2018 – What to Expect in Greater Sacramento’s Real Estate Market
This year is shaping up to be similar to 2017. It remains a seller’s market due to low inventory and a constricted new home market. However, this doesn’t mean that home values are going rise above market. Most experts are predicting a modest 4-5% rise in home values for 2018.
If you are contemplating on buying a home, sooner is better. Why? Most industry experts are predicting mortgage rates to climb from 3.9% to 4.7%, depending on how the economy grows. Even still, 4.5%, historically speaking is still an excellent rate.
It is predicted inventory will remain low the case through 2018. In a normal market there is 3-4 months’ supply of homes. As the chart below indicates, the market continues to average 1.5 months. There is no evidence that this will change.
New Home Construction – Low Inventory
Another aspect of low inventory is the inability for builders to build affordable housing due high impact fees and the lack of available labor thus restricting builders affordable housing to meet demand.
According to report published by Trulia, less than 20 percent of experts forecast home-building to pick up next year. Approximately 313,000 new homes were on the market in October 2017, statewide. Entry-level homes, especially, are scarce—down 20.4 percent year-over-year over the summer.
Values have been steadily climbing by 7-9% per year since 2012. Most industry experts expect a slight cooling due to higher interest rates with predictions at a modest 4-5% appreciation.
According to appraiser and blogger, Ryan Lunquist, “The first and most important thing I’d say is, “My crystal ball is broken.” When I ask people who bought in 2012, “Did you buy at the bottom of the market on purpose,” they almost all say, “Nope, I just got lucky.” Buying a home has so much to do with lifestyle. It’s not just an investment. Are you comfortable with the mortgage payment, and does this house make sense with your lifestyle? There’s no guarantee of what will happen in the future.” www.SacramentoAppraisalBlog.com
The economy is showing great traction and it’s very likely to continue for several years. Unemployment is at record lows. This is causing more buyers to feel secure in their jobs and to enter the market. There is a possibility that the economy could grow to quickly thus sparking inflation which would cause interest rates rise faster than in the recent past.
Increasing rental rates also drive the market as rents have increased by 12% over the past 2 years. Low interest rates and rising rental costs make homeownership a smart move. Whether you’re buying your first home of moving up or down, owning a home is a smart investment.
Rent for a typical 3 bed apartment is $1700-1900 per month according to rentcafe.com
The average sales price of a home in Sacramento is $330,000.
If you put 10% down ($33,000) with a 4% interest rate.
Your Principle and Interest payment would be $1417.
This doesn’t not include property tax and mortgage insurance. Which will add about $400-500 per month. Remember you are also able to write off most of the $1417 monthly payment since it is mostly interest on your tax return.
This may not work for some but if you are stable in your career with good credit and do not plan to move within the foreseeable future this is your best move.
Check with your mortgage and tax advisor.
Bay Area Buyers/Investors
The average home in the SF Bay area is well over $1 million. As a result, it excludes first time buyers from entering the market. Sacramento is located less than 100 miles away and is 40-50% less costly. An unprecedented number of first-time buyers and investors from the Bay Area are also driving values up and supply down. This will continue for the foreseeable future.
What to Watch!
Most industry experts expect rates to continue rising possibly as high as 4.7% by year end. Inflation could spark concerns and rates would likely increase. Buyers would be wise to consider buyer sooner than later.
Rent control could dampen investor demand and there is considerable talk and demonstrations for rent control throughout California. This would have a negative effect from investors both large and individuals. This will soften the market for investors.
I am often asked if I think we are headed for another “bubble”. I like what Pat Shea, President of Lyon Real Estate stated in a recent Sacramento Bee news article.
“In my opinion, the answer is “no” because the previous housing bubble was fueled by bad loans. This time around, there’s much more conservative financing, the interest rates are so low and the appreciation (has been steadily trending upward). There’s no way people are going to lose these houses, especially with rents going up. You could rent for more than the mortgage payment. The housing market is built on a tremendously strong foundation.”
2018 looks like another solid year for both buyers and sellers. Sellers can list their home at fair market value and if priced correctly garner multiple offers within 30 days. Buyers, will not see runaway values. Interest rates will continue to make it affordable.
To discuss selling your home or to purchase a home please drop me a line.
Your Real Estate Advisor
Realty ONE Group|Complete
916-308-7642 or firstname.lastname@example.org