Business Journal: Analysts Comment on Slow Home Sales

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(Sacramento, CA)
Wednesday, October 26, 2005

What’s going on with home sales in the Sacramento region? 

That question has been a crowd favorite at backyard barbecues for several years. But the answer is less clear as we look forward, now that sales have slowed down. 

Here’s what we have. Traffic at subdivisions’ model homes has been off all year … and new home sales are roughly 7% behind 2004 at this point. One of the region’s leading forecasters, the Gregory Group, which many in the industry look to, projects new home sales easing back by year end, and continuing in 2006, to about 15,000 a year, the normal level first established five years ago. Expect a comparable small slippage in the sale of existing homes too, according to Lyon & Associates, which has its shingle on a lot of curbs. 

What’s curious is that home prices are still expected to rise. Not too much, not like they have. But there’s still a shortage of homes out there, due to all the constraints on builders. It’s not a buyers’ market. 

Keep your eye on interest rates, which by many accounts will rise by half a percentage point by year end. At the Business Journal’s Earlybird Economic Forecast held recently, a senior economist for the Federal Reserve Bank made one thing very clear – the Fed is carefully monitoring inflation. And interest rate bumps have been the Fed’s favorite tool for handling that. 

Bottom line. Mortgage rates will rise still further … meaning people can afford less house … and that could finally dampen the rise in housing prices. A Wells Fargo analyst says we might be seeing 7% 30-year mortgages in the second half of next year.