housing market

Buckle up for next year’s housing market

December 1, 2021 By Ryan Lundquist 17 Comments

It’s real estate prediction season and I have a few thoughts about the beginning of next year. I’m cautious about predicting because my crystal ball is broken, but it’s a no-brainer to say we’re poised to start next year with heavy competition.

This image shows three seat belts in a back seat and the caption is, "Buckle up for next year's housing market." The seats are white and the belts are gray.

Big 2022 market update: I’m doing a big market talk at SAR on January 18th from 9-10:30am. Hope to see you there. Sign up here.

Predictions: First off, nobody knows the future, so I take predictions with a grain of salt. If 2020 taught us anything it’s that it’s impossible to predict the future with certainty. With that said it seems most data sources are predicting anywhere from 2-7% home price growth for 2022. So far it seems like the theme is, “The wild stallion market of 2021 will become tamer.” And almost everyone has disclaimers to say what happens with rates and inventory could change the prediction. Calculated Risk has a table with specific predictions.

Zillow didn’t crash the market: By the way, a few weeks ago some people were saying Zillow failing as a flipper would cause the housing market to crash. Well, that didn’t happen. My advice? If you’re listening to anyone who keeps making predictions like this, find people who let data form the narrative instead. By the way, here’s a real estate prophet test I made a few years ago:

This is a flow chart for someone to test if they are a real estate prophet or not.

THE BIG POINT:

Buckle up for next year: No matter what happens throughout 2022 as a whole, we are poised to start January at a really competitive place where the market continues to feel lopsided. The truth is we’ve experienced some normal seasonal slowing this fall, but the market still feels like it’s on steroids as most stats are elevated beyond normal levels. The bottom line is we are going to start the year with anemic supply and strong demand as buyers continue to devour listings (even in the midst of affordability declining). This doesn’t mean the train can keep going forever, but I am saying buckle up at the beginning of 2022 because the market is poised to start ultra-competitive.

Fewer listings since the pandemic: Here is a quick look at the supply problem we’ve been having. New listings are in blue and pendings are in red (since 2018). Do you see what happened in 2020 where we started to have fewer listings hit the market? When the pandemic began sellers pulled back and we just haven’t returned to normal levels yet. Though pending contracts have been strong, which means buyers are devouring what is available.

This line graph shows the number of listings in the Sacramento region since 2017 as well as the number of pendings. Basically new listings are down over the past two years (though pending contracts are fairly normal).

Let’s talk about Omicron: Honestly it’s exhausting hearing about new variants of COVID-19. I am still making healthy choices, I’m boosted, and I’m doing all I can on my end to promote safety. But I’m also fatigued with the non-stop narrative. Anyway, when it comes to real estate this is something we must talk about because we need to get through this pandemic for any hope of normalcy. There is no mistaking we’ve seen fewer listings hit the market in Sacramento since the pandemic began, but this is also happening nationally (see below).

This line graph shows the number of listings in the United States over recent years and there has been a huge dip in 2020 and 2021

Staying in homes: Even when we get through this pandemic eventually part of me wonders if we’re going to have fewer listings due to so many homeowners locking in sub-3% rates as well as a huge focus on remodeling, installing pools, building the perfect backyard, and creating space to work from home. In other words, people have been positioning themselves for financial health and creating a more perfect home to meet their needs. It seems like that gives more incentive to stay put, so we’ll have to watch stats carefully in coming years.

Seriously man, you want more visuals? Here are a few more visuals to get a sense of how listings have changed through the years. The downfall of these images is they only represent a snapshot of the market. Basically each year on December 1st I pulled the number of listings. This is valuable, but the ideal image is the first one above where I show new listings throughout the month. However, even the monthly image shows a dramatic dip in listings these past two years.

This bar graph shows the number of active listings in the Sacramento region each year from 2015 and it's basically normally to have about 3,500 or more listings, but these past two years we've had about half of that on December 1st.

Weird times: When comparing 2020 and 2021 we’re starting to see more similarity with the number of listings. When 2020 first began it was a drastically different comparison to 2019, but now we’re starting to have similar numbers between 2020 and 2021. In other words, from a stats perspective this is sort of a new pandemic “normal” so to speak. Weird times for sure.

Okay, that’s it for today. Thanks for being here.

Questions: What do you make of the predictions for 2022 so far? What are you seeing out there in the market?

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The housing market is trying to get back to normal

September 9, 2021 By Ryan Lundquist 24 Comments

Normal? That’s not a word we’ve used much to describe the housing market lately, but we are finally starting to see some normalcy. Many parts of the country are showing what looks to be normal seasonal slowing and that is a sight for sore eyes. Anyway, let’s talk about this and then I have lots of local stats.

The normal that should be happening: The market right now should be slowing for the season. That’s what normally happens and it’s what we are seeing in so many areas of the country too.

Sorta kinda normal: When a market cools for the season we tend to see some of the signs in the image below to one degree or another. Even though we are beginning to see many of these things show up in the market, we really cannot say the market is fully normal yet because supply and demand are still too imbalanced. But any hint of normalcy lately is actually a really good thing. Imagine the chaos of seeing another year like last year where the market just kept going up through the fall. That is exactly what we don’t want to see.

Anyway, which signs are you seeing or not seeing in your area?

Now let’s talk about slowing.

I’ve had a number of emails lately critiquing my use of the word “slowing,” so I wanted to talk about this openly. I hope that’s cool. If this isn’t your thing, just scroll down. By the way, I’m always good with constructive critique too.

Bro, don’t say slowing: Over the past few months the market has slowed. Or wait, it cooled. No, the temperature changed. I mean, it’s normalizing. Uh, it’s actually stabilizing. Thankfully there isn’t just one way to describe things. I’ve been talking about a seasonal slowing for months because that’s the story the stats are telling. But the word “slowing” almost seems offensive to some, so let’s talk about that.

The market isn’t fragile: The housing market is big and I feel like it’s splitting hairs to argue about whether we should use the word slowing, normalizing, or cooling. Here’s the thing. Use whatever word you feel best represents the market, but it’s probably going to take a few key phrases to do the trick. No matter what, recognize the market is NOT fragile (“fra-gee-lay“) and it doesn’t need you or me to protect it with glowing words. Look, I can think positive thoughts all day long about cryptocurrency, but that doesn’t change the value of bitcoin. In terms of housing, the market is dynamic, multi-layered, complex, and there is no such thing as jinxing the trend by using less-than-glowing words.

Moving fast & slowing: If you aren’t down with the word slowing, that’s fine, but in my mind it’s a reasonable way to describe the market. But to say slowing alone isn’t perfect either as I keep saying because the market is doing two things. It’s moving really fast. And it’s slowing for the season.

Okay, I won’t talk about this again for a while.

My commitment: I will never spin data or sugarcoat things to sound better or worse than they are. My goal is to be neutral while presenting analysis based on the numbers. I’ll come up with helpful word pictures to describe the market too (and sometimes crazy comparisons).

Respectfully,

Ryan

Any thoughts?

—–——– STATS SHOWING SOME NORMALCY ———––

Skim or digest slowly.

THE SHORTER VERSION:

The market is still moving faster than it should be for the time of year and stats are still just about at all-time high levels, but the market is hands-down cooler than it was a few months ago. That’s the story stats are telling and it’s absolutely what I’m hearing from the trenches of escrows. “The market is not slow, but it’s slower than it was” sums it up perfectly.

Overall it’s starting to take a little longer to sell, there were fewer multiple offers last month, and prices dipped from their peak in June. But overall stats from July to August were pretty flat, so if someone said the market felt a bit horizontal, I wouldn’t bat an eye. Of course we do expect some renewed attention on the market as the kids get back to school, so stay tuned for that.

One quick thing. I’m watching cash purchases and while we still don’t have much cash in the market, there has been a noticeable uptick these past two quarters.

Some visuals eh…

NOT AS MANY MULTIPLE OFFERS:

For four months in a row in the region we’ve seen multiple offers subside. Last month 62% of sales had more than one offer and that’s one of the most competitive months ever, but there is no mistaking a cooling seasonal trend too.

IT’S LESS COMPETITIVE:

The market is still ultra-competitive, but this image is crystal clear that the temperature of the market has changed in recent months. Even though prices were flat from July to August, this visual shows clear slowing from a few months ago. This is exactly what we should be seeing at this time of year. But here’s the thing. We should easily have half or more of sales selling at or below the list price, so this market is NOT normal yet.

This visual below is striking because it shows definitive change. A few months back I started to point out this change and it was incredibly minor then. I know at times it’s easy to scrutinize mentioning small changes and some people even get bent out of shape, but sometimes small changes are the beginning of a trend. That is EXACTLY why we pay attention to the small stuff (while not getting sensational).

PRICES PEAKED IN JUNE:

These visuals help show prices look to have hit their seasonal peak in June. This is pretty normal and historically August is sometimes lower than July and sometimes about the same.

VOLUME IS SLIDING (NORMAL):

The number of sales peaked in June and now we’re seeing fewer sales happening. This is exactly what should be taking place. The red line represents 2021 and it’s very consistent with the green line (which is the market average).

INVENTORY IS UP SLIGHTLY:

Monthly housing supply is still sparse, but it’s up from a few months back. It actually declined slightly from July to August in most local counties. Ultimately supply is still SO LOW. But isn’t it amazing how with even this slight uptick lately we feel a difference in the market?

IT’S TAKING LONGER TO SELL:

It took a few days longer to sell last month in Sacramento County, which is what we should be seeing at this time of year. Properties are still selling about as fast as they ever have, but clearly we’ve seen a softer trend over the past few months compared to the intensity of spring.

HOW PRICES ARE DISTRIBUTED (NEW IMAGE):

This visual shows how prices are distributed throughout the market. In other words, about 10% of homes last month sold between $300-400K (just to give a clue on how to read this one). This is a new visual. Do you dig it?

SMALLER HOMES ARE SELLING (HUGE POINT TO WATCH):

It’s normal around this time of year to start to see the types of homes selling change. We tend to see the largest homes in the market sell during the height of spring and then smaller homes for the rest of the year. There was actually a huge spike of larger homes selling during the first year of the pandemic, so it’s going to be interesting and important to watch how this trend unfolds. Keep in mind some of the massive price increases over the past year has to do with a focus on larger homes.

LAST YEAR VS THIS YEAR:

Year over year comparisons get a little weird these days because the market was so atypical last year, but in my opinion this is still worth digesting since we want to be good students of the market. I suggest taking these percentages with a grain of salt and recognize these percentages DO NOT actually mean every house is worth that much more either.

JULY TO AUGUST FEELS A BIT HORIZONTAL:

The market was somewhat flat month to month. Nothing too sensational. Keep in mind some of the smaller counties have fewer stats, so the numbers bounce around each month. This is why I would suggest giving strong weight to Sacramento County and the region as a whole to decipher the bigger trend in the market.

ONE LAST VISUAL:

Price per square foot as a metric has yet to soften. I think it’s going to take a little longer for that because smaller homes have been selling these past few months and since smaller homes tend to have a higher price per sq ft, it only means this metric is going to be a bit more inflated.

Anyway, this is getting too long…

Do you see what I mean about the market trying to get back to normal? What a different vibe from last year.

MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.

Thanks for being here.

SHARING POLICY: I welcome you to share some of these images on your social channels or in a newsletter. In case it helps, here are 6 ways to share my content (not copy verbatim). Thanks.

Questions: What are you seeing out there in the market? What do you think about my take on the market not being fragile?

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

Home prices are insane (so is the rental market)

May 12, 2021 By Ryan Lundquist 17 Comments

Prices growth has been insane lately and that’s pretty much how the rental market feels too. Let’s talk about this and a few other things. Enjoy.

NOTE: Scroll down for the big market update

Three Things:

1) THE ASTERISK IN THE ROOM:

Home price stats are truly crazy right now across the country. It’s mind-blowing to see prices up 15-20% from one year ago, but there’s also an asterisk. Last year stats were starting to sag during the beginning of the pandemic due to buyers backing off the market. So when we compare today’s ultra hot numbers with last year’s lackluster figures it’s important to account for these sagging stats when talking about the market. I know, that sounds super anal, but it’s important.

2) THE RENTAL MARKET IS NUTS:

In the real estate space we often get so lost in talking about home prices that we simply don’t talk enough about rents. Here are a few things on my mind:

A) Lots of rentals: In California about 45% of homes are not owner occupied. That’s nearly one out of every two homes (duh, thanks bro). This is good to remember as we often focus on buyers and sellers while ignoring the other half of the population. And in case you wondered, the most recently published homeownership rate in the United States is 65.6% as of Q4 2020.

B) Hefty rent growth: Rents have seen a dramatic increase lately in many markets across the country and that’s something to watch. My advice? If you work in real estate, talk to local property managers and find some big data companies to follow. In the Sacramento region, for instance, Yardi Matrix reports 8% rent growth from one year ago.

(props to Steven Thomas for the idea on the nuts image)

C) Feeling the rental shortage big-time: The rental market is extremely tight as we are feeling over a decade of not enough new construction in the midst of population growth. Thus when trying to rent we are seeing multiple rental offers on almost every listing and some would-be tenants are even trying to get creative by offering incentives to the landlord such as a year’s worth of rent at one time. Of course some sellers are wondering, “Where am I going to find a place to buy or even rent?” Also, every time I log on Facebook I see another real estate agent post saying, “I have a client who needs a rental in (insert city) up to (insert dollar amount).” Ultimately we often focus so heavily on having a shortage of properties for buyers to buy, but the rental market is suffering from a lack of available units too.

3) WHEN POLITICIANS SHARE HOUSING DATA:

Okay, I have an important non-partisan take involving a viral real estate example. Here goes. This week two mayoral candidates in New York were asked if they knew what the median price was in Brooklyn, and they said $100,000, which was $800,000 too low. Look, one guy said he misunderstood the question and there’s grace for being imperfect if that’s what happened. But here’s the bottom line regardless of political affiliation. If you’re running for office you’re going to look out-of-touch if you’re off by that much. And then you’re going to get dragged online by people who definitely know the cost of housing.

My unsolicited advice? If you’re trying to get elected, you need to be in touch with home and rent prices enough to understand what constituents are dealing with right now. Or if you’re just trying to win a debate, at least be prepared to answer this question with stats from this century. Look, most citizens don’t expect candidates to be real estate experts, but there is an expectation of having enough understanding to shape policy in the midst of a glaring housing shortage. That’s the big issue. If you don’t even know the numbers, how can we expect you to create policy to deal with the issues? By the way, if you don’t know where to look for data, find a local Realtor association in your county or state – or scour online for professionals and data firms who know their stuff.

NOTE: I almost never mention politics, but this is such a vivid example to show the importance of accurate housing data. Moreover, we’re in a severe housing shortage and our politicians need to up their game, so I’m good with speaking up in a non-partisan way. Please no red or blue comments.

Anything to add?

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

BIG MARKET UPDATE

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

THE SHORT VERSION:

Here is a highlight reel to talk through some of the bigger themes right now. In short, the stats are sensational and we’ve seen rapid appreciation in recent months. See comments below on slowing down though….

LONGER VERSION (SORT OF):

The good news is I finally had my second vaccine shot, but the bad news is I lost two days of work this week because I felt awful (yeah, it was Moderna). In short, my market update is going to be a little on the brief side today in terms of having fewer images. Please check my social channels in coming weeks for stats. I can’t wait to share more on Facebook, Twitter, and LinkedIn. Oh, and sometimes Instagram.

SUBTLE SLOWING? Price stats have been on fire lately and they’re poised to continue being hot, though I’m starting to hear things like, “I’m getting 8 offers instead of 12” or “My buyers are having a slightly easier time getting into contract.” This makes sense as we have a few hundred extra listings on any given day now compared to a few months ago (we still don’t have enough listings).

In short, the market typically starts showing seasonal slowing around this time of year, so let’s watch for typical signs of slowing in the midst of a market that still feels like an auction. Look, I’m not saying the housing trend is slow or dull, so please save your hate mail. All I’m saying is in the midst of glowing stats let’s keep our antennas up and look for a change in the stats or sentiment among buyers.

What are you seeing out there?

NOTE: I included 90 days of sales for El Dorado County and Yolo County because both areas have few monthly sales. In short, if you use only one month of data stats are going to bounce ALL over the place and not be meaningful. These are both brand new visuals though. I’m thinking about doing them every month if I get enough positive feedback.

Thanks for being here.

SHARING POLICY: I welcome you to share some of these images on your social channels or in a newsletter. In case it helps, here are 6 ways to share my content (not copy verbatim). Thanks.

Questions: What are you seeing out there in the rental market? What about the resale market? What would you say to those politicians? I’d love to hear your take.

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

How much are buyers paying above the asking price?

May 5, 2021 By Ryan Lundquist 22 Comments

“Buyers are crazy!!! How can they be paying these prices?” That’s what we tend to hear from people who are NOT trying to buy a house right now. It seems like onlookers really don’t understand what it takes to get an offer accepted these days. But for anyone actually in the game, the truth is blatant. If you want the house you’re probably going to have to pay above the list price.

Fresh stats: Today I have some brand new stats. I’ve never broken out numbers like this before and I’m excited to share. Even if you’re not local I hope this gives perspective or ideas for how to visualize your market.

Quick thoughts: On average properties sold four percent above their original list price last month in the Sacramento region. Or in other words, buyers on average paid $23,787 more than the original list price. Keep in mind these stats represent the average and there are many properties that went above and below this amount. There are also quite a few homes that sold at the original list price. In short, this doesn’t mean literally every buyer paid $23,787 above asking. Also, there are few sales below $300K, so take that stat with a grain of salt.

Four reasons why prices have risen so quickly:

1) Supply & demand: Prices have been increasing rapidly due to supply and demand being so lopsided. It’s no secret we have a shortage of listings and excessive demand. This has created a market that feels like chaos where the median price in April in the Sacramento region is up 11% since January. Of course rates below 3% have also played a role in supercharging the market.

2) Appraisal gap: Buyers are paying above the appraised value or bridging the “appraisal gap” so to speak (the difference between the appraised value and the contract price). In some cases appraisal waivers are also helping properties close at higher levels.

3) Priced too low: Let’s be real. Some listings are being priced way too low and this causes properties to get bid up. I’m not minimizing how aggressive the market is. I’m just saying there are cases where listings are painfully low.

4) More at the top: We’ve been seeing more sales at higher prices in the local market as well as across the country. Therefore when looking at lofty price stats we have to realize some of the massive growth has to do with what is selling rather than pure price appreciation.

I hope this was helpful. Thanks for being here.

Questions: What stands out to you about the stats or points? If you are a buyer, what are you experiencing out there? What did I miss?

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

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