The Sacramento Region is seeing a pretty clear shift in the market over these last few weeks. From homes sitting on the market longer (avg 34 days) to a growing number of price drops- averaging 40% throughout the region- there’s a clear change taking place.
Though it may trigger thoughts of a bubble starting to burst (like in 2008) the reality is that we’re in a fundamentally different place than 2008. What we’re seeing is a market in the process of adjusting to higher interest rates which have significantly impacted the monthly payment and therefore the affordability of homes.
For example, a 2,400 sq ft, 4 bed, 3 bath home could be purchased in 2020 for $460K with a monthly payment of $2,500/month at a 2.75% interest rate. This same home today, has increased in value to nearly $600K and would result in a monthly payment of around $4K/month at 5.5% interest rate. That’s a BIG difference!
Now, for Buyers in today’s market that want to keep the payment of around $2,500/month, at 5-7% interest rates, would be limited to homes priced between $375K-$400K. There are definitely homes available at this price point, but they tend to not be 2,400 sq ft, 4bed and 3 bath homes.
OPPORTUNITY FOR BUYERS
It’s this dynamic of affordability that is biggest driver in the wave of price reductions that we’re currently seeing and that we can expect to see until the market adjusts to it. The mistake to avoid is to approach this market with a “well if prices are dropping, then I’ll wait to see how low they go”.
The reason that this can be a big trap for Buyers is that just as prices are dropping, interest rates are climbing and so the end result is a monthly payment that stays fairly high regardless of the drop in price. Additionally, playing the “wait and see” strategy results in Buyers losing out on potential equity while not gaining any ground on affordability.
The big opportunity that exists for Buyers in this current market is a significant drop in competition and, as a result, gaining some leverage within negotiations with Sellers. As homes sit on the market longer and with homes getting only one to two offers, this is the strongest position that Buyer’s have been in for the last two years.
OPPORTUNITY FOR SELLERS
Though the current trends in the market might seem like a negative for Sellers, the reality is that there is just as much opportunity especially if you were thinking of selling in order to buy. The reason for this, is that in the market that we just came out of, your ability to enter into contract with a “subject to sale” clause on your current home tended to lose you ground on the offer consideration list.
Now with homes sitting longer on the market, being intentional about your Selling Strategy can allow you to secure your next home with greater ease. Key to factor into your strategy is the affordability that was flagged earlier in this post.
For example, though your neighbor may have sold their home last year for $600K, to a buyer with 5% down and a monthly payment of just over $3K/month mortgage at 3% this same price at 6% interest rate, now costs a buyer just over $4,100/month. Additionally last year, your neighbor probably received 5-8 offers and closed for well over asking, where as now we’re commonly seeing only 1-2 offers near or below list price.
This doesn’t mean that you have to lower your price to attract the $3K/month buyer, but does mean that you have to be incredibly intentional to know that you have to take the right steps to position your home well in today’s market. Gone are the days of “just put it on the market” and so a successful selling strategy today requires a higher level of intentionality to get the strongest offers.
Ultimately, the strongest piece of advice that I can offer to both Buyers and Sellers in today’s market is to BE INTENTIONAL!
For Buyer’s this means, (1) knowing your numbers in terms of max monthly mortgage payment and cash to close, (2) clarifying what you need versus what you want in your home the next few years, and (3) working with a trusted professional that can guide you at each step of the way.
For Seller’s, it’s key to approach the sale with the following in mind (1) costs pressures are pushing Buyer’s to be more selective, resulting in fewer offers, (2) taking the time to knock out the honey-do-list before going to market will make a difference, (3) getting the insights on pricing and presentation from a trusted professional will be the difference for you selling quickly at top market value or sitting and selling at after a few reductions in price.
Regardless, the secret to a successful Buying or Selling experience in today’s market is working with a professional that understands the market, can show you data and not just provide opinion and that can tap into a trusted network of professionals to make the process simply and smooth.
I’d love to be that professional for you and so reach out via text/phone at 916.507.0493 or by email at [email protected] to set up a strategy that is tailored to you. Hope to hear from you soon!