Modesto, CA
But What Does It All Mean???
Are We Headed for A Recession?
If Chicken Little comes knocking on your door, then tell him to "Go Home!". Although the real estate market has spiked for the last 2 years, it doesn't automatically mean that we are doomed for a crash. We are nowhere near the level of instability that we experienced in the great recession of 2008.
I frequently hear people say, "Well I know someone and they told me that the market is going to crash soon." Frankly, I've been hearing that since before I got my real estate license and it makes sense because it wasn't that long ago. If that person really knows, then please tell them to pick my Lotto numbers because I hear that the Jackpot is getting up there. No disrespect, but nobody can truly predict the future of the real estate market. There are too many factors to consider.
Let's Look At The Facts
What we can do is look at the economic indicators. The interest rates are still historically low which gives buyers purchase power because more of the money is spent on principal payment and less on interest payments. The unemployment rate currently resides around 4.2% whereas the unemployment rate in 2008 was over 7%. At the time of the recession, lenders got a bad wrap doing, what we real estate people call, "pulse loans". What is a pulse loan? Well, if you had a pulse, then you got a loan. Bad loans were given out like candy canes at Christmas time. It was irresponsible and the ramifications had lasting effects; not to mention the PTSD that still haunts many homebuyers to this day. I can't tell you how many people I have met that have told me that they are scared to buy because they think that the market will crash right after. They fear that they will have to foreclose like their parents did, or their friend, or whomever... We all saw it happen; whether it was in our very own family or a friend-of-a-friend. The crash hurt a lot of people.
But we are in a better time now, a more steady, secure, and patrolled system of real estate transactions. The lending guidelines are much more strict now than they were 15 years ago. And for that, we don't see as many foreclosure signs as we used to. In December of 2008, there were 453 homes sold in Modesto; of which 92% were either REO properties (Real Estate Owned) or Short Sales. In December of 2000, only 280 homes were sold in Modesto; this was a more normal rate of inventory sold for this area. Days on market averaged near 45 days because buyers had to acquire bank approval to close on the deal; and it just took more time.
For the past 2 years, we have experienced a hot market but the numbers are still within an average rate of inventory teetering around the 200 homes sold per month. Where we have seen a significant change is in the amount of homes closing over ask price. Back in the early 2000's, we saw 25% of homes sold for a higher price than originally offered, but in the last month these numbers are up to 60% of the homes listed! Home prices in Modesto have substantially increased from an average home price below $200,000 twenty years ago to the new average nearing a half million dollars. The average days on market has plummeted from 43 days down to a mere 2 weeks before going pending. What does this mean for sellers? You can get more money for your home in a shorter amount of time. The low supply and high demand has literally created the perfect storm for sellers and homeowners have been cashing in!
New Construction & Building
Due to the lack of homes available, buyers have been bidding up the prices of houses by tens of thousands of dollars. After months of home searching, buyers can get frustrated when their offers continue to get beat out by higher bids. Some buyers don't want to compete for used homes, they only want new. As per new construction, developing land has become increasingly expensive and time-consuming. The levels of approvals and processes can cause a builder to spend years trying to get a parcel approved before they can ever start building. Additionally, the pandemic has placed a huge strain on the supply chain and construction workforce. It is difficult to find workers to do labor when people would rather stay home on government assistance. As the cost of construction rises, the fees are usually passed onto the buyer resulting in increased sales prices and upgrade pricing. When I started selling new construction homes in Modesto in 2016, homes started with base prices in the low to mid $300k's. Now prices in Modesto start in the $600k-$700k range with hundreds of people piling onto waitlists jumping at the chance to snag one of the few new homes available.
Due to the lack of buildable land currently available, home prices will likely continue to rise. However, trends seem to show that home prices may not increase as drastically in 2022. Either way, if you are considering moving in the next year then I highly recommend that you sit down with a Real Estate professional who can link you up with a great lender who can properly explain your options. You want to lock something in before interest rates go up. It is an amazing time to cash in the equity that you've been building in your current house and to trade up into a nicer and newer home.
Attention Renters!
If you've been renting, this is the time to really evaluate your finances and learn your options for down payment assistance programs to get your foot into the door of your real estate future. It is extremely likely that your mortgage payments will be very close to what you are paying in rent. I can't tell you how many people I have met with that don't think they can afford a home, but then are shocked to find out that they can. This could be you.
With 60% of homes selling for over list price within 15 days of hitting the market, it's direly important to find a Realtor to lead you in your home buying search. Someone that is experienced in the market that you are searching and who has good working relationships with other local agents. Although you can easily search new homes by yourself on Zillow, that's only one part of it. There are many moving parts in real estate transactions. Allow us the opportunity to guide you in making your next move.
Whatever your situation, I am available to answer all of your real estate questions and inquiries. I hope for the opportunity to work with you soon.
**Figures calculated using data from the MetroList MLS. Off-market listings and new builds that are not listed on the MLS were not included in these calculations. Numbers are meant to provide estimates and an overview of the market. Information is deemed reliable but not guaranteed.
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