Extreme Cold is Slowing the National Housing Market
No matter where you live in the United States chances are you aren’t immune to the freezing cold temperatures that have been sweeping the nation this winter. Even the warmest climates are reporting record low temperatures.
Well it seems this is not the kind of weather that leaves consumers excited about going out and shopping for a new home: CoreLogic’s January Market Pulse and December Housing Price Index reports tell the story. Even though national prices are up nearly 12% from December 2012, those same numbers are actually down 0.1% from the month before. Meaning that housing prices continue to remain frozen throughout this winter season.
What’s more important to note is the prediction that prices in January 2014 are going to represent a 0.8% decline from December 2013. Based on their month-over-month decline in December and minimal increases since September, the result is home prices are actually dipping below the prices reached in 2013.
Sacramento-Roseville Housing Market Shows Room for Growth
The trend does show that the rate of housing price increase is slowing, but the most telling number is that nationally the housing price index is still 18% below its peak reached in April 2006.
And even though California and the Sacramento-Roseville metro area have seen year-over-year increases of around 20%, their respective housing price indices still remain further from their peaks than the national market. According to CoreLogic’s January MarketPulse Report, California’s HPI remains 21.3% below its peak and Sacramento-Roseville real estate has even more room for growth as it remains 33% below its peak.
To put that number in perspective, home prices in the Sacramento-Roseville metro area would need to increase by 50% to equal its peak price reached during the housing bubble in 2005.
But who knows how much longer the cold will keep the prices of California homes down.
If you’re “In the Market”, it’s time to get Pre-Qualified
If you’re on the fence about buying a home in California in 2014 you should seriously consider getting in touch with a lender to determine what you can afford. The extreme cold is getting the year off to a slow start; use that to your advantage and get in before real estate prices in Roseville and California jump up again. Looking at the national monthly housing price increases in 2013 you can see how rapidly prices begin to increase in the spring.
You might also be thinking, “I’ll just wait till next winter when prices will be lower.” That simply won’t be the case. Remember the report says that housing prices in December were also up 11.8% from December 2012. Those increases being even higher in California and the Sacramento-Roseville real estate markets. The spring heat will be here before you know it, so don’t miss out!
Here is the latest edition of our Placer County Real Estate Recap, from Pizzimenti Homes and Associates. This issue includes a record-breaking luxury sale in Granite Bay, and details on how you can keep yourself safe from fraud, and even ghosts!
Granite Bay Luxury Home Breaks Record, Sacramento Business Journal
Found in an extremely desirable community, Granite Bay luxury real estate is in high demand. With plenty of interested buyers, and low inventory, prices have been creeping upwards for some time now. Selling for $4.725M, a Bella Terra Estates home in Granite Bay has set the record for most expensive home sold in Placer County in the last four years. This notable sale is just another indicator of the local real estate market’s recovery.
Beware of Illegal Contractors, Central Valley Business Times
The Contractors State Licensing Board (CSLB) has cited eight unlicensed contractors for contracting without a license; of those eight, seven were also cited for illegal advertising. Investigators with the CSLB posed as property owners interested in trade work. Unlicensed contractors can only accept projects valued at $500 or less in combined labor and material costs, and these contractors were bidding on jobs in excess of $10,000 for a bathroom tile job and even $15,000 for landscaping.
The CSLB had help from the Statewide Investigative Fraud Team, the Placer County and Amador County District Attorney’s Offices and the Department of Consumer Affair’s Division of Investigation in this bust.
The CSLB warns both residential and commercial property owners to beware of phony contractors. Before hiring a contractor, be sure to visit the CSLB’s website (see link below) for resources designed to protect consumers from fraud.
Is My House Haunted? Does The Seller Need To Disclose A Death in the Home? Roseville Patch
How would you feel if you found out that someone had died in your recently purchased home? What if it was the site of a violent crime or paranormal activity? Home sellers are not always required to disclose this information, and it pays to do your research.
Know your rights. In the State of California, if a death occurs on a property more than three years prior to the sale, the seller need not disclose the information unless the interested buyer specifically asks. Unfortunately, even with this requirement, some sellers and even their real estate agents try to hide information that may deter buyers, and because of this it may be worth doing some external research of your own to avoid any unpleasant surprises and lawsuits.
It was for this reason that DiedInHouse.com was born. For $11.99, you can search for the specific home you’re interested in purchasing and find out of there was a death in the home. It is well worth knowing this information for your emotional well-being and your wallet: houses where a murder or suicide have occurred can take 50% longer to sell, and close at an average price of 2-4% less than comparable homes. The stats for homes where a well-publicized murder took place are even bleaker; these homes sell for 35% less.
According to S&P and CoreLogic Housing Price Index numbers, home prices continue to show strong growth over the past year with record year-over-year increases in many cities. Some cities are seeing increases as high as 20% versus the same month last year. These numbers are likely to remind some of the “pre-bubble days” when increases such as these were seen for several years in a row. However, you have to look a little closer at the data to see what’s really driving these numbers.
Why Did the Crash Hit Some Cities Harder than Others?
The answer to that question has to do with a number of economic factors, though there are similarities amongst the cities that saw the biggest losses in the crash. The cities that were hit hardest by the market downturn are also the cities showing some of the best growth in value according to the S&P/Case-Shiller Housing Price Indices.
Let’s take a look at three cities that posted large increases in May 2013 versus May 2012. Phoenix saw a 20% increase, Vegas 23%, Miami 14%, and San Francisco had an impressive 24% gain. If we graph these cities over the last decade, it’s easy to see how high prices rose and how far they fell.
SOURCE: S&P/Case-Schiller Housing Price Index
When compared to the National average you can see that all three cities showed increases far greater than the National trend. What we see is that homes in areas that experienced rapid growth were the ones hardest hit by the market downturn. Cities like Miami, Phoenix, and Las Vegas all saw tremendous growth in the last decade and were overdeveloped in many cases. When developers in these cities saw the rate at which home prices were increasing they were quick (and careless) in taking advantage of the abundance of inexpensive land.
SOURCE: S&P/Case-Schiller Housing Price Index
Homes in larger more established cities like Charlotte, Denver, and Cleveland (see above graph) saw significantly less of a reduction in home values from their peak. These cities often have less physical room for growth with little economic justification for increasing prices and are less likely to suffer from overdevelopment. This means that homes in those cities were more accurately priced than those in cities allowing developers to build recklessly. As a result, they saw less of a reduction of value when the market crashed. Even New York saw a relatively low drop during the crash. These cities are also the ones showing the smallest growth in the report, with New York and Cleveland up 3% over last year, and Denver and Charlotte up 9% and 7%, respectively. Even the slowest markets are seeing increases. CoreLogic reports year-over-year increases in 296 of 384 metropolitan areas with the 20 largest areas all showing increases.
What does this mean for the homebuyer?
The areas strongly impacted by the crash represent a great value. Homes in those areas are likely to be very reasonably priced and are often priced exceptionally lower than when they were constructed. This means homebuyers can get a great deal on a home, or even a luxury estate with every amenity, with confidence the home will continue to increase in value.
Here in Placer County, the city of Lincoln grew at of over 300% in the last decade and was the fastest growing city in the country. As a result, a number of large developments were built in the southeastern region of the city. Many of which offer impressive homes in gated communities at significantly reduced prices.
Do Strong Price Increases Mean We’re Headed for Another Bubble?
The following infographic tracks Housing Price Index by state over the last decade to reveal the beginnings and effects of the housing bubble on U.S. housing prices.
In 2003, housing prices had already been going up for several years and, as the graphic illustrates, and they continued to climb strongly through 2006. It took the U.S. housing market several years of hefty gains to build up enough air to cause the bubble burst we experienced. Indeed this concurs with the CoreLogic report finding that U.S. housing prices are still 26% below their June ’06 peak. Take a look back at the S&P National Housing Price Index to see how far away we still are from the dizzying heights of the bubble.
How much will rising prices impact your mortgage payment?
Even with the price of homes increasing, interest rates are still quite low. The government is doing everything it can to energize the economy and that means borrowing money is cheap. It should be noted that a $10,000 increase in the value of a $500,000 home would represent roughly a $50 increase in the monthly payment with a 4% loan, whereas a 1% increase in the interest rate from 4% to 5% on a $500,000 loan represents a $300 monthly increase in the mortgage payment and over $100,000 in additional cost over the life of the loan. Wow, that’s huge!
It’s amazing how much of a difference 1% can make. Try it and see for yourself using our convenient Mortgage Calculator.
Simply put, the fact that home values are increasing is a great sign. A healthy housing market is one where home values increase responsibly and in response to economic conditions, not one where speculation and questionable lending practices drive home values up rapidly while median incomes are decreasing.
That’s right! Even with increasing housing value it’s still cheaper to buy, pretty much across the board. Home prices have been on the rise in 2013 but rents are still high in California and across the nation. Trulia’s March 2013 Rent vs. Buy Report shows that buying a home in the top 100 metropolitan markets is still less expensive than renting, demonstrating just how expensive renting can be. Trulia’s interactive map allows you to graphically access the report’s results and is quite informative and fun. It shows that even with a loan at 5.5%, San Francisco is the only market where it would be cheaper to rent if you stayed in your home for 7 years.
Rent Continues to Increase Nationwide
So why is it still cheaper to buy than to rent if housing prices have been increasing steadily? Because most people are still renting. The Zillow Rent Index shows consistent increases in rents in California, Sacramento, and San Francisco, among many others, over the past two years. Would-be homebuyers wary of the economy and the housing market are opting to rent. This is helping drive up the cost of renting nationwide. Large metropolitan cities like nearby San Francisco and Oakland have been hit particularly hard by increasing rental prices. It seems like the shadows of the housing crash are still looming over us as buyers’ fears of a second downturn continue to have unexpected effects on the housing market.
It’s not just the big cities feeling the squeeze. In some cases the average rental price in Placer County for a 2 bedroom unit rivals prices in San Francisco County. While residents of San Francisco may find themselves with no other options, as housing prices remain relatively high in the city, renters in Nevada and Placer County do have another attractive opportunity. With the allure of affordable housing prices, cities such as Roseville, Rocklin, and Granite Bay are likely to see an increase in home purchases as many buyers’ worries are quickly overshadowed by the weight of their monthly rent payments.
Higher rents mean it’s a good time to be a landlord as well. If you are looking to purchase a second home as an investment property, now is an excellent time. With a low interest rate on a mortgage and the ability to earn top dollar from tenant rents, it is easier to see greater returns from an investment property.
Stop throwing your money away on Rent!
Today’s housing market has a lot going for it: increasing rents, record low interest rates, drastically reduced down payments, and (most importantly) reasonably priced homes. The latest CoreLogic Housing Price Index reports housing prices are still more than 20% below their pre-bubble peak. Regardless of what the market is going to do tomorrow, the conditions today are hard to ignore. Going back to Trulia’s interactive Rent vs. Buy map, we can see that with a 4.5% mortgage and five years invested in a home it’s 22% cheaper to buy a home than it is to rent in the Sacramento Metropolitan Area. That is hard to ignore.
The next quarterly Rent vs. Buy report is due out soon. Will average rental prices continue to climb or will increased demand in the sales market finally start to slow the increasing cost of rent?
Roseville firmly surpasses neighboring Lincoln as the fastest growing city in Placer County. Last year, Roseville grew by 1.2%, which is above the state average of .8%, and is more than double the growth rate of Lincoln, the second fastest growing city in Placer County, with a population increase of .5%. The city of Lincoln previously held this distinction as its rapid expansion during the last decade earned it the title of “Fastest Growing City” in the country in the 2010 U.S. Census.
It is likely that Roseville will continue to hold this title as Lincoln’s recent overdevelopment has lowered home values in that city, making it less attractive to developers looking to see big returns from their investments. With Roseville’s attractive real estate market, thriving economy, abundance of urban amenities, good schools, and room to expand, the city looks like it should see steady and continued growth in the future.
Despite having housing prices that are higher across the board than the national average, California’s population continues to grow even during uncertain economic times. It is important to remember how vital the California Lifestyle is to our economic well-being. As an increasingly densely populated state we need to keep our eye on responsible and sustainable growth lest we experience the effects of wide-spread overdevelopment.
Homes in Roseville are found in is the last ‘urban’ community in Placer County. The Sierra Nevada Foothills offer far more suburban and rural accommodations than the areas surrounding Sacramento. With more than twice the residents of neighboring cities in Placer County, a strong revenue base, and a variety of shopping and entertainment attractions, Roseville will continue to be the magnet city for the region and the leader in growth for Placer County.