ@TeamQ-RE.com, LinetteQ@TeamQ-RE.com
Website: http://www.TeamQ-RE.com
DRE #s 01854924, 01153709