It’s that time of year. All of the ‘experts’ come out of their predictions for the coming year’s real estate market.
Can you count on them? Sometimes, but the real estate market is hard to figure out, even for the experts.
When the market bottomed out in 2012 and prices started to rise, some warned that it was only temporary, and that the worst was yet to come.
Nearly 8 years later, prices have fully recovered in most markets.
So, are we due for a correction? A crash? Or, will prices keep going up?
No one really knows, but supply, demand, interest rates, unemployment rates, optimism, pessimism, they all go into what ends up happening to the housing market.
I’ve gathered a few expert opinions, and have some of my own on what to expect for the housing market in general, and Folsom, in particular.
First a few facts about the 2019 housing market.
Folsom’s average price per square foot now exceeds the highest levels before the crash. In April of 2006, the average price per square foot in Folsom hit $271, then prices started to slide, hitting bottom at $148 per foot in February of 2012.
By January 2019, we were back up to $271 per foot, and $277 by August. The average price per square foot for homes sold in Folsom this month is $272, so it looks like we can say the recovery is over.
Sales were steady, but down slightly from last year. Year-to-date sales stand at 856, compared to 873 at this point in 2018.
So, now what?
It starts with interest rates – Last year at this time, when rates were bumping up near 5%, the experts agreed that we would be in 5+ territory throughout the year, with a Zillow economist predicting 5.8% by the end of the year.
Instead, the opposite happened, and rates dropped to the mid-3% range by the middle of the year.
Freddie Mac is now predicting that rates will stay below 4% for the next 2 years.
That is great news for newest crop of home buyers. A $400,000 mortgage at 4% yields a $1910 monthly payment.
If the experts had been right, and rates had soared to the mid 5% range, that same loan would require a payment of $2271. That’s a difference of $361 per month. What would that have done to home prices? To sales?
Inventory remains a problem – Rates won’t matter if buyers can’t find acceptable homes in their price range. Realtor.com economist George Ratiu is predicting lower inventory for next year, adding, “2020 will prove to be the most challenging year for buyers, not because of what they can afford, but rather what they can find.”
To be sure, lack of inventory in Folsom and all around the region has been an issue for several years. Back in 2006, at one time there were 535 homes on the market. Today there are only 73 homes for sale in Folsom.
What’s driving this? There are several factors.
The Wall Street Journal reported last month that people are staying in their homes longer. 10 years ago, the homeowners were staying in their homes for an average of 8 years. Today, 13 years.
One common question homeowners ask is ‘If I sell, where would I go?’ Although Folsom and the Sacramento region have the growing pains of traffic and rising prices, and some areas, crime, it still has much to offer residents. Less than 2 hours to San Francisco, 90 minutes to Lake Tahoe, excellent restaurants, dozens of wineries, a grown arts and music scene, and housing prices still lower than the state average, so why leave?
With people staying put longer, that means fewer homes for buyers to choose from.
New Construction – Another issue is the high cost of building. Over the years, cities and counties have turned to developers to fund everything from roads to sewers to police and fire services. While most would agree that that’s the way it should be, the developers have to then pass those costs on to the consumer, increasing the price of homes, and those fees can amount to a staggering 18% of the cost of building.
Still, according to the National Association of Home Builders, builder confidence is at at 20 year high.
Locally, while the Folsom Ranch area promises to some day have 25,000 residents, the builders are taking a measured approach, rolling out projects a little at a time.
According to Ian Cornell, whose firm handles marketing communications for the Folsom Ranch development, between Taylor Morrison and Lennar, 303 homes have been sold in the area since building began in 2018. The recently added TriPointe has sold 9 so far.
It is interesting to note that most of the buyers were renting and therefore did not have homes to add to Folsom inventory.
The lowest, base price homes available in Folsom Ranch is Taylor Morrison’s 1891 sq ft model, at a base price of $537k. TriPointe’s start in the $600k’s, and Lennar’s at about $685k.
Although they are selling well, those prices aren’t low enough to start a housing boom.
Builders in the are expecting a similar rate of sales, or a slight increase in the area for 2020.
Note that 20 years ago, locals were afraid that the new Empire Ranch development was going to flood the market with inventory and force homeowners to drop prices on existing homes in order to compete. It didn’t happen, and it shouldn’t this time around either.
The Bay Area Factor – Expect more from the Bay Area. Bay Area housing prices have slipped, but they are still some of the highest in the country.
A 1052 square foot house in Hayward, down the street from the local Bail Bonds office, recently sold for $695k, and a 1764 square foot home in Sunnyvale sold this year for $2.25 million. Prices like these make Folsom seem like a relative bargain, and we can expect more Bay Area residents to cash out and move to this region, as over 18,000 did in 2018.
The Greater Sacramento Economic Council and the Folsom Chamber of Commerce are working to attract businesses suffering from the strain and cost of doing business in the Bay Area. They are showing that Sacramento in general, and Folsom in particular, are great business-friendly communities, with relatively affordable housing, an educated workforce, and is less than a 2 hour drive from the Bay.
Sky Deck, a venture accelerator founded at UC Berkeley, this week signed an agreement that will have it sending 7 startup companies per year to Sacramento.
More and more companies are choosing the Sacramento region, increasing the demand.
Millennials on a roll – Although starting a little later than previous generations, millennials made up the largest segment of home buyers in 2019. Millennials will range from 24 to 39 years old in 2020, and are enjoying careers, forming households, having children and doing what they call ‘adulting’, and part of that includes buying homes. They do seem to be heeding the warnings of their parents though, being patient and conservative in their approach.
Note that buyers expect more, and are less willing to forgive flaws and less interested in fixers when prices are high, even with low inventory.
So, throwing it all in the hopper and trying to come up with an accurate prediction, I’d say that with rates low and steady, a growing group of buyers coming into the market, homeowners staying put longer and construction not keeping up with the demand, it should add up to a stable market, and dare I say it, higher prices. How much higher? Who knows? Let’s keep it conservative and say 3 to 5%.
Look for sales and price growth in most Sacramento area communities. Rancho Cordova, North Highlands, and Citrus Heights have all seeing prices rise 6 to 10% since January.
One vulnerable area may be El Dorado County. There have been several changes that may affect their desirability: The repeal of the Proposition 90 tax basis transfer, the PGE rate hike to cover fire safety improvements, and the increase in fire insurance rates, may make it more expensive and less desirable to live in El Dorado County.
I suppose I could have kept this a lot shorter by saying, with a few exceptions, expect it to be the same as last year.
So, that’s my two-cents. Want more specific data or data on other communities? Drop me a line.
If you or someone you know is considering buying, consider attending the free Folsom 2020 Housing Outlook and Buyer Workshop, happening January 29th at the Granite City Co-Working space.
More details and registration coming soon.
Any other questions? Drop me a line.
Steve Heard is a Realtor with EXP Realty, and owner of MyFolsom.com
Reach Steve at 916 718 9577 or email@example.com