Not a day goes by when a Sacramento home buyer doesn't ask if the foreclosure shadow inventory is about to hit the Sacramento real estate market. Everybody knows that we have practically no bank-owned homes for sale in Sacramento, yet banks keep foreclosing. Realty Trac's web site reports Sacramento has 25,834 bank-owned homes but they are not on the market. To top it off, a week from Monday we're facing a 90-day moratorium on foreclosures.
Here is the average per-square-foot-cost in Sacramento County over the past 15 months, supplied by Trendgrahix:
The question, should you wait to buy in a down market, is a reasonable question to ask. Let's look at Trendgraphix average sales prices in Sacramento since January, 2009:
- January: $189,000
- February: $187,000
- March: $187,000
- April: $190,000
- May: $199,000
Do you see the trend moving upwards? Want more stats? Let's look at Trendgraphix median sales prices in Sacramento from January, 2009 to May, 2009. The median sales prices mean half the homes sold below and half sold above that number:
- January: $165,000
- February: $166,000
- March: $166,000
- April: $167,000
- May: $179,000
The bigger question, however, is where are interest rates heading? About a week ago, a Sacramento home buyer could get an interest rate of 4.875%. Today, a buyer is lucky to lock a loan rate at 5.375%. Many rates are higher, for example, Quicken shows a rate of 5.75%.
There's been a lot of discussion about whether sales prices are more important or interest rates. It depends on your local market. Obviously, if a property value falls by 50%, sales prices are more important. But when you're thinking about buying a home in a down market such as Sacramento -- where the market was one of the first in the nation to crash and is now hovering at the bottom -- you might want to pay more attention to the interest rate.
Every 1/2 point a rate rises takes away $25,000 of your purchasing power, if you're looking at a loan around $400K. If last month you could afford to pay $400,000 for a home mortgage, maybe this month you can afford only $375,000. If interest rates jump a full point, your $400,000 loan approval price could fall to $350,000. And prices are rising. Competition is fierce. Inventory is shrinking.
In April of 2009, we had 4,062 homes on the market through MLS in Sacramento. By May, that number shriveled to 3,652. By comparison, in March of 2008, we had 8,594 homes for sale. Over the last 15 months, the number of Sacramento homes for sale fell by 58%.
Sacramento short sale buyers will be hit the hardest. That's because while they may be receiving a great price on that Sacramento short sale home, most buyers will not lock a loan rate until short sale approval is received, which could be 2 months to 6 months. Where will interest rates be then? My advice is if you can lock your loan rate, do it.
We live in interesting times, my friends.
Elizabeth Weintraub is an author, columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout Sacramento. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you.
Photo: Trendgraphix, licensed exclusively to Lyon Real Estate in Sacramento. Used with permission.
The Short Sale Savior, by Elizabeth Weintraub, available in bookstores everywhere and at Amazon.com.
Sacramento Short Sale Agent, Elizabeth Weintraub, has the answers to your Sacramento short sale questions.
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Certified HAFA Specialist
My Sacramento Real Estate Listings
Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout the four-county Sacramento area. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. Broker-Associate at Lyon Real Estate. DRE License # 00697006.
The Short Sale Savior, by Elizabeth Weintraub, available at Amazon.com.
Lyon Real Estate is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan.
Photo: Unless otherwise noted in this blog, the photo is copyrighted by Big Stock Photo and used with permission.
The views expressed herein are Weintraub's personal views and do not reflect the views of Lyon Real Estate.
Disclaimer: If this post contains a listing, information is deemed reliable as of the date it was written. After that date, the listing may be sold, listed by another brokerage, canceled, pending or taken temporarily off the market, and the price could change without notice. It could blow up, explode or vanish. To find out the present status of any listing, please go to elizabethweintraub.com.
Elizabeth,
In the long run, anmd if someone holds a property interest is a major player, but everything one can buy these days is a great deal.
Elizabeth - Excellent post! I run this same scenario for clients all the time and in the end, rising interest rates are usually of more concern than dropping housing prices. For the past two weeks, I've been giving the same advice. LOCK! LOCK! LOCK!
Buyers think about price and the interest rate can be even more important. Great information.
Elizabeth: Those interest rates are hardly ever seen as top priority when home shopping. I think this post makes it really clear why folks should pay more attention there, rather than worry about $10-$20K in the sales price.
I'm concerned about the first-time home buyers who have finally been able to afford a home in Sacramento getting kicked back out of the market, not by price increases but by interest rates.
Hi Elizabeth, Great post about the correlation between the interest rate and the sales price. A lot of folks don't think about it enough -- and here it is -- in black and white!
Elizabeth - I'm with you on the importance of interest rates. When the rates dropped a couple of months ago our market took off. It was primarily first time home buyers that could qualify for the bottom end of the market. Like you said, if rates go up they will be priced out of the market. I found it very interesting that there are so many bank owned properties in Sacramento that aren't on the market. The put them on immediately here.