At the end of last year, the median selling price for a home in our county was $289,000. This December it’s 21 percent higher at $350,000. A year ago the average selling price of a home in El Dorado Hills was $467,000. Today it’s up to $575,000. Cameron Park homes were averaging just less than $300,000 last December and this year they are up $25,000. Homes in Placerville’s ZIP code averaged $240,000 a year ago are now averaging $275,000. Home prices hit bottom in 2012. In 2013 they accelerated, averaging 25 percent higher than a year earlier.
One reason for the jump in home values was the declining number of bank REOs and short sales. A year ago, REO and short sales accounted for about 40 percent of all county sales. This last month they were less than 15 percent. Financial institutions during 2012 unloaded their excess baggage of homes but in 2013 equity sellers emerged as the dominate players and were not so inclined to deep price discounting.
The interest rate change from a year ago had a significant impact on sales and refinancing. At the end of 2012, the mortgage rate for the 30-year fixed rate loan was 3.5 percent. Fast forward a year and last week’s mortgage rates were 4.5 percent. While 4.5 is still a historically low mortgage rate, the 28 percent jump set off an alarm to many buyers that the interest rate party was over. Since the increase, monthly year-over-year sales have declined, properties are taking longer to sell and refinance activity has dropped 63 percent from a year earlier.
A year ago the Federal Reserve was purchasing $85 billion in mortgage-backed securities and treasury notes. This stimulus policy is credited with keeping interest rates down. This last December the Feds announced they planned to scale back their stimulus efforts of buying mortgage-backed securities. Many economists believe this “tapering” will lead to higher interest rates.
The number of homes for sale was another big change between 2012 and this last year. During 2012, available listings reached a record low. REO and short sale inventory was declining rapidly and homeowners were slow to discover they once again had equity. By December 2012 our county had only 600 residential listings for sale while our Association of Realtors was reporting an average of 240 monthly sales. The 2.5 to 1 listing/sales ratio is considered a seller’s market. At the end of this year, the number of listings has increased 30 percent over last and the number of sales has declined 35 percent.
A year ago, investors, both small and large, were buying thousands of homes in the four-county Sacramento region. Cash investors purchased 30 percent of all homes sold. That changed in 2013. During the last quarter of 2013, non-owner occupant investor sales were less than 5 percent in the region.
The most significant change between 2012 and this last year has been declining sales. County home sales during the fourth quarter of 2012 were the busiest fourth quarter since 2004. The last three months of 2013 have been the slowest for home sales since 2010. There is real concern in the real estate community about the trend of declining sales numbers. Some housing economists blame declining inventory as the culprit.
“The main thing has to be inventory constraints, just not enough homes on the market to meet demand,” said DataQuick analyst Andrew LePage. “I can’t point to anything that’s happened to the economy that explains why sales are down this much from a year ago.”
Although the number of homes for sale in Sacramento County may have declined, in El Dorado County the number of listings has increased significantly over this time last year. So why the slump in sales?
According to Kevin Brown, president of the California Association of Realtors, “Buyers are playing the waiting game and putting their home search on hold until prices stabilize and more inventory becomes available in the market.”
That may be true for other counties but in our county home prices have stabilized. The median selling price for a county home has remained in the $350,000 price range for the past six months with less than a 4 percent variance since June.
What’s really happening is a combination of three factors. The first is affordability. It isn’t as affordable to buy a home today as it was a year earlier. Prices are higher, interest rates are higher and personal income has not increased in proportion to the increased cost of housing. The second factor is psychological. Many potential home buyers have not accepted the reality that the real estate environment has changed. They are still waiting on banks to release their shadow inventory or the interest rates to improve. Neither will happen. The third factor is weak demand. Investors have disappeared, new household formation is at a 30-year low and our county’s population growth is the lowest in the region.
That all may change in 2014 or not but either way I will be tracking our local real estate market and providing advice to buyers and sellers to help them with their questions about real estate.
Best wishes for a healthy and prosperous New Year.
Ken Calhoon is a real estate broker in El Dorado County. He can be reached at [email protected].