We’re spring loaded this year in more ways than one. We’re struggling with supply at the lower levels and this is pushing prices up, but not at all levels as my favorite appraiser, Ryan Lundquist likes to remind us. Yes, it’s mostly with my buyers under $450k, but I’m still seeing it even in higher ranges like $650k for example because one person I know wants to buy a home in an area of Folsom that just has so few homes selling. People are entrenched! But why?
Lately, supply has been severely thwarted by some structural problems in the market and I’d like to talk about some ones that impact us that don’t get as much attention.
Proposition 13, the landmark California ballot initiative approved by voters back in 1978, allowed people to stay in their homes without their property tax bill going stratospheric when they could least afford it in retirement. As a quick refresher, property taxes are allowed to increase only up to 2% per year as long as the property isn’t sold. Today, this can disincentivize Sellers because most homeowners want to avoid subjecting themselves to a new, higher property tax assessment when buying a new property. You can pass along that tax advantage to your heirs and some people are doing just that! Many Sellers finally just recognize that there’s costs (and time) to be saved by not keeping as large a home.
Another issue is lack of new construction inventory, specifically single story homes. Builders don’t want to build them and it’s not because no one wants them. This one really, really irks me. There’s a huge population of folks out there that would move if they could find a one story home in a neighborhood in or near where they currently live. We’re talking the newer areas of Sacramento: Roseville, Rocklin, Lincoln, Folsom, Granite Bay, and El Dorado Hills. It’s because they make more money when they build large two story homes, but we’ve got a large contingent of Baby Boomers and their older demographic that doesn’t want to climb stairs anymore (or heat or cool a larger abode) and the builders’ preference for short term profits create a lot of pressure on an already stressed system. We do have a small supply of existing older single story homes and they happen to be priced just right for the entry level buyer as well – so two diverse demographics are competing for the same type of house!
The last one for this blog post today is that some folks are still under water so as much as they’d like to sell, they can’t. These folks are sitting in houses that are above the $450k threshold, mostly in the $600k+ range. Some are still in interest-only loans or they’ve got two loans that helped them get in the house, but now won’t let them out of it because they owe too much…or they just can’t stand the thought of selling for less than they bought it for. If you find yourself stuck here, there are some limited options and I’d be happy to chat with you about what those are.
There is an upside. For buyers persistence does pay off. I’ve gotten buyers into the limited supply of homes with smart strategies and sometimes we need to compromise on the wish list a little. Good news is that more homes are coming on the market now because most people sell in Spring and Summer. For you on-the-fence Sellers, We NEED inventory for buyers who want to buy! You’ll be rewarded with some healthy price appreciation over last year and according to Ryan, he’s saying sales prices are about 9% higher than last year. That’s a lot higher than the 6% annual price appreciation that’s considered normal.
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