El Dorado County

An underrated metric & slumping volume

December 12, 2018 By Ryan Lundquist 16 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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Slumping volume & rising inventory

October 11, 2018 By Ryan Lundquist 12 Comments

Volume is down and inventory is up. Is that a problem? It sounds like a question for a high school Economics class, but here we are talking. Today I want to kick around two quick thoughts and then dive deeply into trends. I hope this helps – whether you’re local or not. Anything to add?

Here are the two big ideas to talk through right now.

This could be a problem: If sales volume continues to slump and inventory rises without buyers absorbing new listings, it could be a sign the market is changing in a big way. No matter how we look at it sales volume has been down lately in Sacramento. This was the weakest September since 2007 as volume was 14% lower than last year, and quarterly volume was down about 6% too. But keep in mind overall the year as a whole has actually seen strong volume, so it’s not like sales have fallen off the face of the earth (but it’s a concern we’re seeing the numbers change over the past few months). Housing inventory is also up and we haven’t seen it this high since 2014.

This could also be a dull fall: Despite the numbers seeming gloomy right now, they’re actually really consistent with what the market showed in 2014 when we had an extremely dull fall season. In fact, quarterly volume that year was down 6% and September volume was weak too. Does that sound familiar? Also, we have a nearly identical level of inventory right now compared to then too. I don’t say this to sugar coat any red flags in the market, but only to give pause and say what we’re seeing right now could simply be a very dull fall season.

We need more time: The truth is we need time to see how the market will pan out. For now we live in the tension of not knowing the future and interpreting trends for the present. My advice? Watch closely, be careful of hyped headlines, and be sure to take a wider view of the market too (let’s not forget 2014).

I hope that was helpful.

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

Prices actually went up last month. What the? Yes, the market is softening, but prices saw an uptick from August to September. That might seem confusing since we’re talking about the market cooling, but it highlights exactly what I’ve been talking about lately in that you don’t often see a market changing by looking at prices. You see change first in the listings and sales volume – and then prices eventually. This is exactly what’s happening right now.

Normal fall stuff: Last month it took longer to sell, the number of listings increased, and we saw a dip in sales volume. This is what we’d expect to see at this time of year, though the dip in volume was definitely sharp, which is something we’ll watch over time to see if it’s a byproduct of a dull fall or the start of a bigger trend. Beyond volume being down 6% this quarter, all the metrics look fairly normal for the fall. Well, they look normal for a dull fall season, that is.

Momentum slowing: Beyond a seasonal slowing we’re also seeing momentum slowing. I explain it here in a presentation I gave yesterday.

Interest rates rising: One of the reasons why we’re seeing volume slough could be due to interest rates rising. Earlier in the year it seemed buyers ran to the market in light of news of rising rates, but right now it doesn’t seem like buyers have their running shoes on any longer.

Buyers have more power, but not all power: The market is shifting to favor buyers, though sellers still have lots of power. Some buyers hear about a softening market and think they can make lowball offers, but that’s just not realistic. For instance, last month 40% of all sales had multiple offers in the region. That tells us the market isn’t dead despite softening. Buyers, did you hear that? Enjoy your newfound power, but you still have to bring strong reasonable offers.

Listings may have peaked: Overall housing inventory is up as I mentioned above, but it looks like the number of listings is starting to crest for the year. I’ve been watching listings closely over the past few weeks and it seems like they maybe peaked. We’ll know for sure in a month or so. This is exactly what we’d expect to see happen around this time of year, but it maybe seems like more welcome news right now. Let’s keep watching to know for sure.

Being technical about weak volume and inventory: Here’s the thing, we saw a very weak sales volume in September, and it ended up really impacting inventory levels. In fact, when looking at graphs the trend line shot up dramatically last month (see below). But technically what happened was the sales that normally would’ve sold were basically piled on to the number of listings instead, and that’s making the housing supply figure look much more dramatic. Ultimately the number of listings isn’t all that abnormal for the time of year, though if sales continue to dry up over time, then it becomes a much bigger deal to have even this number of “normal” listings.

Pricing lower this fall: Right now at the least it looks like we’re poised to have a dull fall like we had in 2014. These past couple of fall seasons the market simply felt a little more flat, but this year I expect we’ll see a more pronounced price difference between sales in the spring and the fall. Remember, if listings aren’t attracting offers, it’s because the market is no longer biting at that level. What is similar and getting into contract? That’s the big question, and when a fall season is more dull it’s important to be realistic about the need to potentially price lower. In other words, it’s probably not going to be enough to price a property 1% below the height of spring and expect a flood of buyers. Remember, it doesn’t matter what other listings are priced at if they’re not selling. The only thing that matters is what is actually getting into contract. That’s where we see the market.

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

DOWNLOAD 63 graphs HERE: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

BIG QUESTIONS:

1) How did the market change from last year?

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

3) What’s happening with inventory?

4) What’s happening with sales volume?

SACRAMENTO COUNTY VOLUME:

Key Stats:

September volume down 14%
2018 volume down 1% (January to September)
Annual volume down 2% (past 12 months)
Volume has been strong this year, but it’s definitely down lately.

SACRAMENTO REGION VOLUME:

Key Stats:

September volume down 16%
2018 volume down 1.4% (January to September)
Annual volume down 1.8% (past 12 months)
Volume has been strong this year, but it’s definitely down lately.

PLACER COUNTY VOLUME:

Key Stats:

September volume down 19%
2018 volume down 3% (January to September)
Annual volume down 3% (past 12 months)
Volume has been strong this year, but it’s definitely down lately.

SACRAMENTO COUNTY (more graphs here):

SACRAMENTO REGION (more graphs here):

PLACER COUNTY (more graphs here):

I hope that was helpful.

DOWNLOAD 63 graphs HERE: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: What do you see happening with volume and inventory right now? What are you hearing from buyers and sellers? I’d love to hear your take.

If you liked this post, subscribe by email (or RSS). Thanks for being here.

El Dorado County

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