What’s not to like about our real estate market? The Sacramento region, which includes El Dorado County, is one of the fastest recovering real estate markets in the country. Redfin, a technology-powered online real estate brokerage, released its Fastest Real Estate Market Report last month which tracks the speed of the market as measured by the percentage of homes that went under contract within the first two weeks of being listed. Our region was ranked No. 4 overall with 52 percent of all new listings selling within two weeks and 29 percent of all new listings selling within the first week. The national report ranked only three other California regions — San Jose, San Francisco and Ventura — above ours for speedy sales.
Home values continue to climb. The median selling price for a county home last month was $345,000. That was up a bit from $287,000 a year ago. County year-to-date sale prices are running 20 percent ahead of last year and 38 percent higher than May 2011. County median selling prices haven’t been this high since 2008.
The bounce in home values is a lifeline to underwater homeowners. Zillow is reporting that while 52 percent of county homeowners a year ago had negative equity (upside down/underwater) only 28 percent of county homeowners still have negative equity. At our current rate of appreciation, the percentage of underwater homeowners is expected to drop to 14 percent by 2014. Actually, the percentage of underwater homeowners is likely much less than what Zillow reports. Zillow’s proprietary formula for estimating home values has a problem keeping current in a rapidly changing market. Their online valuations were too high when property values were dropping like a rock in 2008 and most current sales are higher than a Zillow Zestimate today.
This real estate recovery was the opposite of what most real estate prognosticators expected. The market bottomed out a little over a year ago but in the last six months it has dramatically reversed itself from a buyer’s market with plenty of lower-priced foreclosures and short sales to a seller’s market with limited inventory, multiple offers and rapidly increasing prices. Our regional housing market turned around nearly overnight from one of the hardest hit in the country to one of the fastest recovering. It wasn’t the first time real estate market watchers have been surprised.
Back to 2006 and into 2007 many real estate experts thought we might have a small real estate bubble going on but the experts anticipated a “soft landing.” Home prices would gently settle for a spell before taking off again. What actually happened was quite different. Property values slammed into the ground with the force of a bunker buster missile before exploding.
During 2011, at the depth of the Great Real Estate Recession, the experts predicted we would be saddled with low property values and weak demand well into another generation. The recovery, if it came at all would take 10 to 20 years. There would be no bounce. It would be a slow, bumpy and weak recovery. After all, with millions of homes being lost to foreclosure, homeownership had proved to be a poor investment. Why would anyone want to own a home and mortgage after so much pain and suffering?
A year later the market unexpectedly fooled us all again. By June of last year, foreclosures and short sales listings were dropping off the radar. The supply of available inventory was quickly disappearing and new listings were about half the number as the year before. The sudden bounce in property values is the result of tight supply, not so much increased demand.
The number of monthly sales in our county has been pretty consistent over the last few years averaging between 200 and 250 depending upon the season. Despite the low interest rates and increasing consumer confidence, year-to-date sales have only increased by a small fraction over last. What’s changed has been the number of available homes for sale. As an example, in May 2006 the county had 200 reported sales with 516 new listings. This last month, we had 260 sales but only 140 new listings. Since July of last year, county monthly sales have been averaging 250 and new listings averaging 150. If those numbers continue, we are out of both inventory and sales in six months.
Without any significant new construction to relieve the pressure on re-sale residential, home prices will continue to steadily increase. But wait, here comes the Bay Area buyers. The San Francisco/San Jose regions are the hottest real estate market is the country. Houses are selling at near their 2005 record prices. So where do you suppose all those Bay Area sellers will be moving with their sale proceeds? Probably not to Oklahoma. Perhaps, someplace in less-congested Northern California where home values are more reasonable, yet close to shopping, recreational opportunities and medical facilities. A few years back, Bay Area buyers accounted for nearly one-third of all county sales. That stopped with the recession but today they’re back.
If our current 20 percent yearly appreciation rate continues, property values will reach their 2006 peak in 28 months. Hopefully, increasing values will stimulate more new construction which is needed to accommodate both internal growth and incoming migration.
Ken Calhoon is a real estate broker in El Dorado County. He can be reached at kencalhoon.com.