The real estate market bottomed out in our county in February of this year when the median selling price on 137 home sales was $230,000. Since then, home prices and the number of monthly sales have been gradually increasing. It’s going to be a slow and sporadic recovery but at least it has begun.
Last month was the busiest August for home sales since August 2005. The 215 monthly sales were 30 percent ahead of last year and 40 percent better than August 2009. Year to date, county sales have been running 10 percent higher and the last three months have been encouraging, running 21 percent higher than last summer.
Not only are more homes selling but they are selling faster. Thirty-six percent of all sales last month were homes that had been listed for less than 30 days and 60 percent had been listed less than 60 days. After witnessing five years of declining sales, it’s encouraging to report more interest in owning county homes.
In addition to the number of reported monthly sales, the median selling price — the price point where half the homes are selling for more and half for less — is the most critical measurement of the market’s recovery. Our median selling price, currently at $265,000, is still about 8 percent less than this time last year but it has been pretty consistent for the last six months. There will be seasonal adjustments in the number of sales but the median selling price should hold for the rest of the year with slow increases during 2012.
It’s important for potential homebuyers to know that, baring another financial calamity, home prices have finally bottomed out in El Dorado County. If buyers understand the market is gaining traction more will have confidence to get off the fence, where a large number have been waiting. With the small size of our county, each sale is important and helps to reduce excess inventory and firm up home values.
It’s always better to buy after the market has reached the bottom and is on the way back up than when it has reached its peak and is on the way down. In addition to “market timing,” homebuyers today have a number of other advantages that homebuyers didn’t have a few years back.
Homebuyers today are paying $240,000 less for a county home than what they did in August 2006. County homes haven’t been priced this low since the beginning of 2002. More importantly, they are more affordable. Economists often define affordability as the ratio of median home price to median family income. As an example, according to the U.S. Department of Commerce, the median family income for El Dorado County in 2006 was $67,000. With the median priced home then at $502,000, the ratio was 7.4. Today with our $265,000 median price, the ratio is 3.9. Nearly twice as many families can afford to own a home.
The low prices and interest rates are providing opportunities renters never would have imagined a few years back. Last week Jennifer closed on her new home in Placerville where she had been renting a small home at $1,500 a month. Her new house payment is $1,600 including: principal, interest, taxes, insurance and mortgage insurance on her $230,000 FHA mortgage. After seller credits, her total down payment and closings costs were less than $8,000.
The interest rates for 30-year fixed rate mortgages are not going to drop any lower. They have bottomed out like county home prices. Jennifer was able to lock in a 4 percent rate. If she had purchased the same priced home five years ago, her monthly payment would have been $400 higher. Freddie Mac forecasts the 30-year fixed rate mortgage creeping past 5 percent by the end of the year and into the 6 percent range in 2012. FHA loans are assumable to qualified borrowers. That’s another advantage. In the future buyers may well pay a high premium for homes with assumable lower interest loan.
Buying a home isn’t purely a financial decision. When you own a home you control your living environment. You can change it, improve it and make your home more secure. You can personalize it. Yes, there are maintenance and management responsibilities but some enjoy working on their castle. Homeowners feel more connected to their community as do their neighbors. Communities with high percentages of homeownership have lower crime rates and higher family incomes.
Homeowners can think of their monthly mortgage payments as forced saving. A small part of each payment goes toward the reduction of the mortgage. With time and under normal circumstances, the amount of the mortgage declines while the property value increases. Renters have the pleasure of thinking of their rent payment as helping to pay their landlord’s mortgage. With time, property values and rent increases.
Our county currently has a plentiful selection of listed inventory for home shoppers to choose from. That’s not going to last forever. Homes priced under $275,000 are selling quickly. Demand will continue to bump prices up.
We all know someone who should be buying a home. Help them and strengthen our real estate market by encouraging them to take advantage of today’s opportunities. El Dorado County is a great place to live and the time to buy a home won’t get any better.