Stanislaus County housing market cools, but sellers get creative to fight rate hikes
Home prices in Stanislaus County continue to dip from their highs earlier this year as interest rate hikes and ongoing inflation challenges change the Valley real estate landscape.
Since the Federal Reserve began more aggressively raising its key interest rates in June to battle historic inflation — hiking them by three-quarters two months in a row — the median home price has dipped about 2%, according to data from TrendVision.
The peak median home price in the county hit $485,000 in April but has since slid to $470,000 for July. Prices still are up from the end of last year, when they were at $440,000.
But Daniel Del Real, a broker associate at PMZ Real Estate, said he expects prices through the remainder of the year to give back almost all of their year-over-year appreciation gains — leaving home prices generally flat for 2022.
Del Real said much of the initial impact of the Federal Reserve rate hikes are felt as higher mortgage rates for buyers, which has priced some potential homebuyers out of the market. Sellers, meanwhile, are seeing properties stay on the market longer, and have gotten creative in order to still get their asking prices.
Still, Del Real, said buyers and sellers shouldn’t panic about the changes because we’ve been here before. The current market, he said, nearly mirrors the 2019 prepandemic market. He said back then, there was about a two-month supply of homes for sale, like now, and interest rates were near 5%, also similar to where they are now.
What the market is, what it feels like
“It is still, in technical terms, a sellers’ market, but it feels like a buyers’ market because of the slowdown,” he said. “There was demand destruction because of the rates, but demand is still really high.”
That high demand from buyers also is being driven by Modesto and Stanislaus County’s highly competitive and increasingly expensive rental market. Rents for a 786-square-foot apartment in Modesto hit $1,657 in July, according to RentCafe, an apartment listing service that tracks rental prices nationwide. Comparatively, rents have risen about 37.5% in Modesto since July 2019, according to RentCafe, when the average apartment rental cost was $1,205.
With the Fed rate hikes, mortgage interest rates also have spiked from a year ago, sitting now at about 5.4% when they were about 3.2% in July 2021. To combat that, Del Real said, he encourages sellers and buyers to negotiate a rate buydown instead of overall house price reduction.
Why a buydown is a win-win
Del Real said the deal, which has the seller pay the buyer an amount that is equivalent to a lower rate, saves both sides money in the long run. He said a 2-point interest rate buydown on a $470,000 home costs the seller about $9,000. The new rate would then make a $470,000 home sale feel like a $425,000 mortgage for the buyer, and the seller still comes out $36,000 further ahead than if the asking price had been dropped to the lower level.
“It’s more realistic for the seller to give back 2% than to get a seller down $50,000, so this ends up being a win-win for everyone,” Del Real said. “The seller and buyer both win.”
Del Real said of the 40 homes his real estate group currently has in contract, about 70% of the sellers have contributed to rate buydowns.
As the Valley begins to enter the traditionally slower season for home sales, Del Real said he expects home prices to continue to decline this fall, but not at dramatic 10% to 20% levels as in past crises. Instead, he said more sellers will simply decide to take their homes off the market instead of dropping their prices.
“If rates continue to go up, sellers will stay put. They’ll be house locked,” he said. “So we will naturally see homes come off the market, we will see a slower transactional market. That is unless we get a recession with job loss, then all the cards are laid out. But as is we’ll see a slowdown in sales and increase in rents. General affordability will continue to move the market.”
