Let’s do a quick recap of how real estate unfolded in February in Sacramento County. There are two ways to read this post: 1) Briefly scan the graphs below in 30-ish seconds; or 2) Take a few minutes to digest the graphs and commentary.
Sluggish Sales: It’s normal for there to be less sales during colder months, though overall the market has felt sluggish. That’s my take and many real estate agents have also been talking about how the market has seemed to lag since the beginning of the year (though conversations are beginning to discuss the market heating up for Spring).
Similar to January: Sales were fairly similar to January in that there were only about 950 sales (single family detached). This number will go up slightly in coming days as more sales are reported, but it’s strong enough now to say this past month was fairly similar to the previous month in regards to sales volume.
Median Price Increase: The real estate market bottomed out in early 2012 after many years of decline, and the graph above charts the market rebound. The median price since January 2012 has risen from $160,000 to $259,000 and last month saw an increase from $240,000 to $259,000. Technically we could talk about how real estate increased by 8% last month, but sales volume has been REALLY low, which makes the median price weak since there aren’t as many sales to pack into the data set. So take this huge increase with a grain of salt. We could also say the median price has not been at $259,000 for six years either, but let’s try to avoid sensationalism based on one month of data during a Winter season that had VERY few sales.
Story of Inventory: Inventory is now at 2.5 months, which means on a monthly basis there are enough listings to satisfy two-and-a-half months worth of buyers. This is still a low figure, which leaves some room for very decent competition (but not the blood bath of last year when inventory was at one month). Keep in mind there are about 2300 pending listings right now too, which is a huge number. Some of these pending sales will of course fall out of contract, but many should close to help boost an increase of sales in March (which is the norm in Sacramento County).
Interest Rates Dipped: Interest rates saw a slight decline from January. When rates began to increase between May and June last year, it really impacted the real estate market and definitely helped to cool off values (investors began pulling back around the same time too). The market is definitely sensitive to the direction of interest rates and inventory in particular, so it’s important to watch trends carefully and consider the implications for the future.
Layers Working Together: I know I am constantly talking about the layers of the real estate market. I don’t mean to beat a dead horse, but watching how trends are unfolding together can help give us clues into how the market may unfold in coming time.
Some Context: If you’re looking for context for price levels, current values are similar to what they were during the first quarter in 2008 and toward the last quarter of 2003. Of course this is for the entire county and specific neighborhoods can vary greatly. Classic neighborhoods tend to be ahead of county numbers and the condo market tends to lag behind county numbers.
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Question: What are you seeing out there in the market? Do you sense Spring fever beginning to kick in or does it seem like the market is still lagging?
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The Costco Principle: Why do smaller homes tend to have a larger price per sq ft? Because they cost more to build. It’s sort of like buying one can of 16 oz peanut butter at your local grocery store for say $4.00, but then going to Costco and getting 96 ounces for $12.00. Just as it can be less expensive to buy groceries in bulk, the same is true in real estate when building. Think about how much less it costs to build a second story on top of a one-story house. During new construction it saves a ton of money to simply add the second level because there is no need for an additional roof, foundation or much infrastructure below because it’s already there. This is also exactly why a house double in size is probably not worth twice as much because it didn’t cost twice as much to build.
Fresh Coffee & Quick Glances: By the way, I’m sure everyone has seen and used the 24 hour market watch widget on your MLS home screen. I recommend looking at this whenever logging in because you can get a quick sense of what is happening in the market. So grab your cup of coffee, turn on your screen and take 10 seconds to scan listings, sales, pendings and price reductions/increases. Over time this can help us stay in tune with the market. Are there more listings than sales coming on the market? How many price reductions are there? This is a good temperature of real estate.
If you ever plan to get a tattoo on your face, call me first. That’s what I tell my two sons. They always roll their eyes and laugh at me when I say this. Of course I’m joking in part because they’re only 8 and 10 years old. But there is still a truth here nonetheless. It’s a good idea to get an outside perspective before making a big decision. There is something about consulting with a friend, family member, professional or even Facebook contacts to help weigh a decision and understand what to do. The same holds true in real estate when it comes to grasping the way the market is moving. When we dig into several different trends instead of just one, we tend to get a more balanced or holistic view of real estate. What do you see in the graphs below?
