Folsom’s Low Housing Inventory Caused by a Perfect Storm


3d image of house with graph falling

You hear it everywhere you go, “Housing inventory is at record lows”, and “it’s a seller’s market”.

It’s frustrating with buyers and agents alike. When submitting an offer to a listing agent, I told that was the fifth offer I’d written for that client. She replied, “That’s nothing. I wrote 16 offers for one buyer!”

Yes, it is true that there is low inventory, accompanied by desperate buyers engaged in bidding wars, but there’s more to the story.

Take the Folsom CA market. If you do a search of Folsom homes for sale, you’ll find that today there are 103 single family homes on the market, compared with 122 at this time last year, and 138 for the same month in 2015.   This isn’t a anything new. Inventory has been on the decline since the market crash and flood of inventory about 10 years ago. At one time there were 561 homes for sale in Folsom.

The main issue, though, isn’t just ‘lack of inventory’. It’s the lack of homes at the prices people want to buy.

What do home buyers want?

  • First-timers want ‘starter homes’ – Typically 3 bed, 2 bath homes maybe 1300 to 1800 square feet
  • Empty-nesters and retirees tend to want to down-size – Typically 3 bed, 2 bath homes of 1300 to 1800 square feet
  • Investors want ‘rental grade’ homes – Typically 3 bed, 2 bath homes of about 1300 to 1800 square feet
  • Most prefer ones without an HOA.

See where this going? They all want the same house!

Move-up buyers, and those looking for the most house they can afford are still out there, but they are fewer and further between.

The average price for Folsom homes sold in the first quarter of this year is $515,132. The average price for homes currently listed in Folsom, $698,804. That’s quite a gap.

If you are starting out, down-sizing, or looking for an investment property as described above, without HOA, there are only 19 on the market, 9 of them came on the market within the last 7 days, and with sales are averaging 13 days on market, you’d better hurry.

19 isn’t really a bad number of homes to choose from, but the problem is that while 19% of the homes available are under $500,000, over half of homes sold this year were under $500,000. That means that typically, over half of the home buyers are going after 19% of the market.

That’s why we see multiple offers and buyers paying fighting over properties. On one recent sale, there were 8 offers on the property, and the winning buyer not only paid $20,000 over asking price, but also paid all of the seller’s closing costs to get the deal.

We clearly need more homes on the market to meet the demand.

So, why aren’t there more of the more people owners of homes like that putting theirs on the market? Consider this:

  • People are staying put longer –  According ATTOM Data Solutions, until 2008, the average home seller had been in their home 4.26 years. Last year, that figure nearly doubled, to 7.88. This is in part due to the fact that prices fell sharply, and homeowners who purchased homes for an average of $210 per square foot in 2008, saw their values drop to $148 per foot by 2012. Selling at that time would have meant a short-sale for most. Today we’re at about $259 per foot.
  • Investors holding on – Once we hit bottom, the investors came out of the woodwork. In 2013, nearly half of all homes purchased were bought with cash, and it is estimated that 30% of all home sales from 2011 to 2014 were to investors. Those investors have gained seen huge equity gains, while enjoying increasing rent payments. No need to sell right now.
  • Builders ain’t building…much – According to local Farmer’s Insurance Agent Brent Weshner, the average cost to build a home in Folsom runs about $190 per foot in materials and labor, add land acquisition, city and county developer fees and sales costs. The National Association of Home Builders estimates that the average regulatory fees for building a new home are up 29.8% since 2011, coming in at $84,671. Disposable income, on the other hand, is only up 14.4% during that same period. In other words, the cost of regulation in the price of a new home is rising more than twice as fast as the average American’s ability to pay for it.
  • Other Factors – Increased property taxes on the new purchase, finding a better place to live than where you are, and homeowners not wanting or needing to move up are all contributing factors to this mess.

So, you’ve got this perfect storm of people holding on to existing properties, and developers holding off on building new homes, while our population and household formation figures are growing.

Unless builders find a way to start building more affordable homes, or homeowners decide to cash out and move on, the demand will grow but the supply won’t.

If you’re in the market, be prepared to put your best and highest offer on the table, choose a less expensive community, or move up to larger more expensive homes. That’s where there are more choices and some relative bargains.

If you’re a seller and have been waiting for the right time, it could be now. Drop me a line to discuss ways to get that top dollar and have these people fighting for your property.

Any questions? Drop me a line.

Steve Heard – Folsom Realtor

916 718 9577 –