Have you ever met someone who looked really good on the outside, but the inside was a different story? That’s sort of like the housing market right now. Sales stats look super attractive, but if we really consider listings and other metrics we begin to see a different story. The market is slowing. Since it’s not always easy to explain that, here are a few analogies to help describe how important it is to look beyond just sales to gauge the temperature of the market. Then for those interested, let’s take a deep look at Sacramento trends. Any thoughts?
Examples to explain the market when it begins to slow:
- First Date: A first date is all about putting your best foot forward, and that’s exactly why we usually need more than just one good date to make up our mind about someone (gotta be sure the person is not psycho). The same thing happens with real estate. Shining sales stats are like a first date because they lure us in and make us feel good. But we can’t really judge an entire market just by the sales. We need to consider listings and other metrics too.
- Taking the Temperature in the Shade: If you take the temperature in the shade in the summer, you’re going to get a much different reading. The same thing happens in real estate where we can get the wrong temperature of the market if we only focus on sales instead of listings and other factors.
- Judging by one Tweet: These days it’s easy to judge a person by one tweet instead of looking at their wider body of work (their life). The same thing happens in real estate when we only look at sales instead of listings and other stats. If our vision is too narrow, we might not see what the market is actually doing.
- Pregnancy Test: I asked my author wife for an analogy and she said the market is like a pregnancy test (I wouldn’t ever have thought of that). You can technically be pregnant but an over-the-counter test won’t tell you that for a couple of weeks. Similarly, the market may have changed, but we may not see a price difference in sales for a month or two. But the change is definitely there when we look at listings and other metrics.
- Pokemon: I’m just kidding. I won’t go there.
In a small way, I hope this was helpful. It’s very powerful to explain the market in different ways. Any other analogies to share?
—————– For those interested, here is my big market update —————–
Two ways to read the BIG POST:
- Scan the talking points and graphs quickly.
- Grab a cup of coffee and spend time digesting what is here.
DOWNLOAD 80+ graphs HERE: Please download all graphs in this post (and more) here as a zip file. Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.
Quick Market Summary: On paper the market has been hot. We’ve seen all the normal stuff like price increases, slightly higher sales volume in 2016, and sparse housing inventory. If you didn’t know, the median price in Sacramento County is 105% higher than it was in 2012 and 16% lower than the peak in 2005. Distressed sales actually reached their lowest level since 2009 last quarter too. Cash sales volume has been hovering at a normal level while FHA sales volume has been declining. Overall the market is still really competitive, but it’s starting to turn. Keep in mind it’s common for real estate to lose some steam around mid-Summer. While the sales stats don’t show it yet, we see a slower market with the sales-to-list price ratio declining last month from the previous month, it took the same amount of average days to sell for the past two months in the region, and there has been a slightly more optimistic tone among real estate professionals about buyers getting into contract. While it felt utterly hopeless to get an offer accepted a few months ago in certain price ranges, it is starting to feel slightly more hopeful based on feedback from agents. Moreover, it seems like there has been growing price resistance lately (particularly at the higher end of the market). The market has been price sensitive all year as buyers are not fooled by absurdly high prices, but the sensitivity seems more heightened right now.
Sacramento County:
- FHA volume has been about 24% of the market (it was nearly 27% of the market last year at the same time).
- Cash volume is roughly the same as it was last year at the same time (around 16% of the market).
- It took an average of 25 days to sell a home last month, which is 2 days less than the previous month (and 5 less days compared to last year).
- REOs were only 2.9% of all sales last quarter (lowest level in years).
- Sales volume is up very slightly Q2 2016 compared to Q2 2015.
- There is only 1.38 months of housing supply in Sacramento County, which is 14% lower than it was last year at the same time.
- The median price increased by 3.5% last month.
- The median price is 13% higher than the same time last year.
- The avg price per sq ft increased by 1.4% last month.
- The avg price per sq ft is 9.7% higher than the same time last year.
Some of my Favorite Graphs this Month:
SACRAMENTO REGIONAL MARKET:
- It took the same amount of time to sell last month as it did the previous month (though 3 less days to sell this June compared to last June).
- Sales volume is up slightly in 2016 compared to 2015.
- Cash volume is about the same this year (16% of the market for Q2).
- FHA volume is down 7.5% so far this year in the region.
- The sales to list price ratio was 98% in the region last month.
- There is 1.6 months of housing supply in the region right now, which is 13.5% lower than it was last year at the same time.
- The median price increased 3.6% last month from the previous month.
- The median price is 11% higher than the same time last year.
- The avg price per sq ft increased by nearly 1% last month.
- The avg price per sq ft is 8.9% higher than the same time last year.
Some of my Favorite Regional Graphs:
PLACER COUNTY:
- It took 4 less days to sell a house last month than the previous month (and 3 less days than last year at the same time).
- Sales volume was up about 1% in June 2016 compared to last June and is down slightly for the year (about 2%).
- FHA sales were 17% of all sales last month and cash sales were 13% of all sales last month.
- There is 1.7 months of housing supply in Placer County right now.
- Housing inventory is 8.5% lower than it was last year at the same time.
- The median price increased 0.5% from the previous month and is up 7% from last year at the same time.
- The average price per sq ft was $212 last month (was $200 last year at the same time).
- The average price per sq ft is up 1.4% from the previous month and 6% from last year at the same time.
- Bank owned sales were only 1% of all sales last month.
- Short sales were 1.9% of sales last month.
Some of my Favorite Placer County Graphs:
DOWNLOAD 80+ graphs HERE: Please download all graphs in this post (and more) here as a zip file. Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.
Question: Any other market insight you’d like to add? I’d love to hear your take.
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Great information Ryan. In Elk Grove 95758, 95757 inventory is up 25%-30% since February.
Interesting to hear. Thanks Edgar. I really appreciate it. I know you watch Elk Grove closely.
Great read, very informative, I love the graphs as well! also, the woodwork…. perfect! I love the white with that color wood. and the wood choices for the bottom ones as well!
Thank you so much. 🙂 Ah, woodworking. It’s time to build something again.
Do you have a graph, or can you make one, showing placer county median prices over the past 30-60 years?
I wish I had data that old. Our MLS data only goes back to 1998 online and before 2008 it’s difficult to extract median price figures because of how the archives (1998 to 2008) are set up. There are old paper MLS books from the past, and I have a collection from the late 80s through 1998, but those only list sales instead of stats. It would be really tedious to figure out. Hopefully one of these days we’ll see something like that.
Thank you for sharing Ryan. The market is slowing in our area too and there are some agents sitting around right now wondering why their new listing does not have a bidding war like a similar listing did a couple months ago. I guess the new listing is like the pregnancy test. Oh no, the buyers are late! We better get a test. Call in the appraiser. Dr. Ryan Lundquist OB/GYN?
Gary, you are too funny. I appreciate hearing about your market too. I think my wife nailed it with that analogy. I’m definitely going to try to use it sometime soon (hopefully next week during a presentation). It takes so much skill to see the market slow and explain it too. In the real estate community my sense is we really do have to respect current listings that are actually getting into contract. After all, they can give us clues into what the market is willing to pay, how long it is currently taking to sell, and what buyers are pulling the trigger on right now. It’s so easy to be distracted by higher sales from the past, but we just have to ask where the market is at right now. If selling stocks we would need to look at what they are selling for right now instead of where the market was at say 6 months ago. If selling a 2004 Camry we’d have to check the Kelly Blue Book value now instead of the blue book value six months ago. Not perfect comparisons, but there is something there. Thanks again.
Ryan, good posts here, and would like to see more comments from your readers. I’ve been investing heavily in the Sac market since about 2004. This market is about to crater in my opinion. Obviously you have some great hard data, however I also rely on my ‘gut’ for sensing markets (the presence again of cash out refi radio programs, barbers talking flips, HGTV mania etc. The feeling of froth is undeniable. I am reminded of 2005/2006 again. My bet is that within 6-12 months barring heavy government manipulation again and QE4, real estate values will be anihliated. The market is conservatively 2-3x overvalued based on incomes. It will collapse under its own weight. This is needed anyway so that people can actually afford housing. Sac Implosion 2.0 is in the cards my friend, there is no way around it. The market has been drastically distorted by free money and now the use of high leverage, again. The only question is only what will cause the inventory spike that will inevitably stop the music.
Thank you Mr. Miyagi (it would be legendary if that was your real name (I’m assuming not, but I’m holding out hope)). I appreciate your take and thoughts on the market. You sound like you have quite a bit of experience. I agree it is crucial to look at hard data and get a sense of the feeling of the market too as you say. It’s not surprising to see data lag behind the feeling out there too, whether that would be the market slowing or something else. In the immediate future it’s going to be interesting to see how creative lenders get, and that can definitely influence what values do in coming time. In the past we’ve seen values decline any time housing inventory in the county has been closer to 4 months, though we could easily see values decline with a much lower housing supply too. After all, there isn’t a rule that says we have to get back up to that level before the market changes, though obviously a rise in inventory is a key factor. How much will it have to rise? We shall see.
Feel free to pitch in your two cents. I’d also like to see some others share their sense of the market, though I understand that’s not always something people want to do as it can feel very definitive to put something in writing….
I wish my name were actually Mr. Miyagi, I agree it would be quite a legendary name to have.
Agreed that a price reversal barring an inventory rise being unlikely. However, I can foresee a myriad of factors causing price declines. We have so many imbalances that collectively things are resting on the head of a pin.
Rent bubble – rents will go down dramatically back where they should be. Even though I benefit from this as an owner of income producing multi-family, I am certain rents are also in a bubble and furthermore people shouldn’t have to spend 50% percent of their income for shelter. Owners that purchased rentals on pro forma numbers or bubbly rents will get smoked.
Jobs recession – It has to happen. Even with our phony employment numbers wages haven’t grown and when the economy contracts all of the borrowers propping up these lofty prices will no longer be able to do so.
Free money – When rates get anywhere close to normal, prices are heading south. It is that simple.
The government fluffing the real estate sector will end around November. After they’ve tried to get Hillary elected our Fed will be forced to address major imbalances with monetary policy. Hopefully not QE4 or we will be hunting squirrels for food in a few years when our currency is toilet paper.
This market is toast, especially in Sacramento where demand drivers are not substantial enough to justify these wacky prices. There I said it. Buckle up.
Mr. Miyagi,
I must say, I too believe that you are right.
I do not know as much as you guys about the Real Estate sector which is why I’m on this page to begin with, but I do know quite a bit about the stock market and economy as I have been studying it very intensely for quite a while now.
Back in 2006-2007, right before the Great Recession, many people were denying the evidence of the horrendous overvaluations that were right in front of their eyes. People always seem to think that prices can just go to the moon and everyone will be ok. History has taught us otherwise time and time again, but yet people always seem to end up right back to where they started.
Right now what I see is a severely overvalued Stock Market, Housing Market, and U.S. Debt. As you say, prices have surged back up to pre-recession levels, yet average pay has not been keeping in sync.
In truth what has happened is that the economy never actually recovered from the 2009 crash. The “recovery” was/is a hoax. You see, the Government bailed out big banks and flooded the market with trillions of dollars in economic stimulus. Also let’s not forget about the low interest rates the Feds put in place. This in turn triggered the stock market to reach dangerous new highs. Normal fundamentals such as P/E Ratio, EPS, and Revenues have gone out the window. This investor buying spree is the only thing that propped up businesses even though GDP stayed at low levels. Lately the stock market has become highly unstable creating big fluctuations with even the slightest news. Post-Brexit vote was a good example of this.
As far as I can see, Real Estate prices rose on the backs of all the cash buyers that flooded the market following the “recovery”, however those cash investors seem to be exiting now.
There are all kinds of signs out there that we are set up for one of the greatest economic collapses since the Great Depression and everyone seems to be ignoring it.
Hi Brandon. Thanks for pitching in your take. I really appreciate it. I’m always grateful for Mr. Miyagi’s take on things too as he leaves some really thought-provoking comments (you should see the one on this week’s blog post on marijuana).
As an FYI, you are welcome to share thoughts any time. Now that you left a comment you can post freely too since the first one is always moderated by WordPress settings. If you are new around here, I do have one big monthly market update to unpack Sacramento real estate trends in case real estate is on your radar a bit more. It comes out around the 10th-15th of each month in case it’s relevant in any way. Just a heads-up.
You are right about prices. They cannot go up forever. No commodity only increases. No relationship is always good. Nothing has an upward trajectory only. Bottom line. Yet in real estate it’s easy for so many to fall into the trap of believing that homes should always increase or real estate news should only be glowing or positive. You are right too about the power of investors who drove values up, though the market was due for a legitimate upward correction after so many years of decline. To be fair I would say not all the value appreciation has been due to investors. It also makes sense for some investors to have left the market because the foreclosure sales were bought up (which made flipping homes difficult as there was no longer inventory to flip).
Thanks again.
Thanks, I’m subscribed and will stay up to date on your posts.
In 2013-2014, My Ex Wife and I began buying up Real Estate. At the time, the market was already about halfway through the recovery and I figured it had farther to go.
The one trend I noticed over and over was the amount of Chinese cash buyers in the Sacramento Market. Almost every offer my Ex Wife and I made were competing against a number of other Cash Buyers…most from China.
I’m pretty sure those foreign buyers helped push Real Estate prices to overvalued levels when we look at price-income perspective.
The scariest part of the overall market now is the San Francisco Market in which the average price of a home is over $1M, which is an amount much higher than the 2006-2008 Peak.
Forgive me if I’m wrong but I just don’t see how these dangerous levels can be sustained. The only thing I see is that interest rates being at an all-time low has made borrowing cheap. However, I think we’re going to see the Feds increasing interest rates real soon. What’s going to happen then?
Recent Statistics show that right now, The average American is spending over 50% of their income on their mortgage alone. In the Stock Market the average Price-Earnings Ratio of the DJIA and SP500 is more than 25, which is the same level they were at before the last crash. The current state of this economy is the worst I’ve ever seen. But the worst part of this whole mess is the outrageous $19Trillion Govt Debt that the Bush and Obama Administrations managed to put us in. What they should have done is just let the economy take it’s full course rather than providing a bailout.
What we saw in 2009 was a correction. Between 2000-2006, Real Estate Prices shot up due to all those subprime borrowers flooding the market and the crash was a natural correction of all that greed on the parts of the Big Banks. But now, here we are almost $15Trillion Later right back at square one ready for one of the biggest economic crashes in World History. The only person that can possibly change or delay it’s trajectory is Donald Trump. It’s so far gone though, I just don’t see how.
Hi Brandon. Thanks for pitching in your thoughts. You are right about cash, though I would say it was investment funds and flippers who drove the cash car through town in 2012 and 2013 rather than Chinese buyers. In other places like Orange County though Chinese buyers have been an incredible force. I just wouldn’t put them in the same category here.
When the factors that are influencing value increases change, that can certainly affect the market. Interest rates has been a very significant factor in the movement of value over the past 5 years. Obviously if interest rates rise, that will naturally cool values. But will lenders create more risky loans to keep values high? My sense is lenders hold quite a bit of power right now because if they create some risky products to help buyers “afford” higher prices, that can only create more upward pressure.
I look forward to hearing your thoughts over time. Next week I am posting my big monthly market update on either Tuesday or Wednesday. Let’s keep the conversation going.
Thank you for your input sir. I will definitely stay up to date on your posts.
Here is the Cliff’s Notes version of where we stand: There is a global real estate bubble which has been distorted by easy money. This will be a global meltdown not isolated to Sacramento. It is easy to scoff at this prognostication but you truly have to have your head in the sand not to see this happening. Keep up the good work Ryan with the data, and hope people keep tuning into your site.
Hai hai sensei. Thank you for your take. Please pitch in thoughts any time you’d like. I can tell we’re going to have some good conversations in coming time.
We really are in an interesting place with both rents and values up. It’s not easy for consumers – and especially renters. One of the big problems is we have such an acute problem with low inventory that is not easily solved – particularly with construction costs being so high, virtually no new 2-4 units being built, and a need for more apartments too.
I’ll keep it up and we’ll keep watching the market carefully. This is an interesting ride.
Great post Ryan. Your analogies are awesome. I don’t want to dog real estate agents but sometimes they do only focus on the sales and may paint a rosier picture of the market than what actually exists. I guess that is understandable since there job is to sell homes but consumers need to make sure they understand the whole picture.
Thank you Tom. Consumers definitely need to understand the big picture. You are right about that. When it comes to selling stock we wouldn’t look at prices three to six months ago. We have to look at prices right now too. Yes, let’s know the history, but let’s be in tune with the current market too. That may not be a perfect analogy, but there is something there.