Last year was really pretty good for El Dorado County real estate. Traditionally, the January is a time we celebrate new beginnings and look forward to the new year. But while boxing up our Christmas decorations, I felt a little remorse saying goodbye to 2013. It was like saying goodbye to a good friend.
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There have been many previous years that I enthusiastically celebrated their demise. There wasn’t much to celebrate between 2007 and 2011. Property values were falling like a rock, foreclosures were everywhere and everyone had a financial hardship. That pretty much ended in 2012. Sales increased, excess inventory disappeared and values started firming up. Then 2013 came along. Property values climbed 25 percent, homeowners once again had equity and buyers locked in historically low mortgage rates. How could you not miss a year like that?
It is unlikely we will experience another record braking year in 2014. That’s probably good. If property values shot up another 25 percent, as they did in 2013, we would have another inflated housing bubble. That’s actually happening in the Bay Area where the median sales prices in some locations are equal to or have exceed record highs during the bubble years of 2005 and 2006.
Those inflated prices are going to have an impact on our local housing market. The temptation to cash in on the equity created by bubble high prices will be too great. Beginning this spring, a record number of Bay Area retirees will put their homes up for sale. Many will move to our region where housing is more affordable. History is likely to repeat itself. Between 2001 and 2005, 150,000 people migrated to our Sacramento region. More folks came here from the nine Bay Area counties than from all other counties in the state.
Many Bay Area buyers will select Folsom for their new home destination. Folsom has a good selection of new home communities, medical facilities and a wide selection of shops and restaurants. Others will end up in Placer County, the fourth fastest growing county in the state. But there will be some who will choose our county as their destination. We don’t have a large selection of new homes and we can’t offer the same retail shopping experience as other counties but we do offer a financial incentive currently not offered in any other county in our region: Prop 90.
Prop 90, adopted by the Board of Supervisors in 2010, allows a homeowner who is 55 or older to transfer their existing Prop. 13 property tax base from their existing home when they purchase a home in our county so long as the market value of their replacement principal residence is equal to or less that the home they sold. Other restrictions apply but basically this is a huge property tax advantage for Bay Area folks not offered in any other county in our region. When adopted by the board, the ordinance was intended to prop up local property values and fill some vacant homes. However, back in 2010 the real estate market wasn’t all that great in the Bay Area. Homeowners have been staying put waiting for values to increase. Now that property values have exceeded their previous peak, watch as the exodus begins.
The 30-year fixed-rate mortgage will hit 5 percent during 2014 for the first time since 2010. The increase won’t affect relocating Bay Area buyers flush with cash but the bump in rates will make housing less affordable for first-time buyers.
Repeat buyers will dominate the 2014 market. Investors were the key players during 2012 and much of 2013 but folks who will sell their existing home and buy another will drive the market this year.
The increase in interest rates, rising prices and the lack of entry-level inventory will make it increasing difficult for most first-time homebuyers. Those entry barriers will drop the homeownership rate even lower than its current 20-year low and will further widen the wealth gap between those who own a home and those who don’t. In California, and specifically El Dorado County, the primary obstacle to entry-level buyers is the lack of new affordable housing. It’s simply too expensive to build here. Consider the latest New Home Cost Index Report showing that it now costs as much for county permit and mitigation fees as it does to build an entire house in Houston, Texas.
Property values in 2014 will likely level off from their pace in 2013. Zillow recently published the results of its 2014 housing survey of 106 economists. The consensus from this group was that price appreciation would be in the 4 to 5 percent range, the number of home sales would be about the same as last year and sellers would have a slight advantage over buyers.
According to Leslie Appleton Young, chief economist for the California Association of Realtors, “2014 will be a continuation of slow recovery and continued strength in the housing sector.”
This year should be more balanced. Homes will be less affordable for buyers and sellers will not see another huge jump in appreciation. Bay Area buyers will be primarily attracted to El Dorado Hills with only a marginal interest in the more rural areas of our county.
Ken Calhoon is a local real estate broker. Questions or comments can be e-mailed to [email protected]