Local Market Conditions - This article is dated 07/06/06
I am sure you have asked yourself by now, 'what is the market doing and is this the right time to buy or sell?' Let's break that down into two questions. First, let's talk about what the market is doing. Rather than speak of a huge area like Sacramento County, I will talk specifically about the Elk Grove numbers. However, proportionately speaking, ratios will look about the same for the Sacramento area as is for Elk Grove. My advice regarding the market climate for these two areas will be the same.
For the month of June, 2006 in Elk Grove
New Actives - 570 (new home listings, properties for sale on the market)
Pending Sales - 137 (in contract and have opened escrow)
Sold -188 (closed and recorded transactions)
Expired - 125 (listing contract term has expired)
Canceled or Withdrawn - 210 (client has canceled listing agreement and withdrawn property from the market)
Actual sold properties averaged about 51 DOM (days on market).
The majority of these homes ranged in price from $350,000 - $500,000.
As of today's date (07/06/06), there are 1490 active listings in the Elk Grove market.
Interest rates for a 30 year Fixed-Rate Loan will be near 6.75% with points to be paid.
Many homes whether selling or not have been on the market in excess of 6 months. Many homes are selling for less than this time last year. We have approximately 40% lower sales than last year but about 40% more inventory! We experienced 2% price increases last summer until August when the market cooled.
Keep in mind what we are experiencing here in the Sacramento area and other parts of California is not the entire real estate equation. Other parts of the Nation have settled into a "normal" market and some areas are still hot spots. Our area is just not capable of sustaining the type of double digit gains that we became accustomed to the last four to five years. Consequently, we are one of the areas most hard hit by this cooling period. Interest rates, inventory, economic factors and income per capita all play in to the picture.
I feel we are still in flux, as there still exists a tugging between Buyer and Seller to define our current market and determine the value of a given subject property. I find it ironic and almost humorous that when I receive inquiries from buyers and sellers, each are polarized on market values. The Buyer describes a property that they are willing to pay $350,000 for. The seller in the next request describes that same property that they wish to sell for $550,000. The true market value is closer to $450,000!
Should I buy or sell now?
The short answer is 'Yes!'
You do, however, need to review your motivation and reasons for buying or selling. If life dictates a change and this property is your principal place of residence, yes, you make that change with as much grace and dignity as possible. Such changes might include retirement, divorce, a job-relocation, a death in the family, change of health status or new interests and opportunities in life. Investors will look at their type of investment and assess their decision a little differently.
Buyers will now benefit from a Buyer's Market. You are not likely to see the bidding wars and multiple offers driving up inflated prices just to buy or get into a home. Buyers now have a great selection of homes and properties to choose from. Buyers can take their time and shop thoroughly. Negotiations also favor the buyer. If sellers truly want to sell their property they will need to bend and negotiate because there are plenty of properties elsewhere but fewer real buyers.
It is true, interest rates are up and not likely to fall back to the record low rates we have seen in recent years, and yet in perspective we still have very low rates. Sellers may also consider working with buyers who opt for non-conventional loans which in a Sellers Market were less than attractive. Such loans may include FHA, VA, and other types of loan products. The restrictions and fees associated with these loans may now not look like such a bad option to a seller.
Another feature that buyers may benefit from is the Contingent Sale. In this type of sale, a seller may opt to accept an offer from a buyer whose purchase is contingent upon the buyer selling their property in order to purchase the property they are buying. I do not necessarily recommend this method if it can be avoided. It is especially risky to the buyer who may be asked to remove their contingency before selling their property or give up their opportunity to buy their new purchase. Consequently, this method can be stressful as well as disappointing, but it is an option that is more likely to work now than in recent years and as such is likely to be seen and used more often by buyers.
Prices on new home sales have stabilized. There has been an influx of condominiums and a generous array of concessions to help attract new buyers along with price reductions on the houses themselves. Builders are viewing the current trend as a 'normal market', meaning we lack the crazy boom of recent years but still have substance to carry on.
In April of 2006, West Placer County rallied 24.5 percent of sales in the Sacramento area, the most for this region. This may be due to the recent approval of West Roseville into the housing market.
What if I want to sell ?
If your task is to sell, then you also need to heed the information given above. Understanding the disposition of the buyer and the options they have before them will go a long way to helping you achieve your goals.
In the most simplistic terms, if we talk about supply and demand, then prices go down when supply goes up. This is certainly what we are experiencing now in the Sacramento area markets. Does this mean it is a bad time to sell because prices have softened? Your answer depends on your motivation for selling. If you are wanting to maximize your return, then, that market may have already passed us in the short term. However, if life requires a change, as I mentioned above, it is best to embrace the current market and readjust your expectations when you go to sell.
If you sell and buy again, any decline in market value will be balanced out when you become the buyer. The reduction in your net proceeds should roughly equal the economic advantage you now have as the buyer of the new property. It is less painful, if you consider the change in that respect.
Now, for the good number of Elk Grove residents and other Sacramento County people I have had the good pleasure to speak with that purchased only a year ago or refinanced every nickel and dime out of their home and now want to sell and still realize a windfall at the closing of their property sale, the adjustment in thinking becomes greater and more urgent. The importance of listening to your Realtor (me) becomes ever more critical to your financial outcome.
If I have spoken to you regarding selling your home or property, you then know how I emphasize the importance of pricing your home to match our current market trend. This is the beginning of all wisdom and all effective marketing plans. Yes, I emphasize preparing the property and the use of optimum marketing methods, but if the property is priced as if we are still in last year's market, obtaining an offer or attracting the interest of buyers will be difficult to non-existent. There are just too many properties for the buyer to consider. Motivated sellers will reduce their prices to match the current market trend and consequently they will sell their home. This closed property sale now becomes data as a comparable for other sellers to reckon with.
Many listings start high and continue to make incremental reductions, slowly accepting the reality of the market and that their property is one of many on the market. If the property is vacant and the seller is chasing the market with an outdated listing and modest price adjustments, there will be money lost to the many mortgage payments made while no one is living at the property.
If sellers must sell in a declining market, it is best to price it right from the beginning. This will guarantee your top market price. If you are an investor and do not wish to continue financing a property without the offset of appreciation gains that we have had in recent years, it may be the time to sell. Of course, list with me and I will be sure to price it right and get you the top dollar the market will allow.
I understand, that many sellers may see things differently, interpret data and events to mean something other than what I have expressed here. I say to them, please call me and I will carefully talk you down and guide you safely back into our current market reality.
I hope to have the privilege of speaking with you in the near future and I do wish you well!