Central Valley CA housing market softens as federal rates soar

After nearly two years of booming home sales and pandemic-fueled values, the Valley’s housing market has begun to slow slightly, primarily due to inflation fears and the recent rise in interest rates. ‘interest.

Last week, the Federal Reserve raised its key rate by three-quarters of a point, the biggest rate hike since 1994, to combat soaring inflation. But even before the rate hike, according to TrendVision data, home prices in Stanislaus County have fallen 2% in the past month, from 10.4% year-to-date in May to 8.4% in June.

Daniel Del Real, associate broker at PMZ Real Estate, said rising federal rates and associated mortgage rate hikes will further dampen demand in the region — but not necessarily by choice.

“Demand is still extremely high, but we are seeing demand destruction by increasing tariffs,” he said. “It makes affordability out of reach. This will lead to a slowdown in the market and put more pressure on the rental market. »

The Fed’s decision comes at the start of what is usually the busiest season for the housing market. Del Real said he expects to see some pullback in home prices as a result. But even if these fall, buyers in the area will now have to consider how much rising mortgage rates will affect the final price of their home.

Rising interest rates offset lower selling prices

In many cases, he said, rising rates will cost them even more in the long run than the initial drop in house prices they see. Del Real said mortgage rates were around 4.7% at the start of the year, but now, since the Fed’s decision, they have risen from 6% to 6.5%.

“Buyers will always pay more,” he said. “Buyers are already worried that their money won’t go that far. It’s harder to save because gas prices are up, energy prices are up, food prices are up. And wages do not (follow) as quickly as inflation rises.

The valley’s affordable housing problems, with more people wanting to buy homes than there are available affordable homes, continue despite rising inventory in the area, Del Real said. The TrendVision report shows that inventory in Stanislaus County has increased 57% since 2021, but 5.7% fewer homes have been sold and there were 5.1% fewer pending home sales over the course of of the same period.

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New housing construction at Founders Point by Florsheim and Fitzpatrick Homes on Carver Road in Modesto, Calif. on Saturday, May 14, 2022. Andy Alfaro [email protected]

Del Real said the area’s current housing problems stem from a decade of underconstruction in the county. Several new subdivisions are currently under construction, including some 550 single and multi-family homes being added in the new Founders Point, which has been under construction since last fall in North Modesto. Other projects, such as the Tivoli housing development in northeast Modesto, are expected to add more than 3,100 homes to the planned community when completed.

Advice for sellers, buyers in a changing market

Still, as new home construction continues to lag demand, Del Real said buyers and sellers should be prepared for the market to continue to ease throughout the year. .

“Be prepared for more inventory, less expectation and sales, and lower prices in the third and fourth quarters of this year,” he said.

Del Real said it was still a seller’s market, but not everything would sell quickly and for the best price without work. He advises sellers to get their homes in good shape and be realistic and creative about pricing and what people can afford given rising mortgage rates. Homes are also staying on the market longer, dropping from about four to five days on the market last year to two weeks.

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New housing construction at Founders Point by Florsheim and Fitzpatrick Homes on Carver Road in Modesto, Calif. on Saturday, May 14, 2022. Andy Alfaro [email protected]

For current tenants looking to buy, he advises to be patient and understand how mortgage rates will increase their total costs. Del Real said he expects market volatility to last a few years. If current prices are out of reach, he advises saving some of the amount currently budgeted for a mortgage so they have a better financial footing in the future.

“We had to tell customers 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 a month for a property. Then, over the next two years, they will be in a better position to enter the market. Start preparing today.

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New homes are built by KB Homes as part of the Patterson Villages development in Patterson, Calif., Tuesday, April 12, 2022. Andy Alfaro [email protected]

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New housing construction at Founders Point by Florsheim and Fitzpatrick Homes on Carver Road in Modesto, Calif. on Saturday, May 14, 2022. Andy Alfaro [email protected]

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New homes are built by KB Homes as part of the Patterson Villages development in Patterson, Calif., Tuesday, April 12, 2022. Andy Alfaro [email protected]

This story was originally published June 23, 2022 6:30 a.m.

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Marijke Rowland writes about new commercial, restaurant and retail developments. She has worked with The Modesto Bee since 1997 and covers a variety of topics including arts and entertainment. His Business Beat column airs several times a week. And it’s pronounced Mar-eye-ke.
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