Volume is down and inventory is up. Is that a problem? It sounds like a question for a high school Economics class, but here we are talking. Today I want to kick around two quick thoughts and then dive deeply into trends. I hope this helps – whether you’re local or not. Anything to add?
Here are the two big ideas to talk through right now.
This could be a problem: If sales volume continues to slump and inventory rises without buyers absorbing new listings, it could be a sign the market is changing in a big way. No matter how we look at it sales volume has been down lately in Sacramento. This was the weakest September since 2007 as volume was 14% lower than last year, and quarterly volume was down about 6% too. But keep in mind overall the year as a whole has actually seen strong volume, so it’s not like sales have fallen off the face of the earth (but it’s a concern we’re seeing the numbers change over the past few months). Housing inventory is also up and we haven’t seen it this high since 2014.
This could also be a dull fall: Despite the numbers seeming gloomy right now, they’re actually really consistent with what the market showed in 2014 when we had an extremely dull fall season. In fact, quarterly volume that year was down 6% and September volume was weak too. Does that sound familiar? Also, we have a nearly identical level of inventory right now compared to then too. I don’t say this to sugar coat any red flags in the market, but only to give pause and say what we’re seeing right now could simply be a very dull fall season.
We need more time: The truth is we need time to see how the market will pan out. For now we live in the tension of not knowing the future and interpreting trends for the present. My advice? Watch closely, be careful of hyped headlines, and be sure to take a wider view of the market too (let’s not forget 2014).
I hope that was helpful.
—–——– Big local monthly market update (long on purpose) —–——–
Prices actually went up last month. What the? Yes, the market is softening, but prices saw an uptick from August to September. That might seem confusing since we’re talking about the market cooling, but it highlights exactly what I’ve been talking about lately in that you don’t often see a market changing by looking at prices. You see change first in the listings and sales volume – and then prices eventually. This is exactly what’s happening right now.
Normal fall stuff: Last month it took longer to sell, the number of listings increased, and we saw a dip in sales volume. This is what we’d expect to see at this time of year, though the dip in volume was definitely sharp, which is something we’ll watch over time to see if it’s a byproduct of a dull fall or the start of a bigger trend. Beyond volume being down 6% this quarter, all the metrics look fairly normal for the fall. Well, they look normal for a dull fall season, that is.
Momentum slowing: Beyond a seasonal slowing we’re also seeing momentum slowing. I explain it here in a presentation I gave yesterday.
Interest rates rising: One of the reasons why we’re seeing volume slough could be due to interest rates rising. Earlier in the year it seemed buyers ran to the market in light of news of rising rates, but right now it doesn’t seem like buyers have their running shoes on any longer.
Buyers have more power, but not all power: The market is shifting to favor buyers, though sellers still have lots of power. Some buyers hear about a softening market and think they can make lowball offers, but that’s just not realistic. For instance, last month 40% of all sales had multiple offers in the region. That tells us the market isn’t dead despite softening. Buyers, did you hear that? Enjoy your newfound power, but you still have to bring strong reasonable offers.
Listings may have peaked: Overall housing inventory is up as I mentioned above, but it looks like the number of listings is starting to crest for the year. I’ve been watching listings closely over the past few weeks and it seems like they maybe peaked. We’ll know for sure in a month or so. This is exactly what we’d expect to see happen around this time of year, but it maybe seems like more welcome news right now. Let’s keep watching to know for sure.
Being technical about weak volume and inventory: Here’s the thing, we saw a very weak sales volume in September, and it ended up really impacting inventory levels. In fact, when looking at graphs the trend line shot up dramatically last month (see below). But technically what happened was the sales that normally would’ve sold were basically piled on to the number of listings instead, and that’s making the housing supply figure look much more dramatic. Ultimately the number of listings isn’t all that abnormal for the time of year, though if sales continue to dry up over time, then it becomes a much bigger deal to have even this number of “normal” listings.
Pricing lower this fall: Right now at the least it looks like we’re poised to have a dull fall like we had in 2014. These past couple of fall seasons the market simply felt a little more flat, but this year I expect we’ll see a more pronounced price difference between sales in the spring and the fall. Remember, if listings aren’t attracting offers, it’s because the market is no longer biting at that level. What is similar and getting into contract? That’s the big question, and when a fall season is more dull it’s important to be realistic about the need to potentially price lower. In other words, it’s probably not going to be enough to price a property 1% below the height of spring and expect a flood of buyers. Remember, it doesn’t matter what other listings are priced at if they’re not selling. The only thing that matters is what is actually getting into contract. That’s where we see the market.
I could write more, but let’s get visual instead.
DOWNLOAD 63 graphs HERE: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).
BIG QUESTIONS:
1) How did the market change from last year?
2) How did the market change from August to September?
3) What’s happening with inventory?
4) What’s happening with sales volume?
SACRAMENTO COUNTY VOLUME:
Key Stats:
- September volume down 14%
- 2018 volume down 1% (January to September)
- Annual volume down 2% (past 12 months)
- Volume has been strong this year, but it’s definitely down lately.
SACRAMENTO REGION VOLUME:
Key Stats:
- September volume down 16%
- 2018 volume down 1.4% (January to September)
- Annual volume down 1.8% (past 12 months)
- Volume has been strong this year, but it’s definitely down lately.
PLACER COUNTY VOLUME:
Key Stats:
- September volume down 19%
- 2018 volume down 3% (January to September)
- Annual volume down 3% (past 12 months)
- Volume has been strong this year, but it’s definitely down lately.
SACRAMENTO COUNTY (more graphs here):
SACRAMENTO REGION (more graphs here):
PLACER COUNTY (more graphs here):
I hope that was helpful.
DOWNLOAD 63 graphs HERE: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).
Questions: What do you see happening with volume and inventory right now? What are you hearing from buyers and sellers? I’d love to hear your take.
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I’m not sure yet if the sky is falling when inventory goes from 1.85 months to 2.4 months, from 26 DOM to 30 DOM.
So you’d expect to see a bigger change? There is lots of “sky is falling” talk right now and some are saying the market has begun to correct. In my humble opinion some of that talk seems premature. Yet if we had another month or two of sharp inventory increases and sharp volume declines, that would be very telling. All we have is data in front of us though, which means we can change our tune as new data comes in.
“Sharp” is a term that needs more definition.
Equalibrium is 3-4 months inventory. A 43% change in “months inventory” from 4 to 5.6 months would be huge while from about 1.66 month to 2.4 is not.
Prices usually adjust to equalibrium.
Thanks Jeff. You’re right, that is a subjective term. What I’m referring to by “sharp” is a larger increase than usual. I think there is some truth to your statement too. I’m not freaking out about inventory being at 2.4 months right now. It’s historically low and it’s very consistent with the dull fall season we had in 2014 (and pretty consistent with 2015 also). I don’t think we have any data to really establish a trend yet either. The reality is sometimes markets show less volume and sometimes there are increases in inventory. It’s just when the changes are larger than typical, we ought to step back and watch.
I’d say 3-4 months was the old norm, but in today’s market it would be a huge oversupply at 4 months because the market has grown very sensitive to inventory increases. The market can always change in the future and adjust as you say. In short, if next month we saw a “sharp” increase and inventory was at 3.0 months, then I think we’d wonder what is going on. Part of the issue of course here is inventory on paper looks higher simply because sales volume was sluggish last month. It’s not like there are so many more listings because there really aren’t. The problem is we had 200 less sales this September than last September in Sacramento County (and 400 less in the region). This is helping to boost the months of housing supply, though the problem is not having so many listings. The real issue is the existing homes did not sell (which is another issue). Not every September has to behave the same way of course, and frankly September 2014 felt dull and had fairly similar metrics to what we’re seeing today. Anyway, I don’t want to ramble. Please pitch in any thoughts. I always value your take on things.
Great analysis Ryan. We are seeing something similar here in Portland. I like how you described it as a dull fall and I hope that is all it is.
Thank you Gary. Interesting to hear. I’ll have to pay closer attention to Portland trends. I see lots of trends from Seattle, but let’s not leave Portland out of the headlines. 🙂
Time will tell. Let’s keep watching. In the mean time I’m okay with describing the market just as I did above and calling it a dull fall season with some uncertain elements. That’s fair and honest.
Nice thoughts as always Ryan! I’m also seeing an increase in inventory and a larger number of price decreases in my market in the past month. I’m not overly concerned yet. To your point, it is really way too early to be worried. Just keeping a close eye on it. Hopefully the hyped-up doom and gloom reports out there will not influence market participants to react in a way that causes these reports to move from being sensationalized to becoming true.
Thanks Jamie. I appreciate it. Yeah, it’s not so easy to interpret the market when we’re in the midst of a change. But at the same time it’s far too easy to go the easy route and say it’s the “bubble” popping or the market is beginning to correction in a big way. Maybe, but maybe not. We need to do our due diligence of studying the market, reporting trends, and sometimes being okay with saying something different than everyone else too.
The inventory spike lately looks alarming, but I think we have to understand what the increase really means and come to the table with a sense of what is normal and what is not normal for this time of year. Maybe that’s just me, but it seems wise.
For any onlookers, we’re seeing price reductions increase, but we actually have less reductions compared to the market in 2014 though (more than last year though).
I totally agree! We have to look at the big picture. I agree with you also that it takes courage to say something different than everyone else. It does take courage. Although, as appraisers we have to be courageous on a regular basis!?
Great advice to take a “wait and see” approach, Ryan. I think the media usually makes knee-jerk comments about sales data that may or may not pan out.
Thanks Tom. Yeah, the truth is we don’t know the future. I find lots of people look at today’s market and make big claims. They could be right, but the reality is we’ll have to wait and see. I spend many hours studying the market each month, but that doesn’t mean my crystal ball works… 🙂