There’s only 1.3 months of inventory in what is traditionally the start of the sales season for homes so why are sales lethargic? And why am I even saying they are lethargic? First off, there are definitely more buyers than houses but some buyers are starting to give up after bidding on one house after another and losing to multiple offers.
Here’s the latest graph. Note that in May of this year, we had 3,302 houses for sale in all of Sacramento, El Dorado, and Placer Counties…remember, that’s for over 2 million people! That number went down 17.3% from May of last year! While Pending sales and Solds went up year over year the difference is marginal, we’re experience some hesitation from buyers and sellers which is having the effect of buyers pulling back a little when they aren’t always looking at the full picture.
I represent a lot of buyers who are fatigued by the meager selection from which to choose. Let’s meet a composite, hypothetical couple: Eric and Sarah. Eric works at a tech company and Sarah works for the State. They recently sold their home in Roseville because they knew that they’d be in a better position with an offer if they weren’t dependent (or contingent) on selling their home.
They started looking for their “Forever Home” to raise their 2 boys. Finding a home closer to Sarah’s parents was one motivating factor, but schools and a better commute situation also ranked as important. After looking around for a couple of months, Eric started wondering if they should just wait it out in a rental. Looking at their finances, he recognized that renting isn’t ideal, but “it’s cheaper than a mortgage payment” for a home north of $500k. Sarah, an accountant, with the help of her lender, John Foderaro, looked at things a little differently.
Scenario #1 was that they stayed in their rental enjoying rent that is lower than a mortgage payment saving cash and buying in one year.
Scenario #2 was staying in the market and buying when they found the right house.
Sarah recognized that in the first scenario, the Fed is going to continue to raise interest rates. They just raised their benchmark rate another quarter percentage point on Wednesday which is the 3rd rate hike since the mortgage meltdown and it’s no secret that they will continue to do a progressive set of increases. If prices continue to go up and interest goes up by a full percentage point, at the end of a year, they are still going to be pay more for less. The difference in payments could be $200/month more at a percentage point higher for the life of their loan. Also, by renting, they also will probably will miss out on the ability to itemize by claiming the mortgage interest deduction. This can be a substantial difference in the taxes they pay.
Speaking of taxes, I also mentioned that in a normal market, prices tend to go up about 6% a year which means they’ll pay more next year for the house and their property tax will be higher as it’s based on the sale price of the home.
Logic won the day. I’m helping them to find both on-market and off-market opportunities that will win their hearts and make financial sense.