It’s better at the top: Upscale home buyers have advantage in today’s tough market
06/23/2014 12:00 AM
06/23/2014 11:54 PM
For home buyers in the Sacramento region, it’s better at the top.
Anyone shopping for a home today under $500,000 is likely to find frustratingly few choices. Although inventory has doubled from historic lows last year, the region’s most popular price range – roughly $200,000 to $450,000 – remains a strong seller’s market with scant supply compared to demand.
Buyers who can afford a home priced at more than $500,000 are apt to encounter better selection, time to shop and room to negotiate. That’s because supply in the higher price ranges is much greater relative to the number of purchasers.
“At $500,000 and below, you’re going to have consistent competition in the marketplace and you’re going to have to plan to put money into that home to get it where you want it,” said Pat Shea, president of Lyon Real Estate. “In the $500,000 to $1 million range, you’re going to have choices, and you’re likely going to be able to have a turn-key property.”
Ryan Lundquist, an appraiser who analyzes market conditions on his website at sacramentoappraisalblog.com, said it’s not unusual for buyers at the top end of the market to have more choices – and less competition. “It’s normal in real estate to see that disparity,” Lundquist said.
What’s different today is the extremely tight supply of homes at prices most people can afford.
In May, Sacramento, Placer, El Dorado and Yolo counties combined had only about 1.6 months’ worth of inventory in the $200,000 to $300,000 price range, Lundquist reported. By contrast, there were 3.8 months of inventory in the $500,000 to $750,000 category and a year’s worth in the $1 million-plus bracket.
The figures reflect the time it would take to sell all homes on the market in those price ranges. Anything less than 3 months of inventory is considered a seller’s market, while 4 to 6 months of inventory signals a more balanced and healthy market.
Margaret Melville, who runs a small, independent brokerage in the upscale Placer County community of Granite Bay, said there were 40 houses on the market in that area in May in the $500,000 to $750,000 range, twice as many as last year.
“Because of that, the buyers have a lot more choice,” Melville said. “They can go and find the house they’re really looking for that hits everything on their checklist.”
Brian Perry, an agent with Coldwell Banker in Granite Bay, agreed it was a good time to shop for an upscale home, even if some are overpriced.
“I’d much rather shop in the higher end,” Perry said. “There are fewer buyers looking in that price point. There are fewer people with that kind of money.”
Perry represents buyers and sellers across the spectrum, including those seeking homes around $200,000 and selling for more than $2 million.
Two of his clients, Gary Jones and Joanna Chang, from San Ramon in the Bay Area, were looking for a house to retire to in Granite Bay or El Dorado Hills. They toured 40 or 50 houses over a period of weeks and saw a number of homes they liked, Jones said.
One 2,500-square-foot house in Granite Bay caught their attention, but the initial asking price of $600,000 seemed high, Jones said. They decided to wait a few weeks to see if it came down. It did, and they closed on it recently for about $580,000.
“Our feeling was prices in Granite Bay tended to start off on the high side,” Jones said. “If it didn’t sell immediately, then it tended to drift down.”
Buyers seeking homes in the $200,000 to $300,000 price range rarely have the luxury of waiting weeks for the asking price to fall. Many people make offers as soon as houses are listed and still get shut out by competitors.
Holly Neilson, who is renting in East Sacramento, waited anxiously Thursday to hear whether her offer had been chosen among multiple bids on a $290,000 house in Sacramento’s College Greens neighborhood.
“Considering my offer expires in an hour, I’m thinking they’re not jumping at it,” she said.
Neilson already had lost another house she liked to a higher bidder. She said she started looking last year, when there was less than a month of inventory in her price range. That figure has doubled, the Sacramento Association of Realtors reported, but Neilson said she hasn’t noticed much difference.
Last year, she said, “I looked at house after house in multiple neighborhoods trying to find something I liked in a neighborhood I wanted to live in. There really wasn’t anything to make an offer on, just marginal properties with weird floor plans and funky locations.
“This year they say there’s more inventory, but it doesn’t feel that way to me.”
Her agent, Doug Covill, also with Coldwell Banker and a recent past president of the Sacramento Association of Realtors, said Neilson’s plight is common for buyers with limited budgets.
“The sweet spot where most sales are is around $250,000,” Covill said. “That’s where the majority of people are having a hard time.”
Shea said he doesn’t see the situation resolving itself anytime soon. Given lingering impacts of the housing bust and recession, many of those who are in a position to buy homes can only afford so much. Demand will remain strong under $500,000 – and supply limited – until home builders start selling more new homes at affordable prices, he said.
“We have a lot of people employed and being compensated in a way that creates demand for $500,000 and below, but not a lot of salaries that can support $500,000 and above,” Shea said.
“The move-up market, if you can get in there, is going to be a much easier place to be a buyer in the foreseeable future. You will get more bang for your buck.”
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