What We Thought Back Then
One of my favorite features of Facebook is the ‘memories’ notification, which reminds us what we posted over the years. One that popped up this week was from 10 years ago, when I posted a graph showing Folsom housing price trends, which at that time were steadily rising, after hitting rock bottom just over a year earlier.
Take a look. The graph starts at February of 2012, which marked the beginning of the housing recovery, after years of decline. In the span of 15 months, prices rose by over 20%, from $151 per square foot in February 2012, to $190 per foot in April of 2013 .
At that time, I asked the Facebookosphere what they thought. Interestingly, none of those who responded thought that the price increases would continue. One client said, “I think its going to level off when people start to flood the market again wanting to cash out.”
One mortgage loan officer’s opinion was, “I think it’s false hope. It’s artificial movement. Cash investors driving the craze… Values I believe will come down by end of year.”
My own comments were, “I’d like to see a leveling so this doesn’t get out of hand.”
What Happened?
What happened? Was it a false hope? Did prices level out? No. In fact, driven by low inventory and low rates, prices rose from that $151 per square foot in Feb 2012, to $395 per foot in May of 2022. That’s over 10 years of steady price increases.
It all came to a halt when rates virtually doubled, from the mid-3% range to the mid-6’s almost overnight. As buyers pulled back from the market, prices started falling, dropping 15% in 7 months.
There were predictions of gloom and doom, as consumers and experts predicted a waive of foreclosures, and desperate homeowners panic-selling to get what they could, while they could. It didn’t happen.
A Rebound?
Home owners didn’t panic. With 88% of them enjoying low interest rates and record equity, most are staying put. As a result, low inventory, a problem we’ve been facing over 10 years, has gotten worse.
Today, there are 51 homes for sale in Folsom, compared to 154 a year ago. Note that figure does not included the 21 new construction listings, as they are not reflective of homeowner activity.
With rates in the 6’s, many buyers were priced out of the market, but there are still plenty who can afford the increase, have accepted the new reality, and are motivated to buy.
So, we’re back to where we were before, with active buyers finding fewer choices. That’s why 31 of the 47 May resale homes had multiple offers, and they averaged 11 days on market.
As a result, prices have now been rising 5 months, in a row, and when final reporting is in, we expect to see an average price per square foot of $372. And no, it wasn’t all cash buyers. There were only 10 cash sales in May
What are your thoughts? Are prices going to continue to climb, or is a crash coming? What about rates? How high will they go? Has your opinion changed?
Your guess is as good as mine.
Drop me a line to discuss.