Winter Months for Sacramento Real Estate Offer a Window

Wicker patio chairs and table near garden after rainingThere’s a hard rain gonna fall, and I’m not talking about the drought in Sacramento but am instead focused on the real estate market coming up over our winter months. Some people are likely on the fence about whether this is a good time to sell and also buy a home. They wonder whether spring would be a better time, when there is typically more activity, more inventory and higher prices. There is one thing you probably haven’t stopped to consider: interest rates.

Interest rates will lead the real estate market next year in 2015.

When the Fed stopped buying bonds, that’s the long-awaited signal that interest rates will begin to rise. Rates have been artificially suppressed for years. They’ve been held down to stimulate the housing market and the economy but we’re just sitting on a ticking bomb. Sooner or later we have to lift our big fat butts off the rates. 2014 rates are already ahead of the average annualized percentages from 2013. And they will continue to go up.

People forget what a normal real estate market is like. They forget when 9% was considered a very attractive interest rate, or maybe they weren’t born yet. As a real estate agent, I have worked through real estate markets in the late 1970s when interest rates hovered at 18%. Interest rates have a huge affect on a home buyer’s purchasing power. Buyers are often too focused on sales prices when they should also pay attention to interest rates.

If a home seller waits until spring to sell her home and buy another, she might get a little bit more for her existing home, but that upleg, her new home, if she’s moving up, will also under those circumstances cost her more. There is no tradeoff there. Economists are predicting a slowing market for next year with appreciation edging toward 4% to 5%, if we’re lucky. If not, prices might remain stable.

But the one thing that is more likely to move than anything else is your interest rate. Consider this, every 1% increase in an interest rate will roughly lose a home buyer about $25,000 of purchasing power. A 1% bump means you may no longer qualify to buy that $300,000 home and must consider those in the $275K range. It’s not like the old days when you could wait for rates to fall and refinance at a lower rate. Those days are gone. Your window of opportunity is today.

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