We’re seeing more price reductions lately. Does this mean the market is starting to collapse? Are things beginning to turn? Is this 2008 all over again? I’ve been getting great questions like this lately, so let’s talk shop.
Teaching my favorite class: On September 28th from 9am-12pm I’m teaching my favorite class at SAR called How to Think Like an Appraiser. It’s three hours, which sounds painful, but I love this one because we have space to dig deep into comp selection and adjustments. Sign up here.
5 THINGS TO KNOW ABOUT PRICE REDUCTIONS
1) Price reductions are normal: It’s normal to see more price reductions from the summer through the fall season. The danger is it’s easy to observe normal trends through a doom and gloom lens. The issue is demand changes from the spring and there is less attention from buyers as people are focused on school, vacation, and getting into a fall rhythm. It then takes sellers a bit to adjust their expectations and find proper pricing in a cooler market.
2) Anything can be overpriced: Over the past week in Sacramento there were price reductions in every single price range. This tells us it’s possible to overprice at any segment of the market.
3) Technically the market is NOT way overpriced: The local housing market is seeing more price reductions, but I don’t think it’s fair to say we have an overpriced market. Like I said last week, stats are still not normal as the market is more aggressive than it normally is for the time of year. According to Altos Research 28% of recent listings have price reductions in Sacramento County. Anyway, check out Altos and see Placer, Yolo, and El Dorado too. I don’t pull stats like this regularly, but a figure at 28% sounds about right as it fits with other stats I do pull. I can bore you with details in the comments if you wish.
4) Be careful about judging: The danger in real estate is to think whatever we are seeing with a few properties is what the entire market is experiencing. Maybe. Maybe not. It’s like me noticing several people wearing overalls. Is it a trend or did I just happen to see a few friends reliving their glory days from the 90s? Look, personal experience is really valuable, but it’s important to be sure we’re looking at stats on a bigger level beyond what is in front of us.
5) A closing note for sellers: It’s critical to nail the list price right now and I advise being in touch with the current climate of fewer offers, taking longer to sell, and more price reductions. It’s easy to be infatuated with hot headlines or cling to the idea of fetching a massive cash offer from an out-of-town whale. My advice? Price for the market and see what happens. Don’t price for the unicorn. It’s still a competitive market, so you may be able to get a few strong offers, but it’s not what it was four months ago. Oh, one more thing:
Anyway, I hope this was helpful.
Thanks for being here.
Questions: What are you seeing out there with price reductions? What advice would you give for pricing a property right now?
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I love the price reduction is not a discount statement. I think that’s true at the grocery store as well. I also love the agents that brag about how their listings sell faster than the market average. To me that either means they are selling a properties at a price point that is selling faster than the rest of the market or, more likely, they are listing too low.
Thanks Gary. Oh, listing too low has been an issue at times this year (which is why appraisers need to be really careful about assigning value to the list price). It’s a real strategy of course in the Bay Area where properties will get listed hundreds of thousands of dollars too low. We don’t see that as much here, but we did see a bit more this year for sure. Ultimately I think so much of the country this year got a taste of what the Bay Area market is normally like as chaos ensued in the housing market. Right now I’m actually a fan of listing a little bit lower. I think that’s a good strategy when the market cools a bit. That way there is room for a few offers and to get bid up to market value. In contrast listing a few percent higher than value seems like a good way to generate less attention. But whenever I hear stories of 50 offers and such, I have to think the property was probably priced way low. It’s just not normal to get that many.
The sky is falling! And so is the Sac real estate market 😉
Love the comment, Chicken Little. 🙂
I was going to say that Chicken Little was running around with its head off and trying to cross the road, but I was late to the party. So how about maybe just maybe pricing will actually moving to a more normal stable market with more reasonable well defined pricing, even with Covid-19 and its little variants running around loose. Good stuff now off to Boston and some other fun stuff.
Thanks Brad. You enjoy Boston. I hope you’re going for good reasons. Boston is a magical place. My wife and I went for our ten-year anniversary a decade ago and I can’t wait to get back.
Thanks again Ryan for another well written and thoughtful letter! For me, the news to shout from the mountain top is it’s time for the buyers who couldn’t get into contract earlier in the year to start looking again since their chances are much better now!
Thank you Jeff. That’s a good sermon to preach from the mountain top. There is a bit more hope for buyers these days. I have an agent friend who told me some of his frustrated buyers are back on the prowl now after stepping back.
As always, thank you Ryan for providing such great insight! I am noticing that homes that are priced in the lower $400s are still fiercely competitive. However, I have also noticed a bit of a shift; the last five offers I have written for buyers (above that price range) have actually been accepted! They were not crazy, over-asking offers either and some of them did not even receive a counter offer. A stark difference from May of this year when it took us at least five offers to land one! Not saying things are not still nuts out there but it is somewhat of “a breath of fresh air” for buyers! (By the way – love your humor from last week’s article about your wood floors!)
Adriana
Thank you Adriana. I really appreciate hearing what you are seeing in the trenches. Please keep that coming. I think your experience lines up really well with what the stats are indicating. The market is still moving fast, but it’s not what it was in April. And thanks. I wish I could be a fly on the wall when they pull up the floors. Haha.
Econ 101, Supply and demand:
The historical equilibrium for the real estate supply and demand curve for the SacMetro region is 7 months of inventory. Our market has not even come close to equilibrium in the past ten years. Keep your eyes on Evergrande. It could end up being ten times worse than the Lehman Bros. implosion.
Yeah, supply and demand. Thanks Alex. Seven months? Where does that stat come from?
Following up I’d say seven months seems quite high. Over the past 20 years we’ve seen declining prices any time we’ve had about four months of supply. Right now I think our market could handle 2-2.5 months of housing supply pretty easily. It’s possible we could maybe handle 3.0 months without declines, but that’s really pushing it. It’s possible we could have had a seven-month normal in the past, but I don’t have stats beyond 20 or so years. What I will say is the new normal is much different than the past. Our market feels very sensitive to changes in inventory too so we really feel the difference between say 1.0 months and 1.50 months.