Its that time again…time for my annual market forecast.  I like to consider March as the turn of the Real Estate year, as many folks begin to think about their real estate affairs this time of year.

Forecasting, to be honest, is just as much about reviewing the past as it is about predicting the future.  How can you know where you’re going if you don’t know where you’ve been?  With that said, its always a scary (albeit entertaining!) exercise for me to review last year’s forecast with what actually took place.

In short, 2013 was a two-faced trip around the sun for the Sacramento real estate market.  From January to June, I couldn’t have been more accurate with my projection of “steady price increases for sellers and challenging times for buyers”.  The market was ON FIRE with average home prices rising 21%, interest rates hitting rock bottom lows, and the number of homes for sale at the lowest point in over a decade.  However, after The Fed meeting on May 22^nd that quickly raised interest rates, the real estate market hit the brakes and my forecast accuracy fell off the tracks.  In the second half of the year, Sacramento home prices only increased 4%, and the number of homes for sale (known as “inventory”) nearly doubled. 

 

 

In hindsight, this second-half slow-down was healthy for the real estate market.  Things had become out of balance and the rally unsustainable.  Now looking forward to 2014, the big question will be are we going to see a resurgence in home prices as Spring nears or will it continue on its plodding pace?

My prediction is we’ll see stable 2014 home prices as both inventory and sold homes increase to remain mostly in balance with one another.  Despite the sharp increase in inventory in recent months, its still low at a level not seen since 2005 (see below).  More sellers will look to sell in 2014 as life events dictate homeowners to move.  Similarly, more buyers will look to buy in 2014 as folks re-enter the market after a prior short-sale or foreclosure.

In short, we should see a traditional market with a healthy balance between traditional buyers and sellers.  Short-sales and REOs will account for fewer than 15% of the market, real estate speculators will gravitate away from California, 30-year fixed rates will hover around 5%, and transactions will be dominated by repeat buyers.  In fact, I couldn’t agree more with Trulia’s Chief Economist who coined 2014 as “The Year of the Repeat Home Buyer.”  The Blue Waters Group is uniquely equipped to help clients buy, sell, and finance all at the same time.  Moving up or down can be an anxious experience, but our clients find having a single, trusted team handling all facets of their multiple transactions makes for a smoother, confident, and successful transaction.

Even a “normal” market requires just as much know-how, expertise, and calm nerves as any other market we’ve seen over the years.  If you or someone you know is considering a real estate transaction this year, I look forward to the opportunity to share my knowledge and experience.

I recently went up to Donner Lake for a beautiful fall weekend. When I came back it felt like I brought the cool air back with me.  The autumn air here in Sacramento feels crisp, healthy, refreshing.

Similarly, the real estate and mortgage markets are cooling off too.  THIS IS GREAT NEWS!  Much like the changing weather, the current market changes are healthy and refreshing too.  After months of sizzling home price increases, we’re beginning to level off.  Interest rates, too, have cooled off and have fallen from their summer highs.  All of this means home buyers, particularly MOVE-UP buyers, have more opportunities to find their next home at a reasonable price.

This past summer we saw an unbelievable real estate rally.  Much like a caged animal, the market sprung from hibernation and jumped with reckless abandon  Sacramento area average home prices spiked 13.8% from April to August!!!  This rally was exciting and, thankfully, unsustainable.  Had we kept on that pace, we simply would have created a market bubble that surely would have popped in the near future.

 

Instead, we’re seeing prices level off, homes sit longer for sale, and more homes available to purchase.  This is incredibly good news for home buyers.  I had several clients who looked to buy a home earlier this year who opted to sit on the sidelines and wait for the market to calm down.  These clients now look very savvy & patient (you know who you are :-), as the coming months should present them a more reasonable marketplace in which to buy.

Furthermore, the interest rate spike we saw this summer is beginning to reverse.  In May & June, the markets were largely expecting The Fed’s influence on mortgage rates to “taper.,” thus sending rates higher.  Now, the expectation is beginning to change.  With sluggish economic indicators and a political stalemate threatening to bring our country to a halt, uncertainty is high.  As a result, fixed mortgage rates have fallen nearly ½% in the last month.

Again, all of this means home buyers are in a much better position to find the right home without the worry of insane, multiple-offer situations.  If you are a first-time home buyer, there’s no need to panic about being “priced-out” of the market in the near-term. If you are a move-up buyer, this balanced market between buyers and sellers is the perfect environment to buy your new home and sell your old home.

As most clients know, our firm is perfectly suited to help you with all of your home buying, financing AND selling needs.  Many clients find this one-stop-shop form of real estate service incredibly valuable and convenient.  For the rest of the year, if you enlist us to help with all three services (buying & financing a new home as well as selling your old home), we will reduce our listing commission by ½%.  On a $400,000 home that’s a $2000 discount!

Thanks as always for reading Matt’s Memos and your continued support by returning to and referring The Blue Waters Group.

Its no secret…home values are skyrocketing everywhere!  Sacramento Home Prices are up 31% in just the last year!  Besides leading to increased home sale opportunities for those looking to move-up, this trend has also led to more and more refinances.  In fact, most of my current refinance clients could not have refinanced just 6 months ago due to low or no equity.  But now, they’re experiencing the benefits that come with thier fast-rising home value.  If you’ve previously written off the possibility of refinancing, then its time to reconsider your options.  Even with only 5% equity, homeowners with credit scores over 740 have options to refi to 30-year fixed rates around 4% with no mortgage insurance.  And you don’t even need to be eligible for HARP to do it.

Speaking of HARP, the Home Affordable Refinance Program (HARP) has been extended through 2015.  HARP offers refinance opportunities for homeowners with no equity (see if you’re eligible).  It was set to expire at the end of this year but the government, in one of its rare recent occasions to agree on something, approved its continuance for two more years.

To make these opportunities even sweeter, mortgage rates remain super low.  I’ve been finding 30-year fixed rates around 3.5% and 15-year rates under 3% for clients with 20%+ equity.*

Bottom line…now’s the time to consider refinancing.  If you contact me this month to determine your refinance options, I will waive the initial credit report fee cost ($25 value).  As I’m writing this post, I have several specific clients that come to mind that should take advantage of these low rates and rising home values.  If I don’t hear from you, maybe you’ll hear from me in the coming days! 🙂  This is the perfect time to refi; I don’t want you to miss it.

*Rates shown are only meant as rough illustrations.  For full rate and APR details, please contact me. I assure you; rates like these are currently available for qualified borrowers

My real estate market forecasts are the most widely read articles on MattsMemos.com.  Their popularity is certainly not due to profound accuracy; in fact, I’m probably wrong more than I’m right.  Nevertheless, it’s been fun for me to take my best-guess and, as it turns out, it’s been fun for my followers to read.  You can read prior year’s forecasts here, here, and here.  But, you’ll get more from reading the one below which also includes home refinancing, buying, and selling tips.  If you like it, share it!  If you disagree with my projections, make a comment…I’d love to hear your thoughts on our CRAZY real estate market.

Refinancing

Everyone (including me) predicted mortgage rates would rise slightly through 2012 as the economy slowly recovered and as the presidential election brought some clarity to the fiscal and political direction of our country.  We were all wrong.  2012 saw lower rates than ever before, largely due to The Fed’s decision to buy mortgages.  When the Fed’s announced they’d steadily purchase billions worth of mortgages until the unemployment rate hits 6.5% (its currently at 7.8%), mortgage rates fell dramatically.  Presently, The Fed is buying $3.7 billion in mortgages every day, yet the industry only originates $2.5 billion daily, essentially meaning mortgages are “selling-out.” Simple economics dictate that regardless of if its a mortgage investment or a bunch of bananas, when a product sells out due to high demand, prices rise (just think of skyrocketing prices in New England right now as there isn’t enough supply to meet the demand of frantic buyers preparing for the blizzard!).  When the prices of mortgages to investors rise, the rates to borrowers fall.  As long as The Fed stays the course on buying every mortgage off the shelf, we will see these low rates remain throughout this year.  Currently, 30-year fixed rates are around 3.75%.  However, economic conditions around the globe are improving, and with brightening economic forecasts both at home (our real estate rebound will do wonders for America’s economic health) and abroad (many believe the worst of Europe’s fiscal woes are behind them), rates should increase from the record lows we saw last year.

More importantly, accessible programs (like the Home Affordable Refinance Program – HARP)  and rising home values (much more on this below) are allowing more folks to refinance as we march through 2013.  According to statisticians much smarter than me, 4 million more Americans are eligible to refinance today compared to last year simply because their home is worth more now.  If you’ve tried to refinance in the past but hit hurdles due to your home’s value, be sure to check back again.

Read these tips if you’re hoping to refinance this year

Home Buying

After 6 years of having the negotiating advantage, home buyers last year suddenly found themselves competing over a short-supply of homes for sale.  I foresee this feeding-frenzy dynamic to continue well into 2013…possibly beyond.

Sacramento County home prices rose 20% in 2012, so many sellers are less inclined to put their homes up for sale if they believe their home will continue to be worth more in the near future.  Furthermore, there’s much pent-up demand from home buyers, including ones who are now eligible to purchase after a short-sale or foreclosure.  Real estate investors also make up a big portion of the home buyer pool as they see big profits in real estate from both a strong rental market and swiftly rising home prices.  In conclusion, the imbalance between strong demand and weak supply should continue this year, leading to further steady price increases for sellers and challenging times for buyers.

If you expect to be a buyer in 2013, here are a few tips:

Home Selling

Home sellers are finally back in the driver’s seat, and likely will remain there through 2013.  Due to rising home values, many once upside-down homeowners are discovering they can now sell and break-even.  “Traditional” sales by sellers with equity now comprise over 60% of home sales, compared to only 34% from just two years ago.  Furthermore, bank-owned sales are down nearly 90% from 2010, thus showing signs banks are foreclosing on and, more importantly, re-selling significantly fewer homes.

In my opinion, the fear of banks’ “shadow inventory” is grossly exaggerated as many banks are trending to renting out their foreclosed homes or selling homes in bulk to investors who also turn many of the homes to rental properties (this recent Bloomberg article discusses this trend in detail).  Bottom line, 2013 will afford many home owners to sell after years of riding out the market, and to command higher prices than the last neighborhood home sale before them.

Here are a few tips for Home Sellers in 2013

To wrap up, 2013 will see rising home prices, stingy levels of inventory, and slightly elevated interest rates.  It should be a very healthy year for real estate, and likely be the catalyst for economic growth in many other sectors.  The Blue Waters Group is honored to stand alongside you in your home buying, selling, and refinance transactions in the year ahead and beyond.

As always, thank you for reading.

-Matt Sundermier, Mortgage Broker & Real Estate Agent
Owner/Broker of The Blue Waters Group
Two-Year Winner of Five-Star Awards as featured in Sacramento Magazine