Yesterday, the OFHEO announced the annual appreciation rates for homes across the nation for Q2 of 2007. Sacramento has dropped to -6.07%. Our high was back in Q3 of 2004 at 26.58%. In less than 3 years, that’s a drop in rate of 32.65%!!!!
Ok, what does that mean to you? If you are a seller, you must understand that the value of your home has probably significantly dropped. The annual appreciation rate has dropped 12.58% in just 1 year! The good news is that homes are selling…lots of them. To be among the “solds”, you must price it for today’s market, not yesterdays.
If you are a buyer, it means you are likely to pay less for a home in the Sacramento area than a year ago. Before you dance too high, remember that interest rates are higher than they were a year ago, too. So as usual, it’s a balancing act between interest rates and home prices. If you wait for the market to keep dropping, you may also see the interest rates rising. Where is the balance? Remember, we won’t know where the bottom is until the prices start going back up. So, now is a great time to buy.
Ok, ok, that’s residential real estate, but what is happening with commercial real estate in the Sacramento area? For 1 thing, cap rates are coming up. As cap rates come up, it means prices are decreasing. Additionally, tighter lending guidelines are coming into play. And again, interest rates are going up.
If a property sells at a 6 cap and the rate to borrow money is 6.75%, you have negative leverage, before tax and other considerations. So sellers, if you want to sell and not just list your property, consult a knowledgeable commercial real estate broker who can help you understand the value of your property in today’s market and what it will take to get it sold. After all, once sold, you can move on to your next project.
Buyers, watch those interest rates and be prepared to come in with more money. You may not need it, but it’s best to be prepared. Lenders I’ve spoken with are often talking 65% – 70% LTV, based on actual incomes. That means you are coming in with 30–35% down PLUS closing costs. Again, work with a trustworthy, knowledgeable broker to get a property that meets your objectives. When you find a property that meets your criteria, buy it. And especially in times like this, find a trustworthy lender. Good properties are few and far between. So are good people.
Smith & Associates Real Estate is your Sacramento connection for both commercial and residential real estate.
This entry was posted on Friday, August 31st, 2007 at 12:49 pm and is filed under Commercial Real Estate, Real Estate News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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December 2nd, 2007 at 7:12 am[…] course that’s only part of the story. As you read in Boom or Bust, Sacramento real estate has been continually dropping in value since the market peak of the […]
