Placer County

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.

How would you know if the market was starting to tank?

August 14, 2018 By Ryan Lundquist 28 Comments

Is the market starting to tank? Or is it just a seasonal slowing? I’m getting asked this question all the time, so I wanted to share some thoughts. Then I have a big local market update for anyone interested.

How would you know if the market was sliding? I wish this was a 10-second answer, but it’s a big conversation, so let’s unpack some thoughts.

1) Change in inventory: It’s normal for housing inventory to increase as a market begins to cool for the season, but when a market starts to make a big turn we’d likely notice new listings aren’t being absorbed and the number of listings keeps growing beyond a normal pace.

2) Change in sales volume: Sales volume usually slows down as the market cools, but during a big shift we’d expect to see a more substantial change in sales volume over time. I’m talking about a market where buyers put on the brakes and properties stop selling. Currently in many areas throughout the country we’re seeing some smaller changes in sales volume. Could it be the start of something? Sure. But in my mind we need more time to see if this is a consistent pattern or just a slower end of the year.

3) Word on the street: What are people saying? How does the market feel in the trenches? We can learn so much when talking with informed local buyers, sellers, agents, appraisers, and other real estate professionals. Ask things like, “What are you seeing out there?”, or “What’s the market doing?” This is important because before we see a change in stats we’ll hear of change in the trenches. As an FYI, here’s a Twitter poll from a few days ago.

4) Less pendings: When a market starts to slide we can expect to see less pending sales, which is a big sign of waning demand. Let’s just remember though around this time of year we usually see fewer pendings as the market cools. This means we have to be cautious about saying the market is crashing just because pendings soften. My advice? Look for abnormal changes beyond a regular seasonal dip in pending sales.

5) Price changes aren’t the big issue: When a market shifts directions we often look to prices to tell us if things are changing, but it takes time for prices to catch up with the trend. For example, in Sacramento in 2005 we saw housing inventory triple and sales volume drop 43% in one year. Yikes! Those are insane stats, but price changes weren’t all that dramatic during this time period.

6) Other metrics: Lots of experts say to watch the number of new homes built as an indicator of the market changing. That’s huge. Others say it’s the GDP or economy, easy credit, housing affordability index, or flux capacitor sales (kidding on that one). There are definitely important indicators out there, and we should tune in, but for a local market I might suggest paying the most attention to inventory, sales volume, and the word on the street. If new construction is booming in your market though, definitely watch that too.

7) A closing dating analogy: Just like a dating relationship needs time to figure out what it’s going to be become, the same thing happens in real estate. Right now in many areas of the country we’re seeing inventory increase and sales volume starting to slump. At the least these are signs of a slowing market for the season, but it also makes us wonder if it’s something more. What does it really mean? Where will things go? The truth is we don’t fully know yet because the future hasn’t happened and we need more time to see how things unfold. I realize that’s frustrating to hear, but it’s honest.

CLOSING TIPS:

1) Crystal balls: If you don’t have a crystal ball that works, be careful about making very specific real estate predictions.

2) Watch local data closely: More than ever it’s critical to watch local data. Lots of articles are talking about “national” trends, but what’s happening locally?

3) Don’t just regurgitate headlines: It’s easy to read headlines and let the titles become our talking points. Be careful of that since headlines are designed to get clicks and they may or may not reflect the market.

4) Know the season: It’s not always easy to understand what a market is doing at this time of year when things usually slow down. My advice? Understand normal seasonal trends by studying past years. What does the market normally do at this time of year? This will help us spot normal vs abnormal trends.

I hope that was helpful.

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

The market has been slowing for the past few months in Sacramento. We’re seeing what we’d expect to see at this time of the year like softer prices, more price reductions, a lower sales-to-list price ratio, and it’s taking longer to sell. We’ve had a hefty uptick in housing inventory though, and that’s something to watch – especially if it continues over time (that would be a problem). But for context, housing inventory is actually still historically low, so it’s not like we have a crazy high level right now. Some have wondered if the market is a bit stalled right now, but sales volume is still looking pretty strong and so are pendings. But I’d say there is some shock in the market because of the rise in inventory. Keep in mind one of the problems is so many sellers are overpricing, and that only makes inventory increase because these properties end up sitting instead of selling. On the other hand homes that are priced well are moving quickly, and 48% of all sales in the region last month had more than one offer. So despite a slowing narrative, the market isn’t painfully dull either.

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

DOWNLOAD 64 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).

JULY 2017 vs JULY 2018: So how did this past month do? One of the ways we find the answer is to compare last month with the same month in 2017.

JUNE 2018 vs JULY 2018 (NEW CHARTS): The problem is if we only look at July this year versus July last year, we’ll miss what the market is doing right now. So that’s why I have new charts to show the previous month vs the most recent month. But there’s still an issue because if we only look at this chart and don’t understand that the market normally softens around this time of year, we might walk away with the idea that the market is utterly tanking when it’s normal to see inventory increase, sales volume decline, etc… Look at graphs below to help see seasonal changes (or check out this older YouTube video where I talk about seeing the seasonal market).

SALES VOLUME: One of the things we need to watch is sales volume because if we start to see a trend of slumping sales, it could be a sign the market is in trouble. The truth is we’ve technically had a couple of months in a row of lower sales volume in the region. But volume was only off by 4% in June and it was barely off at all this past month (which is why I said “technically”). When you really look at it, sales volume this year in 2018 so far has been stronger than last year. But when we look at the past 12 months as a whole it’s clear volume is down (still only slightly though). Ultimately volume is not crashing right now based on the stats, so let’s be careful about saying it is.

NOTE on Trendgraphix: I have some thoughts on the way Trendgraphix is pulling stats. This month their stats show sales volume in Sacramento County is down by 6%, but that’s not accurate. I can explain why if anyone wants to know. And I love Trendgraphix. What an incredible resource. I just find when we’re looking at the market carefully in a time like this, it’s critical to know how the numbers work.

2005 vs CURRENT: In case you wanted to compare current price metrics with 2005, here you go. A couple of months ago I talked about peak prices because some metrics were showing 2005 levels. But with the market softening right now we’ll expect over the fall season to see current prices grow further apart from the “top” so to speak.

SACRAMENTO COUNTY (more graphs here):

SACRAMENTO REGION (more graphs here):

PLACER COUNTY (more graphs here):

I hope that was helpful.

DOWNLOAD 64 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 would you look for to know the market was turning? What are you seeing out there right now? I’d love to hear your take.

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

Peak prices & “bubble” conversations

June 14, 2018 By Ryan Lundquist 14 Comments

We’re about to have more real estate “bubble” conversations. Why? Because prices are very close to where they were at the previous peak of the market. Here’s a few things that come to mind when these conversations come up. Then for those interested I have a big monthly market update. Anything to add?

Higher prices fuel conversation: As prices rise, it inflames conversation about a real estate “bubble”. Media outlets cover this topic of course, but it’s also on the mind of the public.

Stats are VERY close to the peak: Markets throughout the country are different, but in Sacramento most price metrics are getting very close to the peak from 2005. In fact, the average sales price in the Sacramento region is now the SAME as it was back then.

No formula: As a friendly reminder, there is no “bubble” formula that says the market will plummet if we get back to prices from 10+ years ago.

Hello inventory: As news of high prices gets out there, some sellers will put their homes on the market thinking we are at the top. So let’s watch inventory very closely in coming time.

Normal seasonal slowing: Right now the market is slowing, and some are saying, “It’s starting to turn. Pop. The Bubble is happening!!!” Here’s the thing though. Markets tend to have a seasonal cycle where things are hot and then they cool off. When the market begins to soften each year we tend to hear a little more doom & gloom because sometimes we confuse a seasonal slowing with the market tanking. At the moment the stats in Sacramento look normal for the season and don’t indicate the market has made a big turn down, so I’ll keep saying that unless I have a reason not to. Make sense?

Less room: There is less room for prices to increase unless the job market and wage growth really start to move. So it seems logical for the market to slow down. Yet there are many dynamics that make prices move, and nobody has a crystal ball to say exactly what prices will do in the future.

Don’t forget Inflation: This might sound anal, but let’s get technical about comparing older prices with today’s prices. We’ve had thirteen years of inflation since 2005, and that means it’s gotten more expensive to buy the same goods today than it was in the past. For instance, the peak of the market in Sacramento saw a median price at $395,000 in 2005, but when adjusting that figure for inflation with an inflation calculator, a price at $395,000 in 2005 would technically have the same purchasing power of $511,000 today. So as today’s median price approaches $395,000, we have to realize it’s really not the same $395,000 as it was in 2005 because of how the value of the dollar has changed over time.

But the market doesn’t care about inflation: Okay, let me now throw a curveball. It’s important to understand how inflation works for the sake of comparing older stats, but I don’t think most buyers and sellers actually care about inflation. They don’t say, “Sweet, prices today look like they’re the same as 2005, but technically they’re lower because of inflation.” No, people tend to see prices and say, “Holy heck, we’re back to the peak.” I’m not dismissing the need to understand how inflation works, but only being real about how the bulk of buyers and sellers tend to think. Besides, it doesn’t matter how close we are to the previous peak anyway because there is no formula that says the market will “pop” at that level.

Preaching doom: Some preach doom & gloom, and that’s fine. My advice though? Be realistic about your ability to predict the future. Some have been making annual real estate predictions about how the market is about to collapse, and I’m hearing many say the big change is now coming later this year or in 2019. The problem is when these predictions don’t come true the “prophecies” simply get pushed back another year. The irony is if a person keeps making the same prediction every year, at some point that person could be right.

Seeing only red flags: It’s getting less affordable. The economy isn’t that great. Interest rates are rising. Home prices have outpaced wage growth. Lenders are getting more creative with financing. These are red flags for sure. But let’s remember just because unhealthy elements exist in a market does not mean it’s starting to crash. My advice? Be honest about the red flags, but let actual stats inform what you say and think about the market. Keep in mind many articles in coming time are going to preach doom, but take a step back from the articles and look to the stats. What do the stats say? And what is the mood among buyers and sellers in the market? That’s the only thing that matters.

Open letter to worried buyers: Last year I wrote an open letter to buyers worried about another housing bubble. I have some practical advice and tips in there in case it’s relevant.

I hope that was interesting or helpful. Anything to add?

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

We saw what we would expect to see last month. It felt like a normal May. Well, actually it was the strongest May of sales volume since 2013. Prices ticked up again, it took three less days to sell, and inventory remained sparse. Overall the stats are glowing, but it’s important to recognize the market is starting to slow for the season. We are seeing way more listings hitting the market, and this is transferring some power from sellers to buyers. We are also seeing more price reductions. In a few months we will likely see this slowness in the stats, but for now check out some glowing numbers below.

The previous “bubble” vs now:

1) Housing inventory: Since late last year housing inventory has begun to increase subtly. Right now we have 1.5 months of housing supply whereas one year ago we had 1.26 months of supply. Some might interpret this to mean the market has begun to collapse and really change directions, but this is still a very anemic level of housing supply, and the market has been able to handle this change easily because of strong demand. For reference, when the market collapsed in 2005 inventory literally doubled in 90 days from the summer to the fall. That’s a far different story than what we’ve seen so far this year with a minor uptick in inventory over the past two quarters.

2) Sales volume: If we did have a “bubble” and it burst, I would expect to see more listings hit the market and most likely a drop in sales volume. In 2005 the market changed and properties simply stopped selling as you can see below. In one year sales volume literally dropped by 43%. Yikes!! In contrast, right now sales volume has been very steady. Let’s keep an eye on sales volume and inventory though because both metrics might help us gauge if the market really is changing. Remember though, before we see a change in sales, we’ll hear of a change in the mood of buyers and sellers. Thus the trend always happens in the listings first before we start to see it in the sales. That’s why the word on the street is so important in real estate (agents, please keep emailing me to let me know what you are seeing out there).

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

DOWNLOAD 61 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).

SACRAMENTO COUNTY (more graphs here):

SACRAMENTO REGION (more graphs here):

PLACER COUNTY (more graphs here):

DOWNLOAD 61 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 are you hearing buyers and sellers saying about the market? Do you think the market has turned or are we seeing a seasonal slowness? I’d love to hear your take.

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

Placer County

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