Home prices flatten across capital region as investors depart

Sacramento area home prices flattened this fall after months of dramatic increases earlier in the year, DataQuick reported Wednesday.

A typical seasonal slowdown is part of the reason, the San Diego-based real estate information service said. But the more stable prices are also a product of a greater inventory of homes for sale, higher interest rates and the exodus of investors from the market, said DataQuick analyst Andrew LePage.

After a rapid run-up, we “hit a wall midsummer,” LePage said.

Since July, the median price for all homes sold in Sacramento County has remained at about $240,000, when prices hit their highest level since April 2008, he noted.

That’s still much higher than the same time last year. The county’s median home price was up 33percent last month compared with October 2012. But the big monthly gains that typified the first half of the year have stopped. Other counties in the region have seen a similar pattern.

“The Sacramento County median has basically been flat for four consecutive months.... If you see prices go up, down or sideways for three to six consecutive months, you have a new trend, ” LePage said.

Median prices in Southern California also flattened after peaking in July, while Bay Area prices bumped up in October after falling for several months, according to DataQuick reports released this week.

The factors affecting prices in those areas are the same as in Sacramento: investors withdrawing, and interest rates and inventory rising, the DataQuick analyst said.

“It changes the game,” LePage said. “We’re not seeing as much pressure on prices in Sacramento and other areas of California.”

In Sacramento County, the number of absentee buyers, who are typically investors, plummeted in October to the lowest level in the four-county region in three years. They made up about 29percent of all home buyers, down from 45percent in January.

Cash buyers, also generally investors, fell to the lowest level in five years, LePage said. All-cash deals accounted for about 25percent of home purchases in October, compared with 43percent in February.

Investors – from mom-and-pop landlords to bulk buyers such as the New York investment firm Blackstone – helped push prices skyward as they scooped up thousands of foreclosed and cut-priced homes to rent out. But as prices rose this year, their activity decreased sharply.

“It looks like the investors can leave the market as fast as they arrived, if not faster,” said economist Jeffrey Michael, head of the Business Forecasting Center at the University of the Pacific in Stockton. “With higher prices, the rates of return are not quite so large. It’s natural for them to pull back.”

At the same time, more homeowners listed their homes for sale, lifting the number of properties on the market from record lows earlier this year. Rising interest rates meant buyers couldn’t afford to pay quite as much, another factor that put downward pressure on prices. Average rates for 30-year, fixed-rate mortgages shot up from about 3.5percent in May to 4.5percent in July, according to mortgage giant Freddie Mac. More recently they dropped to around 4.1percent.

Meanwhile, the number of homes listed for sale in Sacramento County rose to 2,659 in October – a 170percent increase over the all-time low of 984 in January, according to the Sacramento Association of Realtors.

There are now about two months of inventory on the market, meaning it would take that much time to sell all the houses. At the low point, there was less than a month of inventory.

Anything less than three months of inventory is generally considered a sellers market.

As prices have stabilized, sales have remained relatively strong, said Pat Shea, president of Lyon Real Estate. He said the four-county region has been averaging about 2,400 sales per month since July.

Meanwhile, the median sales price for El Dorado, Placer, Sacramento and Yolo counties has remained at an average of around $285,000 for the past four months. The rise in inventory is a big reason, he said.

“That’s what will flatten out the median,” Shea said. “Buyers have more options.”

Well-priced homes are still selling fast, he said.

Michael, with the University of the Pacific, said he regards the flattening prices as good news for the region. Last year he predicted a steep correction of up to 30percent in prices that had fallen too low relative to area rents. But he began to worry that the momentum of the region’s boom-and-bust market might push prices too high and make homes unaffordable for many buyers.

“Stabilizing prices at this point is a positive,” the economist said. “It’s an opportunity for people to get into homes with less investor competition in a fairly priced market with very attractive mortgage rates.”