The Central Valley housing market seems to be finding its new normal, as median home sale prices have bounced back by 8.3% in Stanislaus County since the start of the year.
TrendVision reports from April show a changed market since last summer when the Federal Reserve began aggressively raising key interest rates to fight ongoing inflation. Those increases have more than doubled the mortgage rate from around 3% through much of 2020 and 2021 to now about 6.2%.
But rates have dropped from their peak last September of about 7.1%. While the higher rates and subsequent higher monthly payments have priced some potential buyers out of the market, PMZ Real Estate broker Daniel Del Real said the demand remains high.
“Buyers want to buy not on face value, but on monthly payments. That caused the process to slow down and a pull back at the end of last year. But now they see the inventory is not increasing, but they have a need because rent is going up,” he said. “People were hoping the market would come down, but they see it’s not happening and are stepping back in. You’re seeing almost an adaption to the new normal of the interest rate.”
For the first four months of 2023, median home prices in Stanislaus County were up 8.3% at $455,000 this April, but still down 6.1% from their peak in April 2022 of $485,000.
Del Real said the volatile market caused by inflation and the interest rate hikes had some predicting a dramatic drop in home prices, or even a wave of foreclosures. But neither has materialized so far, he said, largely because many potential sellers have decided to stay put due to their legacy 3% mortgage rates.
That has squeezed the area’s inventory of houses on the market. Indeed, TrendVision reports show that the number of available houses has dropped steadily since last June, when it hit a recent peak of 868 houses on the market. In April that number was down to 351.
As a result, pending home sales in Stanislaus County are up by about 25% in April from March, signaling strong demand despite the limited inventory. Del Real said Stanislaus County traditionally has had a cushion of about four to six months worth of houses on the market. But now as fewer homes get listed, that is down to less than a month and a half of inventory locally.
Since February of this year, the cumulative days on market — the number of days a home is active on the market — have dropped in Stanislaus County from 58 days to 36 days in March, another indicator of the demand for homes in the area.
With spring and summer historically the busiest home buying seasons, Del Real expects transactions to continue to climb while inventory continues to stay low. With the announcement of the Federal Reserve’s last interest rate hike of 0.25% earlier this month, the institution also signaled that the increases could be paused if inflation continues to ease as expected.
Mortgage rates could come down more over the summer, but the market inventory is likely to remain low. So instead, real estate experts like Del Real have been advising potential home buyers to work on deals that will lower their overall rates, instead of just focusing on the total purchase price.
“You have to be engaged in this market. But if you are patiently disciplined, double check your budget and make sure you are using creative negotiations, you can have success,” he said. “Terms are more important than price right now. It’s better to pay $10,000 more for the sale price now, and finance a buy down of your interest rate that can save you $50,000 to $100,000 over the course of 30 years.”