31 replies to this topic

[Steve Heard]

Your Folsom Home Sales Update

December 15, 2014

With the year winding down it’s time to take a look back at Folsom home sales and see if we can make sense of the numbers.

 

It’s been nearly 3 years since Folsom home prices hit bottom (Feb 2012, at $148 per square foot), and started on the road to recovery.  Gone are the days of multiple offers over asking within hours of putting a home on the market. Now, it looks like the market has finally arrived at a more reasonable pace, with both sales and price gains slowing.

 

Price per square foot has fluctuated over the past year between a low of $191 in January, peaking at $213 in August, and ended November at $210. In comparison, 2013 started out at $169 per foot, peaked at $207 and ended the year at $196.

 

We’re seeing the typical decline in inventory and sales as the year winds down, as fewer sellers are willing to make their homes available for showing during the holidays, and likewise, many buyers prefer to wait until the new year, or even into spring before they start looking.

This is, however, the time of year when the most serious of buyers and sellers seem to come out, and when relative bargains are often found. The average price of homes sold last month was $400,000, down from $453,000 in August.

 

Buyers are more cautious and conservative these days, buying smaller, more modest homes as ‘getting into Folsom’ seems to be more important than getting a big house.  Of the 61 homes sold in November, only 10 sold for more than $500,000.

 

Average days on market is at 42, but when priced right, homes sell quickly.  Of the 61 homes sold in Folsom in November, 29 of them sold in 14 days or less, and 24 of those were priced below $500,000.

 

So, although it’s slowing down and homes are taking longer to sell, there’s no need to panic.  Buyers have become pickier and sellers have to be more flexible and accurate in their pricing. Contingent offers and seller concessions are becoming more common as sellers compete for buyers’ attention, but if priced right, homes will sell in any market.

 

Even with the slow down, Folsom remains a popular destination, with the highest average price per square foot in the region.

 

Today, there are 129 homes for sale in Folsom, and priced from $148,000 to $2mil, there’s something for everyone.

 

That's the short version, for more info, drop me a line at 916 718 9577 or steve@theheardgroup.com, or talk about it right here.

 

 

 

 

[rip]

As usual Steve good stuff and mirrors what I have observed over the last few months.  The market is essentially flat, and after the last few years, that is a bit of a relief!  The trajectory of price increases had bubble version 2.0 written all over it.   I was concerned that as investors left the market and interest rates rose, there wouldn't be enough organic demand to support current prices. Thankfully things seem to be calming down. I still wonder, however,  if we have over shot on the high end (property value wise), and the recent decline in mortgage rates is the only thing preventing a modest price correction.  Obviously no one has a crystal ball, and timing markets of any type is impossible.  If it were I would have retired long ago!  That said, the next few month should be interesting to watch.  

[Steve Heard]

Yes, lots of folks were expecting prices to drop after the investors pulled out, but instead, it just pushed us toward a more stable market.

 

I am wondering if the next step will be a Bay Area migration, as their prices go nuts.

 

I recently sold a  2 bed 1 bath, 970 sq ft, 58 year old home in Daly City, with single pane windows, needed work, and had 5 offers on it, sold it for $560K cash.

 

At the same time I had a 3100 sq ft home with 3 car garage, pool, spa, deck, RV parking, game room, granite counters, and more, in Folsom. It was listed at $559,000 and I couldn't get it sold. 

 

I think that sooner or later, people will start getting tired of the expense and crowds and move to this region.

[rip]

The Bay migration issue will be interesting to watch.  Prices in the Bay Area are, by any measure, crazy.  That said, the high prices are related to the MUCH higher wages people generally earn in the area.  Not saying the wages make up all the difference in cost of living.  However, for a lot of people living in the Bay, it's where their work is.  Most I know who live over there love it, and would have to be dragged kicking and screaming to Sacramento.

 

As far as the local market, I am genuinely relieved that the craziness of the last few years seems to be over.  That said, the investors departing is only one part of the story.  Interest rates have dropped again and are incredibly low.  Not hard to find a 30 year fixed for under 4% right now, and FHA and VA are under 3.5%.  Not quite to historic lows, but close.  I believe in large part the low rates are what are supporting prices at their current level. My question continues to be...what happens when they inevitably go up?   We already have a relatively soft market of increasing supply and modest demand.  Most I talk to in the real estate business describe the current market as very price sensitive.  Keeping in mind most people buy homes based on the monthly mortgage payment they can afford, even a modest increase in rates will, in my opinion, put some down ward pressure on prices. 

 

I know I probably sound pessimistic, but really I'm not.  Mostly I just like talking about this stuff!  Folsom is a great town, and I feel lucky to live here.  My real estate hope is that the market will normalize and the booms and busts of the last few years will stay in the past.   

[Steve Heard]

The Bay migration issue will be interesting to watch.  Prices in the Bay Area are, by any measure, crazy.  That said, the high prices are related to the MUCH higher wages people generally earn in the area.  Not saying the wages make up all the difference in cost of living.  However, for a lot of people living in the Bay, it's where their work is.  Most I know who live over there love it, and would have to be dragged kicking and screaming to Sacramento.

 

As far as the local market, I am genuinely relieved that the craziness of the last few years seems to be over.  That said, the investors departing is only one part of the story.  Interest rates have dropped again and are incredibly low.  Not hard to find a 30 year fixed for under 4% right now, and FHA and VA are under 3.5%.  Not quite to historic lows, but close.  I believe in large part the low rates are what are supporting prices at their current level. My question continues to be...what happens when they inevitably go up?   We already have a relatively soft market of increasing supply and modest demand.  Most I talk to in the real estate business describe the current market as very price sensitive.  Keeping in mind most people buy homes based on the monthly mortgage payment they can afford, even a modest increase in rates will, in my opinion, put some down ward pressure on prices. 

 

I know I probably sound pessimistic, but really I'm not.  Mostly I just like talking about this stuff!  Folsom is a great town, and I feel lucky to live here.  My real estate hope is that the market will normalize and the booms and busts of the last few years will stay in the past.   

 

I think there may come a tipping point for people where they say that the Bay Area is beautiful and has lots to offer in terms of culture, food and music, but it is also very crowded and crazy expensive. 

 

Maybe we'll see some telecommuting, so people cashing, some employers moving their businesses here. 

 

I remember back when Silicon Valley companies started moving to or opening facilities in areas like Austin TX because they had access to an educated workforce, land was cheaper, there was a friendlier business climate, lots to do, and their employees could afford to live there. American Airlines established a daily non-stop from San Jose to Austin, which was affectionately called the 'nerd bird', which shuttled folks back and forth. 

 

Will the Sac region become the next Austin? I hope so, and there are folks trying to attract new businesses and build the amenities to make this region attractive. The difference here is that to get to the Bay Area, you only have to jump in the car, rather than drive.

 

As for what happens when rates go up, it may in fact slow things down or push prices downward, but remember that during the run up in prices around 2005, rates were over 6% and people were buying like never before.

[rip]

I don't disagree with you Steve.  As much as I've enjoyed my trips to the Bay Area, I personally wouldn't want to live there.  Too crowded, too much traffic, too expensive and too far from the mountains.  It would be great for Sacramento to be able to diversify it's work force.  I will say, however, every metro area in the west is competing for those same jobs and businesses.  Sacramento is going to have to bring it's A game, if it wants to play against cities like Denver, Phoenix and Salt Lake City.

 

I will take you to task a bit on the 2005 real estate comment.  Those 6% interest rates were also happening in the biggest housing bubble in history.  As you well know, very few people were actually getting standard 30 year fixed mortgages at 6% during this time, mainly because they couldn't afford the monthly payments.   Instead, they were getting interest only, option ARM's, reverse amortization and a whole host of other "non traditional" mortgages that nearly brought down the entire economy.  What I find a little troubling is I hear comments like this fairly frequently from people in the real estate biz.  Comparing the market now, to the peak of an unsustainable bubble is misleading.  You don't have to have a crystal ball, or be an expert in real estate to realize if we saw 6% mortgages this year, in this market, it would crush the housing recovery and likely lead to a sharp down turn in prices.  

[Steve Heard]

I will take you to task a bit on the 2005 real estate comment.  Those 6% interest rates were also happening in the biggest housing bubble in history.  As you well know, very few people were actually getting standard 30 year fixed mortgages at 6% during this time, mainly because they couldn't afford the monthly payments.   Instead, they were getting interest only, option ARM's, reverse amortization and a whole host of other "non traditional" mortgages that nearly brought down the entire economy.  What I find a little troubling is I hear comments like this fairly frequently from people in the real estate biz.  Comparing the market now, to the peak of an unsustainable bubble is misleading.  You don't have to have a crystal ball, or be an expert in real estate to realize if we saw 6% mortgages this year, in this market, it would crush the housing recovery and likely lead to a sharp down turn in prices.  

 

Back in 2005, I was still doing both mortgage and real estate. I don't know what my numbers were, but adjustables weren't a big part of my business, and I think that was true for most of Folsom, as Folsom seems to attract people with good credit and income.

 

Having said that, I did some research before replying, hoping and expecting to find that alternate financing, including adjustables, sub-prime, stated income, interest-only and reverse-amortization loans represented about 10% to 20% of the market.

 

I was pretty surprised as what I found. There is a book called, 'Economic Collapse, Economic Change: Getting to the Roots of the Crisis'. In it, Authors Arthur MacEwan and John A Miller state that in 2004, 12.5% of mortgages fell into the 'alternate' category, and peaked at 32.1% in 2006. Sub-prime went from 13.7% to 16.2% during that time. They don't know to what extent the alternate and sub-prime overlapped, so it could be that the two made up as much as close to 50% of the market.

 

So, while we can't say that 'very few' were buying at the 6% conventional rates, I was still surprised at the numbers.

 

I stopped doing mortgages to focus on real estate only, in 2008, as both got very complicated and I couldn't provide excellence in both areas.

 

I agree that 6% today would put a severe hurting on the market. I just hope we've learned enough that the banks won't bring back the goofy loan programs of the past.

[rip]

Fair enough Steve, I will cop to "very few" being an over statement on my part.  The roughly 50% portion squares up with what I have researched as it related to the national market.  I have also read that in some of the more bubbly markets (Las Vegas as an example) the share of the market made up by these loans approached 80% or even higher in some cases.  My overall point was more about my discomfort with real estate pros shrugging off current market conditions by comparing to the bubble years.  

 

Again, I don't think there is another real estate apocalypse pending.  However, the fact that we both agree 6% mortgages (low by historic standards) would have a large negative impact on home prices illustrates how fragile the housing recovery still is.  

[FolsomEJ]

The fact that we *don't* have 6% mortgages illustrates how fragile the economy is.

 

Paying nothing to savers to artificially benefit borrowers to encourage consumption and bail out lenders is a terrible practice.  It needs to stop, the sooner the better.

 

Cheap money simply encourages bad behavior.

[Sonny]

You have to think of what would cause interest rates to go higher?  Wages increasing maybe.  

 

I think housing will continue higher due to the recovery of wages.  Stock market has recovered from 6,500 in 2009 to 17,500 now, new highs. 

[caligirlz]

I am wondering if the next step will be a Bay Area migration, as their prices go nuts.

 

Yes, I've been hearing increased chatter about this very thing.

[rip]

Pretty interesting article in the paper this morning about the Bay Area economy:

 

http://www.latimes.c...1230-story.html

 

Highlights:  Median home price in S.F. $940000 (!)  Median in Silicon Valley $761000

 

The Bay Area has one of the fastest growing economies in the country.  Unemployment rate is 4.2% and 20% of all new California jobs in the 3rd quarter were created there.  On top of that, incomes have risen 30% in the last 5 years and venture capital funding is up 75% in the first 3 quarters of 2014.  The Bay is booming!    

 

I still think housing prices are crazy over there, but the rise in prices makes at least some sense when one looks at the explosive growth in their economy.   It's one of the things that has troubled me with the rise in home prices in the Sacramento area in the last few years.  Prices have seemed to be disconnected from economic fundamentals.  We've had relatively high unemployment, stagnant wages and.....a 30% increase in real estate values? Something doesn't add up.        

[Steve Heard]

The Bay Area has one of the fastest growing economies in the country.  Unemployment rate is 4.2% and 20% of all new California jobs in the 3rd quarter were created there.  On top of that, incomes have risen 30% in the last 5 years and venture capital funding is up 75% in the first 3 quarters of 2014.  The Bay is booming!    

 

I still think housing prices are crazy over there, but the rise in prices makes at least some sense when one looks at the explosive growth in their economy.   It's one of the things that has troubled me with the rise in home prices in the Sacramento area in the last few years.  Prices have seemed to be disconnected from economic fundamentals.  We've had relatively high unemployment, stagnant wages and.....a 30% increase in real estate values? Something doesn't add up.        

 

Very interesting.

 

I don't know accurate the data I just looked up is, but Sperling's says that Folsom's unemployment rate is 3.1% and Google shows it as 3.0, with September being the last month reported. 

 

I think that there were numerous reasons for the jump in prices in the Sacramento region, including: 

 

It became cheaper to buy than to rent in most areas. For example, a $240,000 house with a $200K mortgage at 4% interest with a 1.25% property tax and $600 per year for insurance would have a monthly payment of $1254.83. That same house would rent for $1500 or more.

 

Investors started snapping up properties for that same reason. 

 

I also think that buyers saw the homes as being under-valued, as bidding wars were common in 2012 and 13.

 

Now, the prices have flattened out, it's taking longer to sell, and bidding wars are rare.

 

So, with technology making it easier to work from anywhere in the world, and with Bay Area home prices soaring, and with the region offering a great quality of life a reasonably short drive from the Bay, I am thinking we might it see another Bay exodus, which should help our housing market.

 

Of course, I could be way off, but it would make sense.

[rip]

Those unemployment numbers for Folsom seem realistic.  To be fair though, you'd need to compare the unemployment rate for entire Sac Metro area to the Bay to get an apples to apples comparison.  Last numbers I saw showed the Sacramento area's unemployment rate at around 7%.  WAY better than it was, but still substantionally higher than the Bay Area.

 

I'd be curious to know what percentage of recent sales are old school conventional loans with 20% (or more) down payments?  My guess (and it's only a guess) is most people shopping in that $240k range are likely using FHA loans with far lower down payments, making the mortgage vs rent calculation less favorable.  As I've said before, you can always get to rental parity if you make the down payment large enough.

[rip]

Interesting article in the Bee this morning regarding Millennials and home buying.

 

http://www.sacbee.co...cle5389560.html

 

Thoughts?