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What would happen to the housing market if we went on lockdown again?

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Lots of us are wondering about the future as COVID-19 cases are rising. When will this be over? What’s it going to take to beat it? And in terms of real estate, what would happen to the market if we went on lockdown again?

This isn’t about fear or politics, but conversation. This isn’t a prediction post either. My only purpose is to consider things that might affect housing. So let’s talk.

LOCKDOWN THOUGHTS:

1) Suppressed demand: There are many things that can affect a housing market. Mortgage rates, jobs, the economy, access to financing, etc…. and even the government. A mandated lockdown, whether national or statewide, is something that can suppress demand because the market isn’t able to operate as it normally would. When I say “lockdown” I’m talking about something akin to earlier in the year where occupied properties were not allowed to be shown.

2) Buyers & agents have learned: This time around we have more experience. The real estate community has learned to show homes virtually and buyers are more used to the idea also. However, if buyers and agents don’t have full access to real estate because of imposed rules then it’s hard to imagine seeing no effect on the housing market.

3) Sellers: One thing to watch is sellers pulling their listings from the market or waiting to sell if strict rules were imposed or if COVID numbers got out of control. Throughout the pandemic we’ve seen substantially fewer listings and it wouldn’t be surprising to see fewer during a lockdown or grave situation. Yet not all sellers are the same and there will be people who list no matter what.

4) Buyers: I imagine mortgage rates below 3% will keep propelling lots of buyers to hunt for homes because that’s exactly what’s been happening these past months. In short, mortgage rates have pulled far more buyers into the market than the coronavirus has pulled people out. In other words, so far the pandemic hasn’t hampered buyer demand. But what happens if access to real estate is limited or a feeling of uncertainty about the economy, housing, or future ensues? All I’m saying is we need to continue to watch buyer sentiment because it’s not something that always stays the same.

5) It is a real market: When the pandemic first began I heard things like, “This isn’t a real market,” but that wasn’t true. Prices slowed. There were far fewer pending contracts. And the market felt dull. In other words, we had real trends and stats even though there was an element of the market feeling suppressed due to governmental regulations. That didn’t make it a fake market though.

6) No effect whatsoever: Our market has done very well within the confines of current restrictions, so if those persist we may not see too much difference as long as demand remains high. But if the rules change and access to the market changes, that’s where we might expect to see a difference in the way the market feels (or a change in the stats). As a guy who follows the market closely what I am looking for is a change in buyer or seller sentiment or a change in something that would affect access to real estate.

7) Could we see a “W”? When the pandemic began we saw a huge drop in volume and then a massive recovery. This created a “V” shape because there was a drop and then an increase. Well, if we have a second round of outbreak and a lockdown, could we see another “V” which would then form a “W”? I wrote about this a few months back in a conversation with an economist. Or would the crazy momentum we have right now simply press through a lockdown? This is the question and we’re going to have to wait to see how it pans out. If anything we ought to be wary of predictions. I don’t think anyone at the beginning of the year predicted the market we’re in right now… This doesn’t mean we need to be shy about asking questions about the future though.

8) Commercial real estate: This has been a brutal year for many business owners and a second round of lockdown could be a deathblow. What happens to business owners and commercial property owners over the next few years?

9) Other: What else do we need to consider? What is on your mind? I’d really like to hear your take in the comments or via email.

Free webinar: I’m doing a big market update this week for SAFE Credit Union on November 19th from 9-10am PST. It’s free to anyone and it’ll hopefully be some good background noise while working. Register here.

Thanks so much for reading my post today.

Any thoughts?

———————- (skim or digest slowly) ———————–

For those interested, here’s a big Sacramento market update:

MARKET SUMMARY: In short, the market has been slowing for the season, but it’s still best described as a “hot” market. I keep saying that this fall has not been normal because the market hasn’t softened like it normally does. It’s really felt more like spring than anything… With that said we have begun to see sales volume drop for the fall, but properties are still selling very quickly. In fact, half of all home sold in six days or fewer in the region last month. We literally have about 50% fewer listings right now, inventory is at historic lows, and we had 39% more multiple offers last month compared to a year ago. The big news is sales volume has finally caught up to last year after being down due to a slump at the beginning of the pandemic. What I mean is as a result of the past four months of heightened demand we’re finally back to 2019 levels. Well, Sacramento County is still down, but El Dorado and Placer County being up has effectively pushed us back to normal.

WAY TOO MANY VISUALS:

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

SACRAMENTO REGION:

SACRAMENTO COUNTY:

PLACER COUNTY:

EL DORADO COUNTY:

Other visuals: I have lots of other graphs. Check out my social media in coming days and weeks. I am posting daily stuff.

Thanks for being here.

Political comments: I will not approve any comments that are exclusively political because this is a blog about housing. We can touch on politics as it affects real estate, but overt political rants are best for other blogs.

Questions: Do you think we’ll go on lockdown? What are you seeing out there right now?

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Overpricing, multiple offers, & hot ranges

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The market is hot. But it’s not so hot that you can command any price you want. Today I have a quick post to show a few trends. These are brand new visuals with some great takeaways (I think). Enjoy if you wish.

1) MULTIPLE OFFERS

Huge change this year: There were 39.3% more multiple offers this October compared to last year at the same time. This speaks to how much more competitive the market has been lately. While we are experiencing a slight seasonal slowing right now, the market is far more competitive than it should be for the time of year.

Not everything: Last month 32% of listings had price reductions. In short, even though the market is super aggressive it doesn’t mean everything is selling above the list price.

10-20 Offers: This year we’ve seen substantially more properties with 10-20 offers compared to last year. The highest number of offers last month was 37 too (just in case you want to sound super smart).

Here’s a look at 5-10 offers too. What a difference!!

NOTE: Our MLS has two fields called “multiple offers” and “number of offers.” This is how I’m extracting the data.

2) THE MOST AGGRESSIVE PRICE RANGES:

This is geeky stuff, but it’s so important for understanding the market isn’t the same in every price range or neighborhood.

The most aggressive: The most aggressive price range in the Sacramento region is between $300,000 to $400,000 (not a shocker). The sales price to original list price ratio is 101.65%, which basically means properties in this range sold on average 1.65% above the original price. In short, the lower the price, the more aggressive the market is. Keep in mind there are few sales below $300,000, so don’t write home over that lower stat. 

The most overpriced range: This year we’ve had explosive growth with the number of million dollar sales as there have literally been twice as many over the past four months compared to last year. But this price range is also the most overpriced. On average sales above one million dollars last month closed about six percent lower than their original list price. At times million dollar listings are literally priced hundreds of thousands of dollars too high (or even millions). 

And one more visual to show last year vs this year…

Market update: In this market update video I talk quickly through eleven trends. I hope you walk away with some insight. Enjoy if you wish.

Free webinar next week: I’m doing a big market update next week for SAFE Credit Union on November 19th from 9-10am PST. It’s free to anyone and it’ll hopefully be some good background noise while working. Register here.

QUICK CLOSING ADVICE:

1) Price reasonably and you should be able to get at least a few offers.

2) Price too high and you’ll likely get zero offers (seriously).

3) Sellers, you don’t need to aim to get twenty offers. I suggest aiming for a few solid offers. My stats even show you don’t need 20 offers to get the highest price.

4) Sellers, aim for the market instead of that mythical unicorn Bay Area buyer who will mysteriously overpay for some reason.

5) Buyers, study your competition in your price range and offer accordingly. There is a good chance you may need to offer above list and have cash to pay any difference between the contract price and a lower appraisal. This is not easy on buyers, but it’s the dynamic out there right now.

6) Buyers, start looking at properties that have been on the market for 30 days or more. These ones are likely overpriced and it may be easier to get into contract on something like that.

7) Other. What else?

I hope this was interesting or helpful.

Questions: What are you seeing in various price ranges? I’d love to hear your take from your vantage point in the trenches.

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Why your home isn’t worth 16% more today

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Home prices have been massive lately, but there is an asterisk. It’s easy to look at glowing stats and say, “Dude, prices are up 16%, so my house is worth 16% more.” But lofty county or regional price stats don’t always show up the same in a neighborhood. Let’s talk about this.

TWO REASONS WHY PRICES ARE SO HIGH ON PAPER:

1) The top & bottom: There have been more sales at the top of the market and fewer sales at the bottom. In fact, when comparing the past four months this year with last year, we’ve seen 20% fewer sales under $400,000 and 75% more sales above $750,000. Here is a brand new visual to show the change in various price ranges. If you’re not in Sacramento, is this happening in your area too?

The effect: Having a big change in volume at the lowest prices and a hefty change at the top has simply boosted price metrics. Thus on paper price stats are really high compared to last year, but when pulling comps in a neighborhood we don’t always see anywhere close to this sort of explosive growth. 

Here’s another way to look at the same data:

2) Larger homes: I’ve mentioned this before and I’m not trying to beat the dead horse, but during the pandemic buyers have been purchasing noticeably larger homes over the past four months. Do you see the spike? In short, having larger homes has boosted price stats, so when talking about growth it’s good to remember that part of the reason for higher prices is due to larger homes selling more often. 

The takeaway: There is no mistaking the market has increased in value quite a bit this year. I’m not saying it hasn’t. I’m just saying if we’re not careful it’s easy to get infatuated with lofty regional price stats which can sometimes blur our vision for a neighborhood market. My advice? Know why the numbers are the way they are and focus on comps instead of county or zip code stats. Moreover, don’t expect the market to be the same temperature with every location, price range, or property type.

I hope that was interesting or helpful.

Questions: Have you seen some neighborhoods where prices have risen greatly and others where growth is more subdued? Did I miss anything? Any stories to share?

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Condos, halfpipes, & cooling 2-4 units

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I have two compelling trends to share today, but fist let’s talk about a concrete halfpipe at an investor flip. I’d love to hear your take in the comments.

An investor friend just bought a house in Auburn with a halfpipe in the backyard. I’ll admit the middle school skater kid in me is stoked while the middle-aged man in me wants to relive my glory days… But what should Erin do as a flipper? Should she keep it or rip it out? Is this an asset or a liability?

This is a fun conversation, but there is a serious element here because investors come across interesting things all the time and have to make real-life decisions like this. So put your real estate cap on and let me know what you think in the comments.

Check out Erin’s Instagram (thanks for letting me share).

TWO TRENDS TO WATCH:

1) Condo sales are down 14.1% this year: I mentioned last month that condos haven’t been as popular and here’s a brand new visual to show what I mean. In short, buyers have been more focused on detached homes, which likely stems from wanting more space, privacy, and a larger backyard during the pandemic. Of course in the background low rates are a big factor because they give buyers more purchasing power (and thus shape what they can buy).

2) The cooling 2-4 unit market in Midtown: The single family market has been showing huge price increases in the Sacramento region, but the 2-4 unit market in Midtown isn’t the same temperature. When looking at the graph below do you see a flattening of prices lately? Does this surprise you?

This is something to watch and we have to keep rent control and eviction moratoriums on the suspect list when trying to understand this softer trend. Yet one of the bigger issues is these units have had massive price growth in recent years while rent growth has been slowing lately. Thus at some point when investors crunch the numbers it doesn’t make sense to pay more. For reference there isn’t an oversupply of listings in this market and demand is still strong.

Keep in mind other portions of Sacramento with lower-priced 2-4 units have still been showing an increase. These other areas have rent control too, which helps me think the flattening in Midtown is more related to flirting with a price ceiling.

Anyway, I’m thinking out loud and we need more time to see the trend. By the way, thanks to Brian McMartin and Franco Garcia for having conversations with me this week about this sub-market. I really value hearing what others are seeing out there as I run stats and interpret them.

Big point 1: The market isn’t the same everywhere.

Big point 2: Don’t take the trend in Midtown and project it on other 2-4 unit properties in the region. See point #1.

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

Questions: Should the halfpipe stay or go? Why? Any thoughts about the two trends I shared? I’d love to hear your take.

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