The $324,000 average selling price for a county home closing escrow during October was 18 percent higher than a year ago. That was the highest average purchase price for October going back to 2008. The year-over-year increase was consistent with increasing property values that have been climbing since they hit bottom in October 2011. This trend of increasing prices is going to be with us awhile, as long as the interest rates remain in the 3.5 percent range and the number of available homes for sale continues to decline.
Housing appears to be recovering faster than many economists expected. A year ago, most of us in the real estate industry were thinking foreclosures would accelerate this year as lenders dumped their “shadow inventory” they had been sitting on or were in the foreclosure process. Projections at that time believed it would likely take until the third quarter of 2013 or into 2014 before we would see any significant increase in selling prices. The $50,000 year-over-year bump in the average selling price last month has put a kibosh on the shadow inventory scare and it appears that the long-awaited recovery is well under way.
A sizeable increase in the number of monthly sales is another confirmation of the market’s recovery. Last month, 260 sales were reported by the El Dorado County Association of Realtors. October sales were up by 5 percent over September but a whopping 49 percent higher than October 2011.
Increasing property values have not discouraged homebuyers, who often find themselves in competition when making offers. A recent survey by the California Association of Realtors found that 57 percent of all home sales in 2012 received multiple offers. That was the highest percentage of multiple offers in 12 years, with the average home receiving four offers. Seven of every 10 lower-priced homes, typically bank REO and short sales, received multiple offers, while only half of equity sellers received more than one offer.
The inventory and subsequently number of sales of financially troubled properties is declining. Of the county’s 600 currently active listing, 53 are short sales and 51 are banks REOs. That’s the lowest number of foreclosures and short sale listings since 2007. A year ago, 60 percent of all sales were bank REOs or short sales. Last month, they accounted for 41 percent of all county sales. That’s still a large percentage but the declining number is contributing to increasing property values.
Another contributing factor to the healthy bounce in sales and prices was a lot of move-up activity. One out of every five county sales last month was higher than $400,000; predominately to move-up buyers taking advantage of affordable prices and low interest rates.
“This is likely a once in a lifetime opportunity for us to own a larger home in a better neighborhood,” was recently said to me by Tim, a prospective move-up buyer.
He hasn’t yet decided whether to keep his existing home as a rental or sell it but he isn’t going to let the current opportunity slip away. He is not alone.
According to Zillow senior economist Severnja Gudell, home prices in our area are likely to rise significantly in 2013 and will likely outpace the national average. “Prices have fallen so far,” Gudell said. “As soon as they start to pick up, nobody wants to miss the boat.”
Bay Area buyers are finally returning to El Dorado County. The recent increase in economic activity in the high-tech sector is fueling a mini housing boom on the left coast. Homeowners, who haven’t been able to sell their homes since the market’s free fall began, now have a line of buyers in front of their homes with full-price or better offers. Many are moving east to the foothills.
A popular destination for Bay Area buyers is El Dorado Hills. Last month 60 homes in EDH closed escrow accounting for 23 percent of all county home sales with an average selling price of $535,000. A year ago, EDH reported 46 sales with an average selling price of $431,000.
The second most popular destination for buyers was Cameron Park that reported 43 sales, up 55 percent over October of 2011. The average selling price of $302,000 was a 15 percent increase over last year same month.
Increasing county home prices are reflective of more demand than supply. We have half the inventory of a year ago and it is likely to drop more. Here’s why:
Regardless of the improving market, about 40 percent of county homeowners with a mortgage owe more than their home is worth. They are stuck underwater and can’t sell without taking a loss.
Another phenomenon is today’s investor. Unlike investors of five or six years ago who were buying distressed properties and fixing them up for resale, today’s buyers are buying and holding. The rental yields are providing better return than most alternative investments.
Traditionally, a shortage of listings would signal builders to start building. That’s happening in Placer and Sacramento counties but not so much in our county. Costly impact fees and development costs have stifled most new construction and developments. Our county that used to build 1,500 new homes a year is now on track to build less than 100.
So the question is where are new listings going to come from and how quickly? And those answers remains for another column.
Ken Calhoon is a real estate broker in El Dorado County. He can be reached through his website at kencalhoon.com.