Have you heard the news? No, not that Kim and Kanye named their new baby after a point on a compass, or that the government is looking at all of our emails (can we ask the government to please delete some of our spam?) but that the Sacramento real estate market is on the move. Things are heating up like the temperatures this summer, but there are some aspects to the market that are truly remarkable. So what 5 questions might we have about the current Sacramento real estate market? Here they are:
1. Is Sacramento still plagued by defaults?
The Notice of Default rate continued to increase modestly month over month and year to date. Important to keep in mind these numbers are well below 2012 at the same time. We have seen a decline in total notices, depending on county, of 40% to 50%. The strain of distressed properties is being alleviated as the market absorbs the inventory and lenders finish up their modification, short sale, and foreclosure process.
2. Will rising interest rates slow our local market?
The last couple of years, we’ve enjoyed historically low interest rates and a tight supply of properties, which led to increasing home prices. That’s great news! However, with the recent jump in rates, we’re left wondering if that will cause a slow down in our local market? Not necessarily. Rates are still amazingly low in context, and home prices at reasonable levels. Lenders are expected to speed up the process of handling underwater and distressed properties, which will provide us some much-needed inventory.
3. Will first time home buyers get in the game?
Currently, first time home buyers only account for 29% of home purchases, according to the National Association of Realtors. Normally that would be around 40% of home purchases, so our first-timers are lagging. Many would-be buyers are being squeezed out as they try to compete against investors. Hopefully, as rates rise, the investor portion of the market will slow down a little, giving us a more balanced market picture and opportunity for first time buyers to get in the game.
4. Will the decline in distressed properties slow down the investors buying frenzy?
The past year, real estate was seen as the ideal investment for landlords, REITS, and big institutional investors. Prices were low and they had cash to spend, interest rates were rock bottom, and there were so many defaults and distressed properties that they could scoop up blocks of homes like they were playing Monopoly. With a bump in interest rates, fewer defaults, and rising home prices, I anticipate the investor frenzy on real estate will cool a little.
5. What other factors impact our local real estate market?
Employment is still key to long term healthy growth. Builder confidence is high once again, which will bring much-needed inventory into the market. There has been chatter about the Federal Reserve tapering down their support of the mortgage market and our economy, and we need to see a future where our economy is more normalized without these supports. But Obama’s administration is also urging banks to make loans available to borrowers with less-than perfect credit, opening up home ownership to first-timers, young people, and those who were hit hard by the recession, but back on their feet. Hopefully, we’ve learned our lesson that non-qualifying mortgages without equity is a recipe for disaster.
6. Have we weathered the storm?
Over the past years, the financial and emotional strains of the recession affected most of us. A healthy real estate market is fundamental to our local and national economy, and the good news is that I anticipate a stabilization of the market as interest rates normalize, supply and demand is balanced, and consumer confidence grows. As we move to a more stable market I hope we do not forget the mistakes of the past that led us down this path.
Do you have questions about our real estate market? We’d love to answer them for you! Touch base with us here.