10 things to know about low housing inventory

Inventory is low. Really low. That’s one of the big stories right now in real estate, so I wanted to spend some time kicking around some thoughts. Let’s take a look at ten things to know about housing supply in Sacramento. If you aren’t local, I hope you can still find some value. Do you see any parallels to your market? Any thoughts? 

DOWNLOAD 50 graphs HERE: Please download new market graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

10 THINGS TO KNOW ABOUT LOW HOUSING INVENTORY

1) Housing inventory is clearly on a declining trend.

inventory in sacramento county Since 2013 - part 2 - by sacramento appraisal blog

Housing supply has been vanishing over the past few years in light of greater buyer demand, sellers sitting instead of selling, less new construction, increasing sales volume, and other reasons.

2) Housing supply is really sparse (except at the top).

inventory - March 2017 - by home appraiser blog

Housing supply was low last year, but this year it’s 15-20% lower. Having less listings means it’s really competitive for buyers – especially under $400,000. However, inventory is not low at every price range as there are far more listings at the top. Before freaking out though, this is actually a normal trend we see almost every single month. But the disparity between under $500,000 and above $1,000,000 is striking. As an FYI, it’s worth noting the top of the market does feel a bit soft.

3) Inventory is still not as low as the Blackstone days.

inventory in sacramento county Since 2011 - by sacramento appraisal blog

It’s true that inventory is anemic, but we have to remember during 2012 and 2013 it was at one month for nearly an entire year when Blackstone and other investors were gutting the market. I mention this because while the market has an aggressive feel, it’s still not what it was. If inventory persists in declining though it will be a bloodbath in terms of competition for buyers (good for sellers though as a developer mentioned to me on Twitter). 

4) Inventory was 1400% higher ten years ago during the “bubble”.

inventory in sacramento county Since 2007 - by sacramento appraisal blog

Ten years ago during the worst of the real estate “bubble” popping we had a 14-month supply of homes for sale (as opposed to one month now).

5) Bank-owned inventory is not a driving factor today.

REOs and Short Sales Sacramento County - by Sac Appraisal Blog

Eight years ago over 70% of all sales in Sacramento County were REOs, but that number is now about 3%. Some folks promise a new “foreclosure wave”, but it’s definitely not here right now.

6) Low inventory is putting pressure on values to increase.

Median price since 2013 in sacramento county

Declining inventory over the past few years is a big factor in rising prices. Right now values are about where they were at the height of last summer (or slightly higher) after a lull in the fall in many neighborhoods in Sacramento County. But let’s not make the mistake to think the market is doing the same thing everywhere. The truth is in some areas increases have been modest at best over the past year while some price ranges feel flat, but the bottom of the market is hands-down experiencing the largest increases. Remember, in some price ranges the market feels more aggressive than actual value increases too, so it’s really important to sift through emotions, look at actual numbers, and not overprice because the market is “hot”. A good mantra for some areas is “Aggressive Demand, Modest Appreciation.”

7) Strong demand is a huge reason why inventory is declining:

price metrics since 2014 in sacramento county

Demand is strong right now for both buying and renting, and buyers and tenants are simply gobbling up almost anything out there (I say “almost” because buyers are still sensitive about adverse locations and overpriced homes). Thus it’s not surprising to see the median price is 7% higher than last year, the average sales price is 9% higher, and the average price per sq ft is about 9% higher. Prices increases from February to March were anywhere from 1-3% depending on the metric (this doesn’t mean values went up by 1-3% though). 

8) Increasing sales volume is one reason for lower inventory.

Cash in Q1 - by Sacramento Regional Appraisal Blog

Housing inventory is the relationship between sales and listings, so if there are more sales and no real change in the number of listings it will naturally mean inventory as a metric will show a decline. Look at the graph above to see all sales since 2013 for the first quarter of the year. Can you see how sales volume is increasing? At the same time we see cash volume declining. This reminds us the market is trying to figure out what normal looks like. It’s healthy to see sales volume growing.

9) Low interest rates have helped take homes off the market.

Interest Rates Since 2008

Historically low interest rates have played a big role in shaping inventory in that some owners are sitting on a 3.5% interest rate from years ago and they are simply not going to move unless necessary. Why would they anyway if their replacement home would come with a much higher mortgage? This means there are fewer homes hitting the market that might otherwise sell.

10) Low inventory is causing homes to sell faster.

CDOM in Sacramento County - by Sacramento Regional Appraisal Blog

Last year it was taking 5 days longer to sell a home and two years ago in March 2015 it was taking 15 days longer to sell a home. Can you see how low inventory makes a difference in how long it takes to sell? By the way, here is CDOM by price range. As you can see, the higher the price the longer it takes to sell. Just because it is a “hot” market does not mean every property is selling in 3 days.

BIG MONTHLY POST NOTE: Once a month I do a big market update (and it’s long purpose). Normally I talk about Placer County and the Sac Region too, but I tore my MCL a few weeks back, so I only had time to focus on Sacramento County in today’s post. Next month I’ll likely be back to normal (but I may change it up too).

DOWNLOAD 50 graphs HERE: Please download new market graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: Did I miss anything? Any other thoughts as to why inventory is low? How would you describe the market right now? I’d love to hear your take.

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The Sacramento market in 30 seconds or 3 minutes

Are you ready? It’s time again for a monthly beefy play-by-play of the Sacramento real estate market. There are many things to talk about, but fortunately there are two options for reading this post:

  1. 30 Seconds: Briefly scan the graphs below in 30 seconds.
  2. Three Minutes: Take a few minutes to digest the graphs and commentary.

Enjoy. By the way, should I keep doing this format? Is it helpful or too much?

housing supply and median sales price by sacramento appraisal blog

Warning – Traditional Economics at Work: As inventory has increased, the median sales price has decreased. It’s always a bit normal to see values cool off during colder months, but it’s also a function of basic economics. When supply increases, prices tend to go down. Let’s look at a closer view below.

housing supply and median sales price trend graph by sacramento appraisal blog

A Closer Look at Price & Inventory: The median price in Sacramento County for November 2013 was about $245,500, which is down from a high of $253,000 a few months ago. Housing inventory is now at 2.5 months, which is a dramatic change from being at a one-month supply for nearly one year until about six months ago when inventory began an upward trek.

absorption rate sacramento county - november 2013

How Fast are Listings Being Absorbed? The absorption rate is basically how fast current listings are being 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 40.4%, which means that roughly 40% of all listings entered “pending” status on MLS or closed escrow last month. 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. By the way, here is a quick tutorial on how to calculate housing inventory in case it’s useful (YouTube video).

Foreclosures and Short Sales 2009 to 2013 in Sacramento County - by Sacramento Appraisal Blog

Same Old Distressed News: Foreclosure sales used to dominate the market, but now they’re only hovering at about 5% of all sales in Sacramento County. Short sales have persisted to decline and only represent about 10% of all sales so far this quarter.

Foreclosures and short sales in Sacramento County - by Sacramento Appraisal Blog

The Difference of Five Years: It’s incredible to see that in five years the market has gone from being 84% distressed to roughly 16% distressed. Isn’t that an amazing stat?

cash and FHA sales in Sacramento County - by Sacramento Appraisal Blog

Trading Places in the Market: Cash sales have seen a hefty 14% decline over the past few quarters, and this is creating more space for FHA and conventional buyers to actually get offers accepted. On a personal note it means I’ve been doing quite a few FHA appraisals. An increase in inventory also means buyers can be more picky, which is also why we’re seeing sellers beginning to offer closing costs again as an incentive to “seal the deal”. This is no longer a “price it however you want” market.

cash and FHA under 200K in Sacramento County - by Sacramento Appraisal Blog

Changes at the Lower End: The market under $200,000 was basically gutted by cash investors over the past year, but FHA is gaining ground again as you can see in the graph above.

cash sales under 200K in Sacramento County - by Sacramento Appraisal Blog

A Return to the Bottom: Right now cash sales are at a level close to when the market hit bottom in early 2012 for under $200,000 and even before for the entire county. This is significant because investors swooped in when values bottomed out in the first quarter of 2012 and were one of the big factors for helping create the latest real estate boom. The exponential increases in value were primarily driven by investors, low interest rates and low inventory. Rates are still really low, but things are clearly changing in the cash and inventory department.

Sacramento real estate market stats through 2013 - by sacramento appraisal blog

A Different Market: A chart like this helps to show that the market is now different from even six months ago. Cash is down and conventional and FHA are up. This is true for the entire county, and it’s also true for the lower end of the market under $200,000. Some believe that FHA has not been increasing because of mandated mortgage insurance, but that is simply not true.

sacramento real estate market trend graph closer look by sacramento appraisal blog

The Forces of the Market: Real estate is not just about supply and demand. There are some many “layers” of the market that help create or impact value. As you can see, a decline of interest rates, improving job market and increase of housing supply tends to impact price over time.

sacramento real estate market trend graph by sacramento appraisal blog

A Busy Graph Worth Digesting: Here is a panoramic view of the same trends above, but with ten more years of data. I know this is a VERY busy graph, but it’s also really telling. Spend a minute digesting what is going on here.

unemployment rate US CA Sacramento by sacramento appraisal blog

The Word on Jobs: Sacramento and California both saw an exponential increase in joblessness after the previous real estate “bubble” burst. Both the state and county since have been slowing getting back to levels more consistent with the rest of the nation.

jobs and median sales price by sacramento appraisal blog

unemployment rate and median sales price trend graph by sacramento appraisal blog

Specifics on Jobs: Unemployment in Sacramento County has been declining since the summer of 2010. Currently the unemployment rate as of October 2013 is 8.4%. It’s still definitely not where we’d like it to be closer to 5%, but at least it’s not still 13% like it was, right? This graph pairs jobs with the median price. Jobs are a layer of value in the market that can impact the overall direction of values, but they are really only one layer. Ultimately the Sacramento real estate market will be healthier and stronger when the local economy improves and it’s easier to find good jobs. Bottom line.

Video of Trends: If you’d rather watch or listen to my interpretation of the market, check out the video above (or here). Feel free to share this video on your blog of social media too.

Share the Graphs: As always, you can use these images unaltered in your newsletter, on social media sites or blog posts (just link back). See my sharing policy for more details.

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

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Some bathroom reading to help understand the Sacramento market

Where do you do your reading? I tend to read in bed at night and mostly in front of a screen – whether a tablet or smart phone. Wherever your chosen place might be, I’ve got something for you to add to your list.

Joel Wright - Real Estate BrokerThe Wright Report is compiled by real estate broker Joel Wright, and is the most exhaustive report I know of to help digest the real estate market in Sacramento, Placer, Yolo, El Dorado and San Joaquin County. This is great reading for the bathroom, bed, Starbucks or wherever you do your thing. The Wright Report helps provide a context to understand the local market and things like low inventory, investor cash purchases, how Sacramento compares with national trends and historic graphs to help see where the market has been over the past decade. Along with some other industry professionals, I also contributed a few thoughts to this report. DOWNLOAD here (pdf) or READ ONLINE.

This is a small example of some of the data in the report:

Wright Report 2012 Q4

Placer County & Sacramento County Median Sales Price Graph - Graph made by Joel Wright of Wright Real Estate

You can read the embedded report below or DOWNLOAD (pdf) or READ ONLINE.. This is relevant for consumers, real estate professionals and those considering investing in the market. The report is 43 pages (about half of the pages are graphs), so I recommend downloading. Let me know what you think.

Question: Where do you do your reading?

If you have any questions or Sacramento home appraisal or property tax appeal needs, let’s connect by phone 916-595-3735, email, Twitter, subscribe to posts by email (or RSS) or “like” my page on Facebook