Page 6 - SellerGuide

State of the Market
Understanding the state of the real estate market requires two perspectives, nationally and local. Nationwide, the housing market has appreciated aggressively over the last several years more or less across the board. Interest rates are still low making borrowing cheap for buyers, while demand continues to outpace
new construction as home builders are still attempting to recover from supply chain shortages instigated by the Covid-19 pandemic. As anyone with knowledge of economics knows, when demand exceeds supply, only one thing can happen-rising prices. At the beginning of 2019, the S&P Case-Shiller Home Price Index was around 212, and by the end of 2021 it had risen to just under 279, representing a 36% increase in prices in just three years1. Despite this high appreciation, the National Association of Realtors Housing Affordability Index decreased but only slightly, from 159.7 to 147.1 over that same period2. Note that an index over 100 signifies a family with median income can afford a median home price. So despite homes become slightly less affordable, this was partially offset by a drop in the national average 30 year fixed rate mortgage from roughly 4.5% to just over 3% by the end of 20213.
At the local level, the Sacramento region has been no exception to the trends seen on the national level. Over the last five years, months of inventory has steadily decreased and has remained at or below one month since 2020. Months of inventory is a measure of how long it should take to sell all homes currently available if no other homes were listed for sale. Generally speaking, anything below three months is considered a “Seller’s Market”. With months of inventory being at such low levels (below 1), you can see a significant piece of the appreciation puzzle is very few homes for sale, driving up competition amongst buyers.
A common question that many people have about the housing market is whether this market is similar to 2008? It’s very important to understand that there are significant distinctions to make between the housing market today with the housing market in 2008. Most notably is the fact that mortgage lenders are far stricter today than they were in 2008. In 2008, it was common for borrowers to take on mortgages they couldn’t in fact afford as most banks would allow stated income loans which didn’t require income verification. Also notable, is the fact that most mortgages issued in the last 10 years are now low fixed interest rates, while many of the defaults in 2008 occured because borrowers were taking on variable rate mortgages, which became unaffordably high after the teaser period expired and the rates reset. None of this is to say our current market can’t slow down or even reverse itself somewhat. That’s always possible. But it’s important to recognize that the current housing market is much different than in 2008.
1 S&P Dow Jones Indices LLC, S&P/Case-Shiller U.S. National Home Price Index [CSUSHPINSA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CSUSHPINSA, April 3, 2022.
2 National Association of Realtors, Housing Affordability Index (Fixed) [FIXHAI], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred. stlouisfed.org/series/FIXHAI, April 3, 2022.
3 Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MORTGAGE30US, April 3, 2022.
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