Central Valley housing market softens slightly as fed rate hike prices out buyers
After nearly two years of booming home sales and values stoked by the pandemic, the Valley’s housing market has started to soften slightly — driven largely by inflation fears and the recent increase in interest rates.
Last week, the Federal Reserve increased its key interest rate by three-quarters of a point, the biggest bump in the rate since 1994, as a way to fight skyrocketing inflation. But even before the rate hike, according to data from TrendVision, housing prices in Stanislaus County have dipped by 2% in the past month, from up 10.4% year to date in May to up 8.4% in June.
Daniel Del Real, a broker associate at PMZ Real Estate, said the fed rate increase and associated mortgage rate hikes will further soften demand in the region — but not necessarily by choice.
“Demand is still extremely high, but we’re seeing demand destruction by increasing the rates,” he said. “This is causing affordability to be out of reach. It will cause a market slowdown and will cause more pressure in the rental market.”
The fed’s move comes at the start of what is typically the busiest season for the real estate market. Del Real said he expects to see some pullback in home prices as a result. But even if those fall, buyers in the region will now have to figure how much the increased mortgage rates will affect their final price for the home.
Rate hike offsets sale prices dip
In many cases, he said, the rate hike will still cost them more in the long run than whatever initial housing price decrease they see. Del Real said mortgage rates sat around 4.7% at the start of the year, but now since the fed’s move are up to 6% to 6.5%.
“Buyers will still be paying more,” he said. “Buyers are already concerned their money is not going as far. It’s harder to save because gas prices are up, energy prices are up, food prices are up. And wages aren’t (following) as quickly as inflation is going up.”
The Valley’s affordable housing issues, with more people wanting to purchase homes than the number of affordable homes available, continues despite increases in inventory in the region, Del Real said. The TrendVision report shows inventory in Stanislaus County has increased by 57% since 2021, but 5.7% fewer houses were sold and there were 5.1% fewer housing sales pending in the same span of time.
Del Real said the region’s current housing issues stem from a decade of under-building in the county. Several new housing developments are now under construction, including some 550 single-family and multi-family homes being added in the new Founders Point, which has been under construction since last fall in north Modesto. Other projects, like the long-brewing Tivoli housing development in northeast Modesto, are expected to add more than 3,100 homes to the master planned community once completed.
Advice for sellers, buyers in changing market
Still, as new home building continues to lag demand, Del Real said buyers and sellers should be ready for the market to continue to soften through the year.
“Be prepared for more inventory, less pendings and sold and a pullback of prices in the third and fourth quarter of this year,” he said.
Del Real said it’s still a seller’s market, but not everything will sell quickly and for top dollar without work. He advises sellers to get their homes in great condition and be realistic, and creative, about pricing and what people can afford given the mortgage rate increases. Houses also are staying on the market longer, up from about four to five days on the market last year to two weeks.
For current renters looking to buy, he advises patience and an understanding of how mortgage rates will increase their total costs. Del Real said he expects volatility in the market to last a couple of years. If current prices are out of reach, he advises saving part of the amount currently budgeted for a mortgage so they will have better financial footing in the future.
“We’ve had to tell clients to wait. I ask clients what would be a comfortable (mortgage) payment for them right now,” he said. “And if it’s $2,700 (and their rent is $2,000), save that extra $700 per month toward a property. Then, over the next year or two, they’ll be in a better position to come into the market. Start preparing yourself today.”
This story was originally published June 23, 2022 at 6:30 AM.
