Trying to Find the New Normal

We’re 1/3 of the way through the year, and the best description I can think of for the Folsom housing market is that it is hot and tight, yet rife with rumors and predictions of doom.

I’ve said it before,  it seems that no matter what the market is doing, just over half the people asked will predict a crash. If the market is hot, they’ll say it’s about to cool off and come crashing down. If the market’s cold, it’s about to get much worse. Every now and then, they get it right, but not this time…so far. Let’s take a reality check, looking at the number of homes for sale in Folsom, how quickly homes are selling, and other clues to what’s happening in the local housing market.

Aren’t We Due for a Crash?

The most commonly cited reason for the naysayers to predict a crash is some form of, ‘We’re due’ and they’ll point out how the market cycles every so many years.

Here’s the thing though, markets don’t crash or correct because they’re ‘due’, and the cycles don’t always cycle.

The widely accepted ‘4 phases of a Real Estate cycle’ are Recovery, Expansion, Hyper Supply and Recession, then repeat. If you look at historical data, it’s happened before, but is happening now? I say ‘no’, or not now, and here’s why:  

We had the recession around 2007, recovery began in 2012, and at that time, I recall some saying that recovery would be short-lived, and that the worst was yet to come. Instead, we had nearly 10 years of expansion and price increases. The thing we don’t have, and haven’t had, is the hyper supply. 

For a variety of reasons, from timid builders still feeling the sting from the last recession, to the sheer cost of building, the market is behind by an estimated 2.5 million units, in the number of homes needed. 

So today, instead of a hyper supply, we have under-supply. What now?

Buyers and Lenders Trying to Figure it Out

When mortgage rates effectively doubled in 2022, going from just over 3% in January, to over 6% by summer, buyers pulled back.  Some wanted to wait and see what would happen with rates and prices, while others simply could not afford the increases, and were priced out of the market. After all, a $400,000 mortgage at 3% would have a payment of under $1700, but at 6%, you’re looking at $2400. Lots of folks couldn’t handle that.

Over the past year, rates have fluctuated wildly, dipping below 6%, soaring above 7%, and bouncing in between almost daily.

Lenders and home sellers are getting creative, however, and buyers are responding. Some lenders are offering rates in the low 5’s, fixed for 5 years. Buyers who are optimistic that rates will come down in the future are snapping these up. Rate buy-downs and lender credits are becoming more and more common, as lenders try to find ways to help buyers finance their homes. 

46% of Folsom home sales since April 1st featured some sort of seller concession, usually assistance with closing costs, to help buyers defray their costs and secure lower rates.

These efforts, along with the absolute need for people to find housing , means that buyers are back. We’re not seeing nearly the same numbers as before the rate increases, but many are looking at this as the new normal, and motivated to buy, they are taking the plunge.

Now, they’ve got a new problem, or rather, an old problem has gotten worse; lack of inventory.

Sellers Staying Put

You’ve heard it before; we just don’t have enough inventory, but it’s worse than ever, and here’s a big part of the reason why: 

Rates dipped below 5% in 2012, and with a couple of brief exceptions, stayed below for 10 years, bottoming out at 2.65% in January 2021. That’s why, according to a report by the FHFA (Federal Housing Finance Agency), 88% of Californians with mortgages have rates below 5%, and 75% of them are under 4%.

That means, for millions of home owners, if they were to sell today and take out a mortgage on a new home, they’d be trading low payments for high, and many aren’t willing to do that.

Traditionally, sellers don’t sell because of rates or because they have equity. Those can be factors, but the most common factors are life-events such as marriage, divorce, death, and job relocation. Those things are still happening, but the discretionary sellers, the ones who want to upsize, downsize, or take out equity, for example, seem to be staying put for now. 

How bad is the inventory problem? May of 2022, there were 154 homes for sale in Folsom. Today there are 63, and 24 of those are new construction. So that means there are only 39 resale homes on the market. 

Multiple Offers are Up

Ryan Lundquist, the man behind the always entertaining and always factual Sacramento Appraisal Blog  posted his latest stats, and summed it up by saying that the market went from an ice bath to a bloodbath. It’s a little harsh, but in some cases, that’s what is seems like.

With motivated buyers having fewer choices, multiple offer situations are becoming more common. 67% of pending sales in Sacramento County since May 1 have multiple offers. That’s not far off of the record 77% during the height of the market in 2021. 261 of these had 5 or more offers. One listing received 60! 

They are selling fast, too. 59% of pending sales were on the market 7 days or less.

As a result, although prices are down by about 8% from the peak of May 2022, the have risen for 3 months straight.

So. what’s it all mean?

If You’re a Buyer

If you are a buyer, shop around for rates, fees and programs. Check with your bank to see what they offer, but also connect with a couple of local lenders. You may find different rates, and programs among them.

With pre-approval and down-payment in hand, sit down with a good, local Realtor, who really knows the market, and devise your strategy. Don’t rush, but be ready to make an offer when you find the right one.

With 59% of homes selling in a week or less, and 64% getting multiple offers, firing off a low-ball offer the as soon as the home comes to market may not be the best strategy, unless of course, the house is grossly over-priced. 

Note that homes that sold in 7 days or less closed at an average of 2.27% above their listed price. That doesn’t mean you always have to offer more than asking, but be smart about it. If the house is priced right for the comps and condition, and you want and can afford it, make a strong offer.

This is where having a local Realtor with deep market knowledge helps. They can show you the comps, the statistical data, communicate with the listing agents to find out what’s important to sellers, and help you put together a great offer. 

If You’re a Seller

If you are a seller, price it right for the market. Just as there are many homes that sold in less than a week, there are many others that have been on the market for months. Remember that to buyers, there’s nothing wrong with any house that a lower price won’t fix. If your house is rare, with desirable features and amenities far above the competition, price it as such, but keep in mind that no amount of fancy photos, open houses, or online marketing will convince buyers that your home is worth more than they say it is.

There are 31 homes in for sale in Sacramento that have been on the market for 5 months or more. If you’re serious about selling, price it right, or you’ll be joining them.

Get your house spruced up for today’s picky buyers, and be prepared to accept an offer with concessions if need be.  

If You’re on the Fence About It

If you are THINKING about selling, or waiting for the right moment, keep your eyes on the market. An uptick in rates, some bad economic news, or other unforeseen events can cause rapid changes to the market.

All we can deal with today is the market today. Buyers are out there, and the competition is low. If you have been leaning toward selling, it might be a good time to take action.

As always, if you’d like more information, drop me a line – Steve Heard – EXP Realty of Northern CA – DRE#01368503 – 916 718 9577 – steve@myfolsom.com