Recession and real estate Sacramento / Placer County

 Here' we are in Aug 2022 and the circus goes on.  Congress just passed the clubbing baby seals act.  Well, they didn't actually call it that but its just as fitting as the inflation reduction act.  Neither name has anything to do with what's in it.  Spend more, get more taxes is the anthem.  I'm not trying to get political here but the policies that we're dealing with have a direct impact on the economy and the real estate market.  The costs will out weigh the new taxes that are squeezed out of the middle class.  Inflation will continue to rise with the policies.  

The federal deficit is a run away train.  It's so bad that no one wants to talk about it.  Trump was able to get the deficit to hold steady for a short term when we were firing on all cylinders, but then covid we released on the world and we printed an addtional 4 trillion.  Game over!  I'd like to have a discussion of how this plays out.  Do we default on China and tell them to kick rocks?  How will this cookie crumble?  Right now we're doggie paddling and hoping for the best.  Biden already raised the debt ceiling once and next year will need to do so again.  We're approximately at 125% debt to GDP.  It's a house of cards!  We're not alone though, other countries are in similar positions.

I wonder if the problem is even worth pondering.  Even if there was a way to correct our direction, will we choose the right path.  Seems to me it comes down to the haves and have nots.  Life's not fair, buy a helmet.

Switching to real estate now, I know lenders are struggling.   Refi's are gone, that leaves purchases and the market is slowing.  Inventory is up and prices are reseeding. We have cycles in real estate, it's normal.  We haven't found the new normal since our 2008 implosion.  It's going to take a couple decades to see a new pattern.  It used to be a 7 year cycle.  Now we're looking like 10-12 year.  Maybe now the gov has got so large that there are more variables in the equation.

In todays market, I would be very cautious about buying a million dollar home.  I guess it's all relative but if our market drops 10%, like it probably will then you had better plan on riding this out.  

Our rental market is still strong.  People need places to live.  Cash flowing an income property is key.  I'm currently looking to build 10 rental houses on Main St in Roseville.  The lots are large enough for an ADU too.  I'm going to plumb utilities for the ADU, that will be phase II.  There is no retirement plan at a realtor, need to have passive income.  

What will next year bring?

2022 recession - real estate market update Roseville Remax

 Seems its been 6 months since I did a market update on my Blog.  To start this year I was super busy and slammed.  I had 13 deals in escrow at one time and that was a little stressful as I do my own files.  I'm still going strong with 5 in escrow now; however, I sense things are going to hit the brakes.  

Interest rates are on the move and not likely to slow down.  Our gov spending over the Covid crisis was inevitable to come back to bite us.  There is absolutely a cost when you print too much money!  My first econ class was all about supply and demand.  Fairly easy concept...  The problem in lies "power".  The Dems and Reps have lost their way on working together.  The result is the American people getting screwed over.  I'm not saying there are simple answers to the problems we face but it truly feels they are making things worse on purpose.  These rate hikes are necessary to gain some control over inflation.  At what rate will things calm down?  7%, 9%.  My folks talk about the time when rates got up to 20% in the early 80's, a bit before my time but that is hard to comprehend with todays prices.  Sure they were 20%, but houses were around $100K.  A million dollar house at 20% rate would be insane.  A viable change they could do is to remove the cap of 10K property tax deduction.  I'm not a wealthy person and pay more than 10K in property taxes every year.  That should be deductible on your federal taxes!

In regards to the real estate market, we've seen 10 years of strong appreciation.  I think we all know this ride would come to an end at some point.  A correction is required and I think we've come to the affordability ceiling.  30 year conv rates are at 5.75 right now.  We're going to 6's soon.  At the end of the day can only pay so much on the mortgage every month.  There's only 2 factors in the house payment, principle and rate.  One has to give and we know rates are going up.  Along with rates going up, the cost of everything else is too.  Energy costs are directly linked to the cost of goods.  With the trajectory we're on I foresee prices coming down around 10% by the end of the year.  It's more of a correction that we've been expecting.  To make a prediction though is laughable right now.  We have way too many variables to consider.  The focus for our economy as a whole should be on oil prices.  We need to get a lock down on oil prices.  We're exporting oil now to make more money.  There is greed in the oil business and Biden is exacerbating the problem with cancelling XL pipeline and disallowing drilling/fracking permits.  Trump called it!  If Biden gets in office gas prices are going to be 6-7-8 bucks a gallon.  Gas prices would have jumped on Trump too, but likely around 4-5 bucks.  His better energy policies would help but gas prices aren't that simple.  Russia is playing a roll, no question.  

Feels like I'm rambling here a bit.  I'll try to stay on topic.  It's tough because the politics are bleeding into everything now a days.

The folks out there that are locked in with a good rate in the 2's and 3's are likely to want to sit tight and not move.  Why would they?  I'm one of them and we're locked in at 1.99%.  It's like free money.  I don't want to give that up and get 6% on another house now.  

In the last 4-6 weeks, we've seen a shift in the market.  In the beginning of this year I sold 11 houses in Roseville, all were cash deal.  I had trouble getting those deal together.  Even though we we writing strong over asking cash offers, we were still getting beat out on homes.  It was insane!  A month ago I put a nice single story on the market in Orangevale and I only got 1 CalHafa offer.  For those who don't know what that is, it's a first time buyer with no money.  They needed 20K seller credit to pay for their closing costs.  I'd say that's a shift in the demand.  I have other clients (sellers) who missed the window by a week or two.  They ended up pulling the house off the market and renting because it's not selling.

The honey holes are drying up.  A lot of people did well in the stock market and were able to pull money for a down payment to buy a house.  With the stock market tumbling and peoples 401K's dwindling I think we're heading for a recession.  I'm sure they will announce in the beginning of July, it's official, we're in a recession.  

My advise is to stack chips folks and rain in on spending.  We might be in for a bumpy ride.  Look to keep your monthly costs were you can manage.  If you over extend yourself right now I think you'll be sorry.

For having the best year in real estate with 6 months left to go, I know this seems gloomy.  I'm certainly not the only one thinking things are going to get worse.  To what extent, we'll soon find out. 

Fall 2021 Placer and Sacramento Real Estate Update

 We came into 2021 with all cylinders firing.  We didn't have the typical slow down that we usually have in the winter.  The market has been strong and continues to hold but we've finally seen a dip where the buyers aren't having to get as aggressive on offers in order to procure a property.  I have to tell you it was quite exhausting for buyers and agents alike.  When your buyer is writing around 50K over price, releasing all contingencies and still not getting the property it can be deflating.  You have to consider the appraisal and who wants to buy a house and know you're underwater on day 1.  We seemed to have peaked this summer in July with the aggressive over asking multiple offers.  We still have a shortage of homes and inventory, the demand has cooled down a bit.  

I have been getting a lot of calls from sellers lately and my first question now is if they're moving out of state.  A lot of people are over California!  It has to do with a multitude of things; such as, politics, fires and the ability to work from home now.  People are looking to take their equity and move elsewhere and pay cash for their house.  I can't say I blame them.  That's easy living!

This winter will be a good time for those buyers that weren't able to get a house to get in.  I think we're going to see a "normal" market next year.  When I say normal I mean 2-4% appreciation and a more balanced supply/demand.   New home construction is still going full speed ahead.  Builders are still having supply issues and it's not just lumber.

The one wild card we are facing is inflation.  This isn't just CA of course.  It should be concerning to all on how much money the administration is looking to print.  I don't want to get into politics but economically speaking we're writing checks we can't pay for.  There will be fall out and repercussions for the trillions of dollars printed.  I guess we'll just have to see how the cookie crumbles.

We do have a new curve ball that was added to the mix.  A new bill was passes - SB-9.  Here's a link if you would like to read more:

https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202120220SB9

This bill was passed with the idea that the urban areas need more housing and this will allow certain owners to split their property where zoning wouldn't allow it before.  There are plenty of conditions with this and it's so new that no one is exactly sure how it's going to play out.

 

 

 

Let me know if you have any real estate needs or questions.  I'm happy to help!

 

Chad Phillips Real Estate Broker Associate  RE/MAX GOLD 916-390-1476 | 2998 Douglas Blvd #125 Roseville CA.  95661 |chad.remaxgold@gmail.com | www.RealEstate-Roseville.com LIC # 01405825