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Why is housing inventory so low?

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Housing supply is insanely low right now. It’s getting ridiculous. Why is it so low? Let’s make a list. Please add your take in the comments.

SOME REASONS WHY HOUSING SUPPLY IS LOW

1) Not listing during the pandemic: Sellers aren’t listing as often during the pandemic. This has been common in many markets across the country, and in Sacramento in particular where monthly inventory is down about 50% right now compared to last year.

2) More demand: Mortgage rates below 3% have caused buyers to jump off the fence and basically gut the market. Thus increased demand has depleted listing inventory (which was already low).

3) Lack of new construction: We’ve had population growth in the midst of anemic new construction since the housing bubble burst. In other words, we haven’t built enough units and we’re really beginning to feel the sting of it. Check out this visual from FRED to show housing starts today compared with 2005.

4) Shift in demographics: People are staying in their homes longer and therefore not selling as often. Last year Redfin published research stating owners are staying in their homes an average of thirteen years instead of eight years, which means there aren’t as many homes being listed for sale.

5) Increased migration: Some markets are seeing more buyers from outside the area flocking to the neighborhood. Lots of Californians of course are leaving the state and heading to Idaho, Nevada, Texas, and all the usual suspects, but who is coming to the market? There isn’t one definitive easy source to track migration unfortunately, but Bay Area buyers have seemed to have an increased focus on the region. In fact, LinkedIn recently published stats showing a 7.6% increase in net arrivals in Sacramento. 

6) Nowhere to go: Some owners would list but they feel there’s nowhere to go because homes are too expensive or inventory is too thin. 

7) Shift in home size: We’ve been building larger homes for decades now, which could eliminate the need for some folks to buy something else because they are satisfied and able to stay put. During the pandemic of course we’ve seen buyers target larger homes.

8) Other: Blackstone and investment funds purchase thousands of homes that have not resold on the open market. I wouldn’t say this is the reason inventory is thin, but it’s worth mentioning. We’ve also had wildfires in portions of California where homes have not been rebuilt.

9) Not a distressed market: We used to have more listings because of all the distressed sales, but we just don’t have that sort of market any longer. Bank-owned sales (REO) represent about 1% of all sales in Sacramento County as well as the region, and short sales are even rarer.

10) What else? Did I miss something? Please comment below.

I hope that was interesting or helpful. Thanks for being here.

Questions: What point stands out to you the most? Why is inventory so low right now? I’d love to hear your take.

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Crazy contracts & condos are less popular

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I have two things on my mind today. Let’s talk about condos and then some of the crazy contracts we’re seeing happen right now. Then I have lots of visuals for those who are interested.

CONDOS ARE NOT ALL THE RAGE:

It looks like condos aren’t so popular these days. During the pandemic buyers have been saying no thanks and instead focusing on homes with more space. No matter how you look at it there are fewer condo sales happening, and that’s telling. If you’re not local, what’s happening in your area?

MARKET NOT COLD: One thing I want to clarify is just because condos haven’t been as popular doesn’t mean the condo market is dull or cold. Inventory is still sparse among condos, so don’t expect to get the deal of a century. In fact, there is not an oversupply of listings among condos at this time. Inventory is really tight. 

CRAZY CONTRACTS:

It’s common these days to see the appraisal contingency removed and many buyers are even offering to pay above the appraised value (if it comes in lower than the contract price). Anyway, I’ve been getting lots of questions about this, so here are some thoughts:

1) Value is not found in the contract: The reality is value is found in the comps – not the contract. Technically the terms in the contract shouldn’t matter because the only thing that counts is comparable data. Of course I realize some appraisers are swayed by the contract, and that’s unfortunate. Ultimately if you find yourself worried about the terms, I’d recommend focusing instead on communicating well with the appraiser because the comps are the bigger factor.
 
2) Offering above the appraisal: When I see a contract that states the buyer will pay above the appraised value by a certain amount if the appraisal comes in lower, the practical part of me wonders if the buyer actually thinks it’s not worth what was offered. But since my job is to be objective, my curiosity about the buyer doesn’t mean anything for the appraisal. The bottom line is I cannot let that influence my perception of market value. Besides, offering to pay more might not be about the buyer’s perception of value at all. Instead it could be a strategy to get an offer accepted. And most of all, the comps are what matters – not what an individual buyer thinks about value.
 
3) Hiding information: I was asked recently if it would be OK to only give the appraiser the purchase contract without an addendum that had further terms. Look, I’m not a lawyer or broker, but from my perspective I’d ask that you please give the appraiser the entire contract instead of holding something back for whatever reason. In my mind when this happens it seems like the goal is to try to influence the outcome of the appraisal, and that doesn’t smell right. Let’s keep it transparent.
 
Anyway, this is a loaded topic. Lots of emotions. What are your thoughts? Any stories to share? Please do so in the comments.
 
MARKET UPDATE VIDEO: Here’s my latest market update where I unpack glowing rebound stats. Watch below (or here).
 

WAY TOO MANY VISUALS:

Here are some new visuals. You are welcome to use these in newsletters and social media with proper attribution. Scroll quickly or digest slowly.

I hope that was interesting or helpful. Thanks for being here.

Questions: What are you seeing with condos right now? What’s happening with contracts too? Anything you’d like to see change?

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Three ways the pandemic has affected buyers

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How has the pandemic affected buyers? Today I want to share a few fascinating shifts concerning home size, pools, and migration. If you’re local, have you been seeing this? If you’re not local, what’s happening in your area?

1) BUYERS WANT LARGER HOMES

If you’ve been cooped up for months it makes sense that you’re going to want a larger home, and that’s exactly what the stats show in the Sacramento region. Do you see that spike in home size on the right side of the graph over the past three months? For the first time ever the average monthly home size was over 2,000 square feet in the Sacramento region too (two months in a row).

The Takeaway: Be in tune with shifting buyer expectations so you price it right since larger homes may be more marketable right now.

2) POOLS ARE MORE POPULAR

Lots of buyers want a home with a pool. After all, if you’re going to quarantine somewhere you might as well have the ultimate backyard. Home sales with built-in pools are up 4.2% this year in the Sacramento region so far. This is something we could have guessed, but it’s good to see what the stats actually say rather than going with what we feel might be true.

The Takeaway: Homes with pools are in high demand. They are more marketable and they may be more valuable too.

3) FLOCKING TO PLACER & EL DORADO COUNTY

This is where it gets interesting, so bear with me. Noticeably larger homes have shown up in sales stats from June to August this year, but a big part of that comes down to buyers focusing more heavily on Placer County & El Dorado County. In fact, over the past three months compared to last year Placer County sales volume is up 16.8% and El Dorado County volume is up 31.5%. Why does this matter? If you didn’t know, monthly sales in these two counties are routinely 400+ square feet larger in size than Sacramento County (mostly due to having newer homes through the years that were built larger). This data does NOT include brand new homes currently being sold from builders – only MLS sales. Anyway, when we consider why the home size in the region has jumped so much lately, a huge reason looks to be buyers flocking to these two counties in search of more space.

The Takeaway: When we consider large price gains lately it’s important to recognize some of the hefty gains are because larger homes have been sold.

I put some of this post in a video in case that’s easier to digest. Enjoy.

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I hope that was interesting or helpful. Thanks for being here.

Questions: In what ways have you seen buyers and sellers change because of the pandemic? I’d love to hear your take.

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Sellers, you don’t need 20 offers

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Sellers, getting twenty offers is the dream, right? That way you can be choosy about accepting the buyer with the strongest terms and probably a higher price too. But do you really need that many? In other words, can you get the same price with just a few offers? Let’s kick around this idea today.

THE SHORT VERSION:

1) No surprise. Getting more offers tends to lead to a higher sales price.
2) Sometimes just one offer can go way above the list price.
3) Homes with one offer also more regularly close way below the list price.
4) You don’t need 20 offers (but it sure does help).

THE LONGER VERSION:

Let’s look at some visuals and then consider some takeaways.

County Visuals: First off, I’m concerned these visuals are going to be confusing, so sorry if you’re thinking, “Dude, I only see dots and I have no idea what’s going on.” The goal is to show how much higher the sales price is compared to the original list price while considering the number of offers. Basically, when a dot is at 100%, it means a home sold at exactly the original list price. Or if a dot is at 110%, it sold 10% above the list price. Or 95% means it sold 5% lower than the original list price.

Question: What happens to prices when there are more offers?

The big plain truth: The truth is properties with more offers tend to close higher above the original list price than properties with fewer offers. Duh, I know we could have said that without the research, but it’s good to see what stats actually show rather than going with what we feel might be true. With that said, sometimes a home with just one offer can actually close at the same high percentage above the list price as a home with ten offers. So technically you don’t need ten to twenty offers to command a huge price (but it sure does help).

Neighborhood Visuals: Let’s check out some neighborhoods too instead of just the county. What do you see?

Conclusion: There are fewer data points to consider in the neighborhood visuals, but the takeaway is the same as the county (see above).

QUICK THOUGHTS:

1) 20 offers: If you’re getting 20 offers, it’s probably because you’re priced too low unless that’s what every listing is getting.

2) Aim for a few: Price it reasonably and you’re more likely to command a few solid offers and statistically be in the zone to compete above the list price. The reality is you don’t need 20 offers to get a huge price (but it helps).

3) Hang in there buyers: It’s not easy out there right now, but it’s worth noting not every sale is getting ten offers. It may feel true, but the stats don’t show it is.

4) Not everything is getting bid up: While many properties go 10% to 15% above the original list price, many homes sell below the list price. The narrative is Bay Area buyers are swooping in, paying cash, and everything is getting bid up, but that’s not true when looking at how many homes recently sold below the original list price (basically any dots below the 100% line).

5) Clear advantage: Having lots of offers gives sellers a huge advantage to be selective and accept contracts with the best terms (and probably higher prices).

6) Layers of the market: Not every price range is experiencing the same dynamic when it comes to multiple offers and getting bid up. This is why it’s so dangerous to take an experience with just one property and call it a trend for the market. Maybe. Maybe not.

I hope that was helpful. Thanks for being here.

Questions: How many offers do you think is ideal for a seller to get? Why are some listings able to command a huge price even though they only get one or two offers? What is it about those ones? Any other insight? I’d love to hear your take.

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