I reached the point of political exhaustion last week in a big way. This doesn’t mean I’m tuned out, but right now I find myself glossing over Facebook rants or skimming certain conversations because they’re only going lead to arguments. Yet still I hoped we could chat briefly about politics and real estate – without unfriending each other. Then let’s take a deep look at the Sacramento market. Any thoughts?
Huge Data Fail & Predicting Real Estate: The media laid an egg when it came to predicting the presidency. In fact, it seemed like many political pundits were shell-shocked when election results were coming in contrary to their predictions that Hillary would win. I don’t mention this so we can argue, but only to remind us of the danger of predicting, being wrong, and then having pie on your face (losing credibility). If some of the best political minds in America couldn’t predict the outcome of the presidential race, can we really predict the future of the real estate market with certainty?
Trump Presidency and Newlyweds: I’ve been asked a couple of times this week how a Trump presidency has impacted real estate so far. My answer is simple. Imagine asking a newlywed couple after one week of marriage to tell us how their marriage is going. It’s only been a week though. We probably need more time to really know how married life is going to unfold. The same holds true with Trump’s impact on real estate. We haven’t had enough time to see waves in the market yet, and nobody really knows how his policies will affect housing. There are many predictions right now, especially about repealing Dodd-Frank, but those are only guesses (see paragraph above).
Any thoughts?
—-—–—– And here’s my big monthly 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 71 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.
NEW: I created a one-page market sheet to print and keep handy when talking about real estate. I figured it might be helpful to use while talking on the phone. I’m not sold on the look, but is this a step in the right direction? Download here.
Quick Market Summary: A brutal election season has ended (thank God), and many Americans feel worn out, but the market doesn’t feel that tired. The truth is when we look at the stats we are seeing about what we’d expect at this time of year. Ultimately prices are down 1-3% from the height of summer, it took two days longer to sell a house last month, and inventory is down 14% in the region from last year. It’s easy to see softer stats and assume the market is beginning to crash, but the market softens like this almost every single year (besides 2012 when Blackstone and friends gutted the market and we didn’t have a normal fall season). I’m not saying values are not inflated, affordability isn’t becoming more of a factor, or even the market won’t turn at some point, but only that things feel fairly normal right now for the season. Sales volume has been strong this year in Sacramento and is up slightly from last year despite cash and FHA volume both dropping by 7-8%. Inventory is anemic and there really isn’t a quick solution to deal with that problem, but buyers are still finicky about price despite very few homes being listed on the market. Sellers don’t get this, so they try to command whatever price they want, but that rarely works in this market. Keep in mind buyers are scouring Zillow and Redfin every single day, they are visiting properties with their agent, they are getting beat out on other homes, and they are often looking for MANY months before getting a contract accepted. Sellers frankly are not doing anywhere near this level of research, which is one reason sellers are less in tune with proper pricing. Check out specific stats and graphs below for Sacramento County, the Sacramento Region, & Placer County.
Sacramento County:
- The median price is $320,000 and is down a few percent from the height of summer, but it’s 10% higher than last year.
- The average price per sq ft was $202 last month (down 1% from a few months ago, but 8.5% higher than last year).
- There were only 38 short sales and 31 REOs in the county last month.
- Sales volume was 5% higher this October compared to October 2015.
- It took 3 days longer to sell a house last month compared to the previous month (one year ago it was taking 5 days longer to sell).
- Sales volume is up slightly this year compared to last year (1% or so).
- FHA sales volume is down 7% this year compared to 2015 (25% of all sales were FHA last month).
- Cash sales are down 8.5% this year (they were 12% of all sales last month).
- Housing inventory is 12% lower than the same time last year.
- The average sales price at $353,000 is down about 1% from the height of summer (but is 9% higher than last year).
Some of my Favorite Graphs this Month:
SACRAMENTO REGIONAL MARKET:
- The median price was $357,000 in October. It went up slightly from September but is down 3% from the height of summer (up 9% from last year).
- The average price per sq ft was $208 last month. That’s down about 1% from the height of summer and 7% higher than last year.
- It took 2 days longer to sell compared to the previous month (but 5 less days compared to October 2015).
- Sales volume was 4% higher this October compared to October 2015.
- FHA sales volume is down 8% this year compared to last year.
- Cash sales were 13.5% of all sales last month (FHA sales were 21%).
- Cash sales are down 7% this year compared to last year.
- Housing inventory is 14% lower than the same time last year.
- REOs were 1.8% and short sales were 2% of all sales last month.
- The average sales price was $393,000 in October. It’s down about 3% from the height of summer but 8% higher than last year.
Some of my Favorite Regional Graphs:
PLACER COUNTY:
- The median price was $438,000 last month (highest point of year, but take that with a grain of salt).
- The average price per sq ft was $213 last month (down very slightly from the height of summer and up 6% higher than last year).
- It took 41 days to sell last month (same as previous month but 6 days less than one year ago).
- Sales volume was about 3% lower this October compared to October 2015.
- FHA sales volume is down 16% this year compared to last year.
- Cash sales were 17% of all sales last month (FHA sales were 13%).
- Cash sales are down 3.6% this year compared to last year.
- Housing inventory is 13% lower than the same time last year.
- Both REOs and short sales were each 1% of sales last month.
- The average sales price was $481,000 and is 8.5% higher than last year.
Some of my Favorite Placer County Graphs:
DOWNLOAD 71 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.
Questions: Did I miss anything? What impact do you think Trump will have for the real estate market (if any)? What are you seeing out there? I’d love to hear your take.
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Hard to predict. I’ve heard lenders talking about “$65 per month increase at $300K” due to interest rate increases last week. The rate increases were expected, but will it really have a long term impact? IDK. Will these same buyers make up the difference in reduced health care premiums? Increased pay? Lower taxes? IDK but those items are often offsets in the overall picture. Will self employed see easier lending? It will be interesting.
Good questions Jeff. I think we can all watch interest rates very closely. Rates are certainly a big “layer of the cake” so to speak. They’ve been a huge driver. A minor uptick might not make much difference, but we’ll certainly feel the difference if they start creeping higher (unless some other element offsets the increase in rates of course).
I love all your graphs. It makes me want to start keeping track in my area. Do you offer any classes Ryan with the graphs? How to start keeping track, how to make sense out of the graphs, connecting the dots, etc?
Hi Kristine. Thank you sincerely. It’s always been on the docket to do a graph class, but I’ve never pulled that off. Part of it is there isn’t really a huge draw. It’s something that sounds theoretically relevant to many, but when it comes down to it I would guess few would show up. For me it’s been an absolute game-changer for the way I view and report real estate of course. I am happy to give pointers. I do think the starting point is a basic scatter graph. Do you know how to do those?
One more thing. Keeping track of data is just something to commit to over the long haul. There is definitely time involved, but there are a couple days each month where I set aside some time to run some stats (that’s very quick), make the graphs (not so quick, but I make so many), and then report (not so quick because that takes time). If you started running a few stats though, it really wouldn’t be very time-consuming.
Hi Ryan,
I know I’m a little behind but catching up on your blog posts! I love your graphs too and would definitely be interested in a class or webinar! How do you do a scatter graph?
Thanks for catching up. 🙂 I have a video tutorial at the following link. Why don’t you check it out and let me know if it makes sense. If not I am glad to give some other pointers (or maybe make another video). https://sacramentoappraisalblog.com/2014/10/02/convincing-sellers-to-not-overprice-their-homes-by-making-graphs/
Good post Ryan,
Since we are without question in another real estate bubble from easy monetary policy as opposed to true organic improvement in underlying economic fundamentals, it is unlikely that Trump policies will change the certain outcome of the coming real estate collapse.
Cue the ‘this time it is different’ crowd who will say, “Well, umm, but uh inventory is so slim!!!!” Answer: Yes, at present, and supply is elastic and can change instantly and will. Also I can reference things like supply distortion caused by institutional buyers controlling inventory (who by the way are starting to liquidate their holdings–Ryan perhaps a good future article for you as they are clearly perceiving a market top.)
Cue the ‘ya, but, uhh, lending is so restrictive and NINJA loans are gone’ crowd who will say, ” Answer: Real estate bubbles since the beginning of time were not all caused by loose lending. Also, there has been loose lending in this cycle. Approx. 30%ish (Ryan you will know the exact figure probably) of purchases in the average price slice has been FHA or VA which is means HIGH LEVERAGE. I consider high leverage to be a form of loose lending. The market trends down at all and you automatically have a large segment of the market underwater. That is if no other headwinds emerge, which thy always do.
I believe the Trump policies in terms of deregulation will help boost the NEXT market cycle but not this one. Put a fork in this one. God himself cannot spare this market from its looming death spiral.
If you don’t believe me or feel this post is worthy of posting then hold onto it and reference it in 12 months. I have made a lot of money seeing real estate cycles develop and avoiding disaster.
Prediction: Rates to continue marching north to their rightful place… valuations to come down…rents to soften…investors to get smoked that bought based on inflated rents… inventory to spike…
Trump policies may temporarily provide a last dying breath to the market but nothing more. Mark crash imminent.
Mr. Myagi, thank you as always for chiming in. I appreciate your take and I’m glad it’s here for everyone to consider because it’s important to ask questions and kick around ideas right now. Your comments are always welcome and I don’t moderate comments at all either. Well, I do have moderation turned on because I get so many spam comments, so I have to unfortunately manually accept each comment because of that. But once a person has an accepted comment, that person’s future comments get on the blog immediately.
Regarding inventory, we have an acute problem with low inventory. In the past 16 years in Sacramento we’ve seen declining values any time monthly inventory has been closer to 4 months (right now it’s closer to 1.5 to 1.75 months and has been all year). But there isn’t any rule that says values will always behave the same way in the future just because they’ve done a certain thing in the past. In other words, having a low supply of homes well under four months isn’t necessarily the end-all safeguard to protect from declining values. Obviously if a market began to decline we would expect to see some sort of change or imbalance when it comes to inventory (too many listings compared to sales), but we have to consider it is theoretically possible to see a market where inventory is low on paper, but we are seeing declines. That’s unconventional to consider, but I have a great respect for the market and it’s always on the back burner of my mind to not speak about the market in such a way to say we know what values will do based on only one metric like inventory. There are many factors to consider and housing supply is just one.
What institutional buyers are liquidating? I read Blackstone is getting rid of 5% or so, though it seems like it was portrayed as being the difficult stuff to rent rather than offloading and getting out of the market. I’d love to hear what you are seeing on the streets.
It’s been close to 25% lately for FHA in Sacramento County (it used to be 33% or so a few years back). Let’s remember conventional has become more like FHA in terms of less money down, so that’s one reason why we’ve seen a decline in FHA over the past few years.
Regarding predictions, when are you saying the market is going to turn? Do you have an exact time over the next year as you alluded to? And what is going to cause the turn? Is there going to be an event or trigger to make this happen? When I hear predictions I always like to ask questions like this. I’m not trying to be facetious, but only to understand. No pressure to respond, but I’d love to hear your take if you have one.
Thanks.
Great post Ryan, and I am sure your download will be very helpful to locals since they will be able to have all the stats in one place for quick reference. Regarding the predictability of the market and big data, it is sometimes hard to see what is truly happening unless we can truly analyze the data through unbiased lenses. The only reason I say this is because it seems that the mainstream media may have had rose colored glasses on when predicting the race.
It may be possible to sift through all of the superfulous information and get to the gems of data that mean something but you really have to not have any preconceived notions going in. I heard about one of the members of the Trump team that actually had the electoral college votes predicted out to around 300 or so based on their data (hindsite is 20/20, right?). My whole point here is that the data must be looked at without bias, similar to what appraisers do, and then with all the imperfections of the market we can hope to get it right more times than not.
Thanks Tom. I think you’re spot on about the media having lenses. Of course I think we all do too because we each bring a worldview and ideas to the table. Though the media really blew this one (as did so many Americans as so many of us were shocked). We can also have similar lenses when it comes to real estate. What is true? What do the numbers really say? Where is the market really at? It’s not always easy to sift through the answers to these questions in the midst of sensational real estate headlines and sometimes misinformation. Somehow real estate professionals and prospective buyers have to sift through the hype though. Let’s keep an eye on the future, but let’s really know where the current market is at.
I love your Sacramento market update, as always, and your political tease is pulling out some interesting comments. I love how you talk about everything on your blog so diplomatically. You embody appraiser independence and impartiality in the way you frame everything, including politics.
Thanks Gary. What a high compliment. I realize some people may click over and feel let down that there aren’t any real predictions. Unlike pure click bait, there is some real value here though since we are talking about real estate truths and unpacking market trends. I hope it resonates with others. Anyone reading can pitch in some thoughts or ask questions too. Thanks Gary.