Expert advice for homebuyers as Sacramento’s real estate market sees a ‘temperature change’

After several brutal months for homebuyers in the Sacramento region, April brought glimmers of hope that conditions might be improving.

The number of homes on the market is on the rise. Fewer homes are attracting intense bidding wars. Home prices dipped slightly in April after a red hot start to 2022.

“We’re starting to see a real temperature change in the market,” said Sacramento real estate market analyst and appraiser Ryan Lundquist.

The shift in the market is subtle. Some buyers still find themselves on the losing end of bidding wars. Attractive homes might be getting a little less attention, but they’re still receiving multiple offers. Prices are flat in the Sacramento region but are still around the highest on record with a median home sale price of $617,000.

“For a market that’s cooling, it sure doesn’t feel cool to the buyers whose offers aren’t getting accepted,” said Erin Stumpf, president of the Sacramento Association of Realtors. “Honestly, our market needs a temperature change. It’s been this fever pitch for a long time and that’s not healthy for the market.”

We asked local market experts what buyers should expect as spring turns into summer and they gain a little more leverage than they had just a few months ago.

When will prices go back to normal?

Sacramento realtor Tim Collom’s team sees signs the market is starting to normalize for many buyers. Homes that were getting five to 10 offers earlier this year are now attracting one or two. And instead of offers coming in well above the list price, more homes are selling for the asking price.

The stats back up what agents see in the field. The percentage of homes sold below the list price ticked up slightly in April, according to Lundquist’s data. The available inventory of homes for sale has also gone up and is the highest it has been since the summer of 2020 (although it’s still low). Meanwhile, the number of sales in the region was down, a sign that buyers might be getting more picky.

“The market is starting to show some signs that things are changing,” Collom said. “It’s a very strong market right now, but it’s not like the ballistic market of two months ago.”

Foot traffic at open houses has slowed, as only serious home hunters venture out, he said. Buyers are becoming more successful with bids at listing prices and aren’t being forced to hand over down payments of 40% or more.

“We’re seeing signs of the sellers’ market softening a bit,” Collom said.

Stumpf said there are signs of cautious optimism that July and August, historically slower months in the market, could “see something close to normal.”

About 70% of home sales recorded in the region in April had multiple offers, Lundquist said. But that percentage may also be declining; Lundquist said about 58% of pending sales in late April had more than one offer.

“As we’ve gotten a little more inventory, buyers have more selection and you’re seeing a market that overall is slightly less aggressive,” Lundquist said.

What to know about mortgage rates

Mortgage rates have gone up significantly since the start of 2022. The typical rate on a 30-year fixed mortgage is hovering around 5.25%, up more than 2 percentage points from just a few months ago and adding hundreds of dollars to monthly payments.

That’s the highest rates have been since 2009. But go back just a year or two before that, when Sacramento and much of the nation was navigating a real estate bubble burs and rates were even higher.

“Rates on average are still very good,” Collom said.

His advice for buyers tying their purchasing plans to mortgage rates?

“The sooner you get in, the sooner you’ll get a better rate,” he said.

LeAnn Yang, a real estate agent with Flyhomes, said buyers should do their homework on mortgages.

“Shop around,” she said. “Go to your personal bank, go through your employer because they may have a partner lender. You can use that work to negotiate.”

Dean Wehrli, a principal with the John Burns Real Estate Consulting firm, said he sees more buyers going for adjustable rate mortgages. He said it’s a good option for some buyers to consider given that seven-year adjustable rates can run about one percentage point lower than 30-year fixed mortgages.

“You’re gambling a little that some time (in that seven years) rates will be good again or you’ll be able to sell your home,” he said. “But I think it’s a pretty safe bet.”

More Sacramento homebuying tips

Do your homework. Be patient. Don’t settle. And learn everything you can about the neighborhood you’re targeting in your home search.

“Look at the pending offers right around the corner (from where you want to buy) and expect that homes that you like are going to have a similar number of offers,” Stumpf said. “Buyers need to strategize. Have an agent do some reconnaissance.”

Lundquist said buyers don’t need “to make a rash decision.”

“Watch which properties are getting price reductions,” he said. “Those are the properties where you have more buying power.” He said the market is seeing about 300 price reductions a week.

With inventory on the rise, prospective buyers have more room to take the long view on the market.

“If there’s nothing available, know there’s going to be more inventory on the horizon,” Collom said.

There has been less than a month of available inventory in the region for 22 straight months. That could change by the end of May, Lundquist said.

This story was originally published May 13, 2022 at 5:00 AM.