Market Trends

An underrated metric & slumping volume

December 12, 2018 By Ryan Lundquist 24 Comments

There’s a stat that doesn’t get much love. It’s not sexy, nobody really writes about it in the newspapers, and most people don’t even know what it is. But it’s really important because it helps us tell how hot or cool the market is. I’m talking about the sales to list price ratio. Oops, did I lose you? I know, a topic like this sounds painful, but let’s consider why this actually matters. Then if you’re interested I have a huge local market update below to discuss slumping volume and slowing momentum. Any thoughts?

What is it? The sales price to original list price ratio is one of the best ways to gauge the temperature of the market. It’s the relationship between the final sales price and the original list price, and it’s expressed as a percentage.

If we only had one stat: We could likely get a pretty good understanding of how hot or cold a market is based on this metric alone. So without looking at price, inventory, or sales volume, if we simply saw a market had a 100% sales to original list price ratio, it tells us properties on average are selling for what they listed for. That’s a sign the market is hot or at least buyers are willing to pay what sellers are putting out there.

When we see this ratio moving up or down, it helps us get an idea of what the market is doing. For instance, over the past six months the sales price to original list price ratio has declined in Sacramento County, which tells us the gap has been growing between what sellers are asking and what they are actually getting. The most recent ratio is 96%, and that means on average properties are selling 4% lower than their original list price. That’s a powerful stat, right?

Not being anal, but ORIGINAL matters: It can make a huge difference if we’re looking at the original list price or the most recent list price.

Looking at the most recent list price makes it seem like the market isn’t cooling all that much. After all, a 99% sales to list price ratio still sounds pretty good. Yet this stat hides the real trend that properties on average are actually selling 4% lower than their original price. Thus if we’re not careful we can totally misunderstand the market despite good intentions. That’s sobering, right?

The “Bubble” years:

Right now 96% feels dull, but imagine 87%. Yikes!

Action Step: With so much talk about the market softening these days, it’s a good idea to pay attention to lots of different metrics – and especially the sales to original list price ratio. Keep in mind if the ratio isn’t available through MLS, it can always be run manually by dividing the final sales price into the original list price. For instance, all sales in Sacramento County this month totaled $512M while the original list price for all these sales totaled $533M. When I divide $512M into $533M I get 0.96 (or 96%).

I hope this was interesting or helpful.

—–——– Big local monthly market update (long on purpose) —–——–

Dull is a perfect word to describe this fall season. Actually really dull would be more accurate. Let’s consider some of the bigger themes happening right now in the market.

DOWNLOAD GRAPHS FOR YOUR SOCIAL MEDIA: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy my post verbatim).

A week longer: It’s been taking about a week longer to sell this year compared to last year in the region (technically 8 days).

Prices softening: Prices normally soften during the fall season. If you don’t believe me, look at the graphs below. This year the median price is down by 6% from the height of summer in the region. This doesn’t mean every neighborhood or price range is down by that much, but there is a more defined softening present this year in many price ranges. Sellers would be wise to price according to listings that are getting into contract rather than the highest sales from spring.

Sales volume slumping (please read): Sales volume is only down by 3% in the region this year, but the bigger stat is volume is down 11% over the past four months. This is definitely something we need to watch closely to see how it unfolds. In short, if volume rebounds to normal levels as 2019 begins, then we’ll chalk this slump up to a dull fall season like we had in 2014. If volume persists to decline though we’ll correctly call this a new direction for the market. So is this seasonal or not? I’ll tell you in a few months or so….

Momentum change: The rate of price changes has slowed lately. What I mean is in years past we’d regularly see 7-10% price increases when running stats, but over the past few months we’re starting to see only 2-6% increases instead. I talked about this last month, and the new stats show this same trend.

Ironic power exchange: There has been a power exchange lately where buyers have been gaining market share and sellers have been losing it. Of course we know sellers have struggled with being out of touch with the market as they’ve been prone to overprice. It’s been easy to point this out all year long, but ironically we’re starting to see something similar with some buyers thinking they’re completely running the show when in fact it’s not quite a full-fledged Buyers’ market.

I could write more, but let’s get visual instead.

BIG QUESTIONS:

1) How did the market change from last year?

2) How did the market change from October to November?

3) What’s happening with sales volume?

SACRAMENTO COUNTY VOLUME:

Key Stats:

November volume down 6.5%
2018 volume down 1.4% (January to November)
Annual volume is down 2.1% (past 12 months)

SACRAMENTO REGION VOLUME:

Key Stats:

November volume down 12.1%
2018 volume down 3.3% (January to November)
Annual volume is down 3.4% (past 12 months)

PLACER COUNTY VOLUME:

Key Stats:

November volume down 9.3%
2018 volume down 5.6% (January to November)
Annual volume is down 6.1% (past 12 months)

4) MOMENTUM IS SLOWING:

November:

Past 90 Days:

Entire Year:

DOWNLOAD 100+ graphs: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

SACRAMENTO COUNTY (more graphs here):

SACRAMENTO REGION (more graphs here):

PLACER COUNTY (more graphs here):

I hope that was helpful.

DOWNLOAD 100+ graphs: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: Do you ever use the sales price to list price ratio? Why or why not? What do you see happening in the market right now?

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Seven years of price increases & my blue kitchen island

December 3, 2018 By Ryan Lundquist 16 Comments

Let me get straight to it. I’m excited to share some new visuals. I’m geeking out because these new images help tell a compelling story of seven years of price increases. Whether you’re local or not, I hope you can dig these.

A FEW QUICK THINGS THIS WEEK:

1) Loan Limits: You probably heard conforming loan limits were raised for the third year in a row. This basically helps buyers continue to afford higher prices. I’m not saying that’s bad, but it would be nice if wage growth more than anything was helping people afford the market.

2) Sign the Petition for Appraisers: Last week I wrote about a move to start getting rid of appraisers. This is a big deal with huge implications for the housing market and future escrows. I co-wrote a petition through change.org and I want to ask you to please sign it. SIGN HERE.

3) Cool Graphing Link: On a lighter note, Freddie Mac launched a new graphing tool where you can make quick visuals and even compare different markets throughout the United States. Not every city is listed, but it’s worth checking out and getting lost for a few minutes.

4) My Blue Kitchen: I talked about blue being the rage in kitchens, and I guess my post inspired me. During Thanksgiving break I built a new kitchen island and we painted it blue. Woodworking is definitely a passion and it’s something I do to help keep my sanity. Anyway, this was a fun project and I wanted to share.

SEVEN YEARS ON ONE GRAPH (NEW VISUALS):

Here’s some images for four counties (Sacramento, Placer, Yolo, & El Dorado). What I like is we see price trends for seven years on one graph. It may take a moment to figure out how to digest these images, but look for changes in price and volume over time. So far people who have seen these have noted rising prices and definitely vanishing affordability. Keep in mind they don’t include most of December for 2018, and that could change the look slightly by next month.

What do you see?

SACRAMENTO COUNTY:

SACRAMENTO REGION:

PLACER COUNTY:

EL DORADO COUNTY:

YOLO COUNTY:

SHARE THESE IMAGES: You are welcome to share any of these images in your newsletter, on social media, or on your blog, etc… See my sharing policy for details and 5 ways to share (please don’t copy my post verbatim).

I hope that was interesting or helpful.

Questions: What do think of these images? Which ones do you like best? Any suggestions for improvement? I’d love to hear your take.

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Talking real estate cycles at the dinner table

November 19, 2018 By Ryan Lundquist 29 Comments

Let’s talk about real estate cycles. Are we at the top of the market? Lots of people are wondering, so I figured I’d throw out some charts to help fuel conversation. My goal here isn’t to say YES or NO, but to focus on stats for the sake of discussion. Well, and if you need something to talk about at Thanksgiving dinner besides politics…

CYCLE CHARTS: Here’s some charts to show the annual median price in various local counties. What do you see? Look at price changes and cycle lengths. If you’re not local, what would charts like this look like in your market?

NOTE: The market started increasing in the late 90s, but stats from then are limited. Just know the first cycle above would have been a couple of years longer.

What about the ’70s and ’80s though?

Someone in the comments wanted to see price trends in previous decades, so here’s the 70s and 80s for context from the Freddie Mac Price Index. I’d love to expand my charts above, but I don’t have quick access to mass stats to make that happen. I’ll keep my eyes open though.

THOUGHTS ON REAL ESTATE CYCLES:

1) Up and down: Sometimes we get stuck talking about real estate like it only increases in value, but that’s fiction. The reality is markets go up and down – just like relationships, the stock market, or my pants size. The truth is we see longer periods where prices increase, decline, or persist in stability.

2) The seven-year cycle: Some say the market changes every seven years, which is a nice idea, but there’s no universal rule that says the market has to behave a certain way after a specific period of time. I definitely buy into the idea of market cycles, but I’m not dogmatic about a fixed number of years.

3) Momentum change: Right now as charts show we’re seeing momentum slowing in the market. What I mean is we’re typically seeing more subdued appreciation rates over the past few years. That’s not really a surprise though as affordability is becoming more of an issue with today’s prices.

4) Other: What is point #4?

I hope that was interesting or helpful.

HAPPY THANKSGIVING: From my family to yours I wish you a very happy Thanksgiving. I’m glad we’re in this together and I appreciate our weekly conversations. Over coming days I hope you get some time off and find refreshment. I honestly hope you don’t bring up real estate cycles at the dinner table. But then again if you do, let me know how it goes….

Questions: What do you see in the charts above? What stands out to you most? I’d love to hear your take.

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Is it just me or is the market slowing?

November 12, 2018 By Ryan Lundquist 24 Comments

The market is slowing. We’ve been hearing that all over the place lately and it’s been a common clickable headline. But it’s not just hype because there’s some truth to it. Today I want to show this reality with a few visuals, mention three takeaways, and unpack a huge Sacramento market update for those interested. I hope this is helpful – whether you’re local or not.

Tighter Prices: Is the market slowing? How would you show that? Take a look at the rate of price changes in the images below and let me know what you see.

OCTOBER:

PAST 90 DAYS:

ENTIRE YEAR:

TAKEAWAYS:

1) Slowing: Prices are still up, but they’re not up by as much this year. What I mean is in years past we’d regularly see 7-10% price increases when running stats, but over the past few months we’re starting to see 4-6% increases instead. This helps show the market as a whole is slowing.

2) Dull fall & critical thinking: Stats have begun to change more significantly these past few months since a slower feel hit the market. A few months back sales volume dipped, but now after multiple months of lower volume this is becoming a trend (at least for the fall). As we watch this unfold and see that prices are much tighter together as I showed in the charts above, let’s consider two things: 1) Price stats today are more subdued in light of a much duller fall season (duh); and 2) Last year’s fall season ended up being a little more flat than usual, so higher prices from then could be helping this year’s numbers appear a little more depressed. I know, it sounds like I’m trying to soften the idea of the market slowing, but that’s not it at all. I’m thinking critically through the numbers and explaining in part why they are the way they are. Ultimately I find myself interpreting these numbers cautiously, and I think we need to get beyond this fall to see the bigger picture of what the numbers show us and where the trend is going to go.

3) Wide & narrow view: I chose to share stats in three ways on purpose to show something important. Did you notice a difference in the price change depending on how wide or narrow the dates were – whether 30 days, 90 days, or 12 months? Basically the more data we considered, the tighter the price gap was. This is a good reminder to look at the market in different ways to try to discern the trend. It’s also a good reminder to be careful of pulling older data because sometimes that can mask a trend that is happening right now.

The future: Naturally when hearing about momentum slowing in a market it’s easy to start predicting the future as we see price gaps tighten. Many say the market is going to crash, others say it will correct by 10%, and some say it will level off and progress into a state of balance. All three of these ideas have one thing in common. They’re guesses.

I hope that was helpful.

—–——– Big local monthly market update (long on purpose) —–——–

Last year the fall season felt more flat than not, but this year is a different story. We are definitely having more of a dull seasonal lull that reminds us how the market felt in 2014 when the fall season was definitively soft. Here are some of the things I’m watching right now. I’d love to hear what you are seeing. Please comment below or send me an email.

Graphs for your newsletter and social media: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy my post verbatim).

Adjusting to rates: Buyers have seemed to back off the market a bit lately, and we’re seeing the effect of that with lower sales volume. What’s up with this? The culprit could be increasing interest rates and a growing lack of affordability.

Balancing of power: Buyers have gained more power in recent months, though I don’t think sellers got the memo since they are still struggling with overpricing and pretending it’s an aggressive market from 2013 instead of a slower market in 2018. This doesn’t mean buyers have total control though. Keep in mind 41% of all sales last month had multiple offers, which tells us it’s not the type of market where buyers can lowball sellers and get whatever price they want.

Pricing lower this fall: Since the summer the median price has softened by 4% in Sacramento County, 5% in the region, and 7% in Placer County. This doesn’t mean every neighborhood lost 4-7% in value. These are county stats and they don’t translate into every area or price range. Keep in mind it’s normal to see a 5% or so reduction in the median price during a given fall season, but this year it wouldn’t be surprising to see a more pronounced price difference between spring and fall (we’ll see how it pans out).

The story of sales volume: In September volume was down a whopping 16% in the region, and that raised lots of eyebrows to make people wonder if the market was starting to tank. This past month sales volume was not as weak, but it was still down nearly 9% in the region and about 4% in Sacramento County. Over time we need to keep watching this trend to better understand if it’s a sign of a definitive change in the market or if it’s the byproduct of a dull fall season (or both). One thing to remember is despite a few months of gloomy sales volume recently, volume is only down 2% in 2018 in the Sacramento region.

Listings did peak: I’ve been talking about listings looking like they were peaking for the past couple months, and the stats now definitely show listings have crested for the season. This is normal for the time of year as sellers tend to pull back from the market and wait until spring to list. This is why the fall sometimes feels like a market of leftovers since many sellers are waiting until the next year.

Concessions and credits: Buyers have more options today, so they’re tending to ask sellers more often for credits, repairs, and concessions. It would be wise for sellers to listen to buyers and be aware they may need to give something to get the deal done.

I could write more, but let’s get visual instead.

BIG QUESTIONS:

1) How did the market change from last year?

2) How did the market change from September to October?

3) Where are we in relation to peak prices in 2005?

4) What’s happening with sales volume?

SACRAMENTO COUNTY VOLUME:

Key Stats:

October volume down 4%
2018 volume down 1% (January to October)
Annual volume is down 1.9% (past 12 months)
Volume has been strong this year, but it’s definitely been down over the past 4-5 months.

SACRAMENTO REGION VOLUME:

Key Stats:

October volume down 8.8%
2018 volume down 2.1% (January to October)
Annual volume is down 2.5% (past 12 months)
Volume has been strong this year overall, but it’s been down over the past 4-5 months.