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Don’t hold your breath for a Covid discount

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“Why is there not a pandemic discount? I don’t get it. The market has been going down.” Someone was angry with me recently after an estate appraisal didn’t come in low enough in his mind. The thought was prices should be dipping because we’re in a pandemic, but that hasn’t been happening.

The Truth: Lots of people expect the market to be weak right now.

The Takeaway: Let’s be careful not to impose ideas on the market about what we think should be happening. Instead, let’s look to the numbers to form our understanding. Likewise, it’s critical to be objective about the present and keep an eye on glaring uncertainties regarding the future. But let’s do this without viewing stats through a rose-colored lens or painting every conversation with a doom and gloom brush.

Anyway, that’s what’s on my mind…

———————— big monthly update below ————————

BIG MONTHLY UPDATE:

This is long on purpose. Skim or digest slowly. Your call. 

FREE MARKET UPDATE: On Monday June 22nd at 10am PST I’m giving a one-hour free market update via Zoom through the Sacramento Association of Realtors. Please sign up here.

WEEKLY VIDEO: Here’s my weekly video update to talk through the latest trends (shorter this week too). Watch below (or here).

Now some big topics…

FLAT PRICES: When we look at the latest price trends, it’s pretty flat. As you can see, the stats show modest price gains since last year. Granted, this month was more subdued than last month, so before writing home about this trend we need a few more months of data to fully understand the market. Remember, this doesn’t mean the market is dull because it’s actually quite competitive. It doesn’t mean every price range and neighborhood are flat either. But it does remind us prices haven’t been going insane despite the market feeling ultra-competitive. 

CRESTING FOR THE SEASON: Based on the next three images, it looks like the spring season has started to crest. We’re seeing a dip in prices and we’re having less multiple offers.

NEXT MONTH THOUGH: When sharing about flat prices, I’ve been tending to get reactions saying price metrics in a couple months may show an uptick again because mortgage rates have gone down lately. Look, that’s possible and we can adapt our narrative if that happens. To be fair, there’s nothing normal about life and real estate lately, so anything is possible for the future and we’re certainly experiencing some abnormal pent-up demand right now.

SALES VOLUME DOING THE LIMBO: Here’s a brand new visual to show most counties in May were down 30% or more in volume from 2019. Do you like this one? Should I keep making it?

LEARN TO MAKE A GRAPH: In case you didn’t see this on my YouTube channel, I put out a new tutorial for how to make a graph with three price metrics. This can be made for a zip code, city, county, etc… My advice? Set aside an hour in your schedule to make learning this happen. Becoming more visual changed the way I see the market and it frankly changed my career.

LOW RIDING: We had the second lowest month of sales volume for May in Sacramento County over the past twenty years.

BUT VOLUME IS ACTUALLY INCREASING: When we look at sales volume by the week instead of the month, we’re starting to see more sales close. In fact, for four weeks now we’ve seen an uptick. This change reflects pending contracts from about 4-6 weeks ago finally starting to close. I suspect in coming months we’ll keep seeing volume increase since pendings have been on fire lately.

MORE PENDINGS THAN NEW LISTINGS: For the fourth week in a row we literally had more pending contracts than new listings hit the market in the Sacramento Region. This shows buyers have been coming back to the market more quickly than sellers. Let’s remember buyers have strong incentive to get into contract quickly to lock in a historically low mortgage rate, but sellers just don’t have that same sense of urgency.

CHANGE BY THE RANGE: Here’s a look at what’s happening with different price ranges. These two images compare the change in April and May from 2019 to 2020. I don’t know that there’s anything revolutionary here, but what we want to watch over time is whether different price segments are slowing or speeding up. I think with a few more months of data we might have more to consider.

INVENTORY AT DIFFERENT PRICE POINTS: What’s happening with inventory in different price segments? Well, it’s actually pretty tight, but let’s watch above one million closely because it’s trending a little higher. Granted, it’s pretty normal to have 8-10 months of housing supply at the highest prices, but still we’ve seen more of an uptick lately.

2,651 FEWER LISTINGS SINCE THE PANDEMIC: Over the past three months there have been over 2,500 fewer listings compared to the same time last year. No wonder why it feels so competitive…

Now here are more visuals. As if this post wasn’t long enough already…. See my sharing policy for 5 ways to share my content (please don’t copy my posts verbatim).

SACRAMENTO REGION:

SACRAMENTO COUNTY:

PLACER COUNTY:

EL DORADO COUNTY:

Okay, let’s wrap this thing up.

Questions: What stands out to you about the market right now? What are buyers and sellers saying? I’d love to hear your take.

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Seven things to watch in real estate during a pandemic

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What’s the market doing? What can we watch right now to get a better sense of housing trends during the pandemic? Here are seven things I’m keeping my eyeballs on these days. Anything to add?

SEVEN THINGS I’M WATCHING DURING THE PANDEMIC

1) Listings: We often think about listings increasing as a way to see the market changing, but right now many markets across the country are seeing fewer new listings. So at times change is best seen with less of something rather than more. It’s not a surprise to see fewer new properties during a pandemic, right?

2) Pendings: When the number of pending contracts declines it’s likely a sign that buyers have begun to back off the market. Like many areas across the country, pendings are down 40% right now in the Sacramento region. There are simply fewer buyers willing to engage with the current market. Also, one of the things we want to watch is the gap between all listings and current pendings. If this gap widens it will soften prices and give buyers more power.

3) Sales volume: When fewer sales start to happen, it’s a sign the market has changed for some reason. This image below shows we are at the beginning stages of seeing sales volume dip due to the pandemic. In other words, the second week of April clearly saw FAR fewer sales compared to last year at the same time. From here on out it’s likely we’re going to see bigger changes in sales volume since many homes beginning to close got into contract over the past month during the pandemic.

4) Canceled / Hold: A market isn’t just about what is listed, but what used to be listed. There have been over 1,000 listings taken off the market in the Sacramento region over the past four weeks. The removal of these listings has helped the market feel much more balanced than had these listings still been active. Key questions: How many of these listings will come back? When will they hit the market? Will there be enough pent-up demand to meet the supply?

5) Word on the street: What are buyers, sellers, and real estate professionals saying? The stories of today become the stats of tomorrow, so paying attention to what people are saying is huge.

6) Other metrics: There isn’t one end-all metric to tell us everything we need to know about the market, so it’s important to pay attention to lots of little things such as days on market, changes in financing, the average list price, the sales to original list price ratio, price reductions, the number of multiple offers, changes in various price ranges, concessions offered by sellers, etc… Let’s remember the market isn’t going to be the same for every property type or in every price range or neighborhood.

7) Prices: In real estate we are so obsessed with prices, but that’s really the last place to look to see the market. What I mean is change happens first in the areas above before showing up in sales stats a couple months down the road. In short, for now the slower pandemic trend hasn’t infiltrated sales price figures as of yet in Sacramento. This doesn’t mean the market is stable in every price range and location. All I’m saying is regional and county stats don’t show price declines right now. Normally I pull monthly price data, but I’ve switched to weekly in order to see the trend sooner rather than later.

I hope that was helpful. And yeah, that was long. But hopefully it was worth digesting whether you’re local or not.

Okay, moving on.
 

A FEW RESOURCES:

New market video: Here is a fresh market update video. This is 30 minutes and perfect for the background while quarantining. Check it out below or here.

Q&A video: Here is a video I did recently with Doug Reynolds to talk about the market and appraisal stuff. I have many of these lined up and I’m glad to share them in the future. As a side note, I’m not an advocate for any brokerage and I’ll never take sides. I’ll do interviews with just about anyone as long as there is mutual respect and I have time to do so. I’ll share videos here only if the end-product is worth sharing.

Zoom with Grounded: I mentioned a Zoom meeting last week hosted by Grounded and some of you were able to join live (thank you). I have about four to five Zoom sessions per week these days, though most aren’t public. I look forward to doing these with many brokerages. Watch below or here.

BIG MARKET UPDATE (ON HOLD): I normally write a huge market update around this time of the month, but my entire life and social media feed has been one big market update lately. So I’m putting my typical format on pause so I can spend time on more pressing visuals.

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

Questions: What are you watching in today’s market? Did I miss anything?

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Hot real estate stats during the pandemic?

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I can see the headlines now. “Prices rose despite the coronavirus,” or “The housing market shows strength in March despite the pandemic.” But let’s step back and think critically about glowing stats from March and what they really tell us. I hope this will be helpful. Any thoughts?

Five things to consider about stats during the pandemic:

1) Prices rose last month (technically): If we’re not careful the hot headline can be the median price rose 3.5% last month in the Sacramento region despite the pandemic. In other words, the median price increased from $425,000 in February to $440,000 in March. On paper it looks like the market is fine and moving along without any effect. BUT we have to remember prices in March actually reflect pending contracts from mostly January and February. So sales in March actually tell us way more about previous months rather than March itself. If you don’t believe me, only 2.9% of all sales in March got into contract on or after March 12th (the day we found out Tom Hanks had coronavirus) and only fifteen properties have gotten into contract and closed since the lockdown went into place. So we have very little pandemic data to consider within March sales.

2) Pulling stats too soon: This sounds geeky, but it’s key to understand. Pulling sales stats on the first of the month is way too early because not all sales have been entered into MLS yet. In my experience on the first of the month we’re still missing about ten percent of the sales from March because not all sales have been entered into the system yet. So if we wait about a week instead to pull stats we end up getting a much more accurate picture. I quoted the median price above at $440,000, but that is preliminary and it could easily change based on ten percent of the market not being accounted for yet.

3) What to watch right now: If you want to see the current market, watch what is happening in the listings and pendings rather than recent sales in March. Are listings moving or sitting? Are we seeing more price reductions? Are properties spending less or more time on the market? What is the sentiment among buyers and sellers? Who is gaining or losing power? Has there been a change to the number of listings and pendings? Do sellers have to give more credits to buyers? Are contracts getting bid up? Are contracts falling apart more often? We need to ask these questions in every neighborhood and price range. My advice? Look to neighborhood stats and let the numbers inform your narrative about what is happening in the market.

4) Be objective about data: I find it’s so critical to be objective about prices. What I’m saying is if we’re not careful we can judge a market’s price direction based on what we think should be happening, recent sensational headlines, or even regional trends for pending contracts rather than looking to actual stats in a neighborhood or price range. Appraisers even need to do this. It can be tempting to say prices are declining, but we need to be sure that is the case based on what we are observing in the neighborhood market. Remember, it’s possible to be see pendings and listings start to slough, but that doesn’t always mean we’re seeing price declines at the moment. Could that be coming soon? Yes. But we need to let the data tell the story. Let’s remember the market is changing quickly, so what we’re saying today might be different tomorrow.

5) Upping your numbers game: If you work in real estate I can’t emphasize enough how important it is to be fluent in market trends and to be able to talk through current dynamics so you can offer informed real estate advice. If it’s helpful, I am posting a few YouTube videos each week right now as well as lots of content on Facebook and Twitter. Or let’s set up a Zoom meeting with your office so we can talk shop (local offices are free). My goal is to offer perspective and objectively share the story of the market without sensationalism.

A few closing things:

New market update video: Here is a new market update video from two days ago. This is 15 minutes. Watch below or here. I have some new stuff to share, so be on the lookout hopefully today.


 

Fresh daily visuals: During this pandemic I’ve upped my stats game and I’m finding new ways to visualize how the market is moving. I’m not focusing on prices for now because we don’t have enough data yet.

Side note for appraisers: There are disclaimers being put into appraisal reports that talk about not being able to quantify the long-term or short-term effect of coronavirus, but if we pay close attention we likely have enough data right now to at least talk about some of the short-term dynamics. It’s easy to put boilerplate pandemic comments in an addendum for liability and that’s a really good idea, but what’s even better is our market analysis. Colleagues, would it help to have some tutorials for these types of graphs so you can make them in your market? If there is enough interest I’d be glad to put something together. Let me know.

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

Questions: What stood out to you about this post? What are you seeing out there in the market right now?

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The relevance of listings in a slower real estate market

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Everyone knows appraisers use sales during an appraisal, but how do listings fit into the picture? What can listings tell us about the market?

The Scoop on Listings: Paying attention to listings is critical for both appraisers and the real estate community because they can help us see what the market is doing. Think about it this way. Sales show us what the market used to be like 30 to 60 days ago when these properties first got into contract, but listings help us see what the market is like right now. In other words, sales are pieces of history to illustrate the immediate past, but listings more accurately reflect the temperature of the current market.

snail in a race photo 2 - bought by sacramento appraisal blog and used with permission

On top of using three sales, appraisers are basically required to use 1 or 2 listings for most lenders. This means appraisers will need to include a couple active or pending listings in the report that support the appraised value. Keep in mind appraisers may or may not use listings in private appraisals for divorce, estate planning, litigation… If a market is increasing, listings will likely be priced higher, and if a market is cooling or declining listings are probably going to be priced lower than the most recent sales. Sometimes though listings are simply pried too high as shown below:

fair oaks neighborhood

This graph of neighborhood sales shows listings are priced significantly higher than the most recent sales. Part of the issue in this neighborhood is there are not many listings, which can skew the median price. But the thing is a number of neighborhoods in the Sacramento area are showing a similar trend right now with listings priced too high. As you can see, current sales are higher than they were during the beginning of the year, but the market has actually flattened out lately in many areas. This is why higher priced listings don’t always mean value is truly at that level. Sometimes when a market slows down it takes a bit of time for listings to get in sync with the change that happened. Are buyers actually making offers at those higher prices? Does it seem reasonable for value to be that high? Has something changed in the market so that current listings are legitimately marketable at higher levels? The same is true for low-ball listings or short sales. Just because a property is priced that low does not mean the market is that low.

A few thoughts about listings in Sacramento right now:

  1. Many listings are simply overpriced. The market is very price sensitive, so if the price isn’t right, it’s going to sit.
  2. Just as one sale does not make the market, one higher or lower listing does not make or break value either.
  3. There are lots of price reductions right now, but remember there are lots of pendings too, which shows the market is still competitive. Inventory may be higher, but it is still not very high.
  4. More housing inventory will slow down the market, which means it’s not the type of market to try to price it like it’s 2013 (when the market was really hot and inventory was declining). Buyers have more selection and they’ve become a bit more picky, which is something sellers need to consider.

4 temptations when a real estate market slows down:

  1. Use older sales that sold at higher levels to substantiate a higher contract price.
  2. Ignore current listings that are priced lower and might actually better reflect the housing market.
  3. Use listings that are priced higher to gauge the market even though these higher listings are not moving at that price.
  4. You get into contract at a high level and expect a higher appraisal despite data not supporting those prices any longer.

Question: Anything else you’d add?

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