Blackstone

I could tell you what’s been happening in Sacramento’s real estate market, but why not show you instead? Of course there are a handful of things to look at, which is why there are two options for reading this post:

1. Briefly scan the graphs below in probably 30 seconds.
2. Take a few minutes to digest the graphs and commentary.

Enjoy and let me know what you think.

The median sales price is currently at $252,000 in Sacramento County. When we look at the average price per square foot though, the market has been very flat for four months as it has been hovering between 162 to 163. I’ve been seeing lots of current listings priced at levels more consistent with July or so, which causes me to not put too much weight in a slight increase in median price last month.

Here is a closer look at median sales price, inventory and interest rates. As you can see, prices have begun to stabilize as inventory and interest rates have increased. But it’s also Fall, so it’s completely normal to see a slowdown since that is usually what happens. Real Estate Broker Joel Wright did a study recently of the past 25+ years and found there is a dip 75% of the time during this season.

This is a graph from Trendgraphix and I like the way it shows the story of inventory. When zooming in on roughly only the past year, it’s easy to see that inventory has more than doubled in recent months (whereas my graph above looks like there has only been a slight uptick lately). What does it mean that there are 2.3 months of housing supply? This means if zero new listings hit the market it would take 2.3 months for all these properties to sell. Remember, inventory is easy to find out. It’s just a matter of dividing the number of current listings by the number of sales over the past month. I actually have a brief YouTube tutorial here (or below) in case it’s of interest. It’s good to know how to make these calculations so you are not waiting around on Trendgraphix or other sources to tell you what you need to know.

The absorption rate is basically how fast current listings are being absorbed (sold or pended) each month. It’s an inverse of the months of inventory really, so this rate declines as inventory increases. Right now the absorption rate is 44.3%, which means that 44.3% of all listings are being absorbed on a monthly basis. All you need to do to figure out the monthly absorption rate is divide the number of sales over the past month by the number of current listings.

Cash sales in Sacramento County declined by over 12.5% since early 2013, and cash sales under $200,000 are currently at 35.6% of the market (only for the first 40 days of Q4 though) compared to 50% the previous in Q2 2013.

I’ve mentioned this several times lately. Cash investors have been exiting the market, which has given opportunity for FHA buyers and conventional buyers to gain a greater hold on the market. This is good news for neighborhoods to get more owner occupants (assuming of course the owners take care of their properties).

It’s easy to vilify cash investors since many first-time buyers were beat out of the market from big investment funds flexing million dollar muscles, but it’s important to remember a few things. First, many investors entered the market when it bottomed out in early 2012. There is nothing wrong with being savvy and coming in at the right time. Don’t you wish you did that if you had the means? Second, a rapid increase of cash purchases was one of the reasons why we saw exponential appreciation in value over the past year. This is good and bad depending on how you look at it, but many home owners who needed to sell or refinance should probably be thanking investors (as well as writing a letter to The Fed for keeping rates artificially low). Lastly, in some sense I think investors have really helped revive the market over the past few years with so many flips. It’s nice to have distressed inventory purchased, rehabbed and then sold because that improves our housing stock. Granted, there are certainly drawbacks to having too many investors in the market, and I don’t think anybody is weeping since Blackstone has been pulling back on their purchasing strategy lately. All I’m saying is there have been some positives too.

We have pretty much bottomed out when it comes to foreclosures. Short sales have seen a rapid decrease also. The market used to be utterly driven by distressed sales, but that’s no longer the case. Yes, distressed sales do tend to sell at lower levels still in many cases, but they are not driving the rest of the market right now. When it comes to foreclosures, there is very little room to go down. In fact, I’ve been seeing slightly more REO listings lately, which probably explains the very slight uptick in bank-owned sales over the past month. But ultimately we’ll see what the stats say after a couple more months (keep in mind banks don’t usually foreclose around Christmas too, which could halt some of the data).

Unemployment in Sacramento County has been trending downward for a few years, but let’s be honest, there are still far too many people looking for jobs. The unemployment rate for September 2013 was not announced on time due to employees at EDD being furloughed in light of the government shutdown (sorry to bring that up). We should see new stats in about two weeks.

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Question: Any thoughts, insight or stories to share? I’d love to hear your take.

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