Residential real estate heading toward normalcy – Sacramento Business Journal – The Business Journals

As the frenetic buying market of the Covid-19 pandemic fades, residential home sales appear headed toward more of an equilibrium.
You could almost call it normal, said Pat Shea, CEO of Lyon Real Estate, but you’d have to redefine a bit what now constitutes a normal market. Inventory of two to three months might be the balancing point now, half of what it used to be, he said.
“A lot of people refinanced to 3%,” he said, giving those people little incentive to buy at a higher interest rate now. Along with the people who also bought homes at that rate in recent years, and the higher-than-normal sales volumes of 2020 and 2021, there’s likely to be fewer homes for sale in the next few years than going by the old rule of normal, he said.
According to Lyon’s new report, sales in August were 16% lower than a year earlier, and also about 10% lower than even August 2019. Inventory is also lower than it was in 2019 and 2018.
But new open escrows jumped by 23% from July 2022, suggesting buyers have begun adjusting to higher interest rates, Shea said. Over a 50-year period, the average interest rate was just under 8%, compared to the 6.5% interest rate found these days, he said.
Over the rest of 2022, factors such as more millennials forming households and economic fundamentals like employment and wages will dictate ongoing activity, Shea said.
“As long as the economy remains stable, I think we settle into a reasonably stable market,” he said. “We’ve seen stops and starts already. Interest rates jump and people take a bit of a pause.”
When that happens, buyers adjust their expectations, and sellers do likewise. Shea said he’s also heard of more new homebuilders giving concessions to keep activity going.
The median sales price in the Sacramento region in August was $600,000, according to Lyon. That was 5% higher than a year earlier.
Also, homes priced above $1 million saw 160 new escrows in each of the months of June, July and August. Homes at that price point are often bought by people relocating to the Sacramento region and bringing equity, higher incomes or both from elsewhere.
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