Just when we thought the market couldn’t get any wonkier…
The real estate market is never boring. We’ll give it that. After a Jekyll & Hyde year in 2022 when things began red hot and ended ice cold, We were expecting a rather “ho-hum” year for the 2023 Sacramento real estate market. So far, it’s been anything but routine. Let’s dive into the details and stats to find out where we may be going.
Back in January (see the post), We had made the following predictions:
1. The “bear” market would end;
2. Interest rates would settle down; &
3. Home prices would bottom out.
Well, if you’ve been paying even casual attention to the market and economy, you know that we got 2 out of 3 right. While the market has indeed come out of hibernation with increasing home sales and an end to steep price declines, it has done so in spite of interest rates remaining stubbornly high. This has come as quite a surprise to nearly everyone. After all, higher rates were the reason for the late 2022 market slowdown, so why would anyone expect the market to rebound if rates remained at elevated levels???
The surprise X-Factor in 2023 has been the astonishingly low number of homes for sale. Let’s try to put this in perspective…in every year from 2013 to 2019 (pre-pandemic market), the greater Sacramento region saw 23,000 to 24,000 homes for sale from January thru July. So far this year, that figure stands at nearly half that amount at 13,000!!! Below is a great statistical visual from my favorite appraiser, Ryan Lundquist, that clearly shows how odd this year has been. Every month has seen significantly fewer new listings come to market compared to historical norms.
So even with mortgage rates remaining around 7% and pricing many buyers out of the market, home prices have actually been able to increase since there are so few options for the remaining buyers to purchase.
Think of it this way: let’s say you want to buy the new iPhone 15 that comes out next month. Then right before the release, it’s discovered that all of the 85 million new iPhones produced have a fatal manufacturing defect and can’t be sold.
As a result, you will think twice about buying or upgrading your phone since this market disruption would drastically increase the prices of the limited remaining phones in the market. You will likely just hold onto your old phone even if it had problems as the cost to upgrade is just too great.
That’s precisely what’s happened in the real estate market! But instead of a manufacturing defect/recall keeping homes out of the market, high mortgage rates are to blame, acting like “golden handcuffs” on homeowners. Golden handcuffs are often referred to when employees feel locked into their jobs because the conditional future benefits are too good to walk away from today. Similarly, homeowners feel locked into their homes as more than half have mortgage rates under 4%. The cost of “upgrading” is simply too great, so they stick with their current home even if its not really what they want.
They’re pretty, but they’re still handcuffs
Similarly, your low mortgage rate is saving you money, but it’s got you locked in. How does it feel to be chained to your current home?
All of this means is it’s the PERFECT time to sell if you don’t have to buy again in the same market or if you owe little or nothing on your home mortgage. Home values are arguably over-inflated due to the low supply, and there are still buyers able, willing, and needing to purchase. If you have considered selling your home, we should chat about how to best take advantage of the current market conditions.
Interest rates were to blame for 2022’s abrupt halt & 2023’s oddities, so it’s very important we keep an eye on the rate horizon if we want to predict where the market is heading as we approach 2024. I wrote a fun Top Gun themed post earlier this summer about how we think mortgage rates will improve later this year, and another post adding to that argument is in the works (coming later this month). Lower mortgage rates will break the chains for many would-be handcuffed sellers, improve affordability for buyers, and ultimately lead to a revival for this incredibly sedated real estate market.
If you may be in the market to buy or sell in the next 12 months, call us now to discuss your circumstances and how we can help you navigate this ever-evolving market. There are indeed opportunities out there if you know where to look and have professional guidance.