January stats are down, but the market feels up. That’s normal at this time of year, but it can be confusing. Let’s focus on three things to keep in mind about the beginning of the year in real estate, and then let’s unpack the market. This post is long on purpose. You can scan it quickly or pour a cup of coffee and spend some time here. If you aren’t in Sacramento, I hope you can still find some value. Do you see any parallels to your market? Any thoughts?
3 things to keep in mind about the beginning of the year in real estate
1) Recent sales lag the real trend: At this time of year it’s important to remember that the most recent sales don’t necessarily tell us about the current market. It’s like a pregnancy test. You might be pregnant, but an over-the-counter test won’t tell you that for two weeks even though there has been a change in your body. Similarly, the market may have changed, but we may not see the price change in the stats for a month or two.
2) Insane appreciation: We are seeing multiple offers, but in many cases it seems the market is trying to get back to prices from the peak of summer rather than showing rapid value increases like we saw in 2013. I recently heard about a property getting into contract 5% above sales from December, but that doesn’t mean the market actually increased in value by 5% over the past month. It could simply be the market is pulling itself out of the fall seasonal lull and getting back to prices from the summer (where they were 5% higher).
3) We see the market in the pendings: If we want to see the current market we have to look at the pendings and listings. Let’s obviously give strong weight to properties that have actually sold, but we cannot ignore pendings to help us gauge the direction of prices for the current market. If we rely too heavily on sales from December and January alone, we might essentially undervalue properties because the market usually ticks up during the early part of the year (which we would see in the pendings). In other words, today’s higher pendings will close over the next 30-60 days and then show value increases on paper for March and April. But the truth is the value increases are actually happening right now. It just takes skill to be able to see the market before the change shows up in the stats. This is why have to give way more respect to pendings. I realize we don’t know the exact price of pending sales though, and that’s why we have to look at many examples of pendings rather than just one. In some markets pendings get into contract at ridiculous levels too, so we have to sift if the prices are realistic (that makes it even more tricky). If there are few listings in a neighborhood, we can look at competitive neighborhoods for more data because we don’t want to base the entire market on just one listing or pending. Let’s not forget to be in tune with where sales left off at the end of summer too.
Appraisal class: I’m teaching a 3-hour class next week on Feb 22 at SAR called How to Think Like an Appraiser. I’d love to have you come. Details here.
DOWNLOAD 77 graphs HERE: Please download all graphs in this post (and more) here as a zip file (including a one-page quick stat sheet). See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.
A Market Summary: The market is always interesting in the early part of the year because we are in a place where values have changed, but we don’t see the change in the sales stats yet. So there is a disconnect between reporting slow January data and how the market feels right now. What I mean is the median price softened last month by 3%, sales volume declined by 27% from December, and it took 3 days longer to sell a house than the previous month. If we didn’t know any better we’d say the market was tanking. But let’s back up and think through this.
January sales stats aren’t often very sexy because they represent properties that went into contract in November and December. Do you remember Thanksgiving and Christmas? Yeah, you probably weren’t looking for a house, so it’s not a surprise to see sales stats sag from those months. At times the real estate community doesn’t like to admit the market shows a price lull during the fall, but a lull happens nearly every single year. So if we’re not careful we can focus on sales volume declining last month by 27% without realizing that’s normal to see every January (see graphs below). The irony is it’s easy to say we are in trouble because sales volume declined, but this January actually had its strongest month of volume in 4 years. We might also be concerned about sales showing a good 5% or so decline from the height of summer, but that’s not unusual (see graphs). Or we can freak out about sales taking longer to sell, but over the next month or two we are bound to see this stat change as it will begin to take less time to sell during the spring.
The truth is the market is beginning to heat up. Right now we have an atmosphere of multiple offers in many price ranges. Let’s remember though the market feels more aggressive than actual value increases at times. Moreover, it’s easy to let news of a “hot” real estate market or anemic housing inventory trump actual market data. Thus I would caution sellers to price according to the market instead of the headlines. Just because inventory is spare does not mean you can get whatever price you want too. I would also remind buyers that the bulk of listings don’t usually come on the market for a few months (April through August tends to be the peak).
Sacramento County:
- The median price softened to $305,000 (down 7% from summer).
- The median price is currently 8.9% above January 2016.
- Sales volume was stronger in January than it’s been in 4 years. We could focus on sales volume declining by 27% from December, but volume always declines from December. See the graphs below.
- Sales volume in January 2017 was 14% higher than last year.
- One year ago in January it was taking 4 days longer to sell.
- FHA sales volume is down 6% this year compared to 2016 (but 27% of all sales were FHA last month).
- Only 3% of all sales were bank-owned last month and 2.4% were short sales.
- The average price per sq ft was about $202 last month (about the same as December, but 8% higher than last year).
- The average sales price softened 1% last month and is currently $339,028. This is down 5% from the height of summer (but is 9% higher than last year).
- Cash sales were 15% of all sales last month.
Some of my favorite images this month:
SACRAMENTO REGIONAL MARKET:
- The median price softened to $339,000 (down 8% from summer).
- The median price is currently 5% above January 2016.
- Sales volume in the region is up about 2% over the past year.
- Sales volume in January 2017 was 7.6% higher than last year.
- One year ago in January it was taking 3 days longer to sell.
- It took an average of 47 days to sell a home last month.
- FHA sales volume is down almost 7% over the past year (but still 23% of all sales were FHA last month).
- The average price per sq ft was about $208 last month. This is down about 1.5% from summer, but 5.7% higher than last year.
- The average sales price softened 2% last month and is currently $380,151. This is down about 6.5% from summer (but is 5.9% higher than last year).
- Cash sales were 16% of all sales last month.
Some of my favorite images this month:
PLACER COUNTY:
- The median price is $424,500 (down 3% from the height of summer).
- The median price is currently 4.8% above January 2016.
- Sales volume in Placer County was down almost 13% this January compared to last January.
- Sales volume in January was nearly identical in volume to January 2014 and January 2015.
- Housing supply is down 4% from last year.
- It took an avg of 52 days to sell a home last month (same as Jan 2016).
- The average price per sq ft was about $211 last month. This is down about 2.5% from summer, but about 5% higher than last year.
- The average sales price softened 1% last month and is currently $467,276. This is down about 3% from summer (but is 3% higher than last year).
- Bank-owned sales were 2.4% of all sales last month (short sales were 1.3%).
- Cash sales were 19.5% of all sales last month.
Some of my favorite images this month:
DOWNLOAD 77 graphs HERE: Please download all graphs in this post (and more) here as a zip file (including a one-page quick stat sheet). See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.
Questions: Did I miss anything? What are you seeing out there? How would you describe the market? I’d love to hear your take.
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Thank you for your take on the market Ryan. I always love hearing it. Looking forward to the hardening of the market this spring.
Thank you Gary. I like how you said “hardening”. Good way to describe it. It’s much easier to see the market when we have some more closed sales. 🙂
Very thorough, as always; nicely done.
One point we can’t ignore: Sacramento is not creating new job opportunities. We can recall the closing of McClellan and Mather, HP, Campbell :Soup, Army Depot, et al,with no substantial replacements.
Based on what I hear (please correct me if I’m wrong), much of the demand that is driving the market are professionals migrating from the Bay Area; for those folks, Sacramento is a bargain! Hopefully (for them) they have the ability to telecommute at least part of the time. But, how long can that go on? While it’s still a seller’s market, i think we may be well into the mature stage of that cycle.
What say you, Ryan?
Thanks Tom. I always appreciate your take. I think you have a valid concern and I share that too. Wage growth and the economy has not been driving the market. That’s not a good thing. My commentary above focuses on explaining the current seasonal dynamic instead of going heavy on values being inflated. Ultimately we cannot ignore the context of the current market and factors that are driving value. We’ve seen huge increases over the past 5 years in large part due to historically low interest rates and freakishly low inventory (which is caused by many issues). It would be great to see a market that is driven instead by wage growth. Bay Area buyers are a factor in the market, though I don’t think they are a primary driving factor. They are not the new Blackstone so to speak, though they are here.
Ryan, what can you say about Woodland? Lower inventory + higher demand from UC Davis, from the Bay Area, and from renters with very few larger-bedroom “luxury” apartments to consider seem to be the causes of a $35,000 higher median for single-family houses than in Sacramento.
Hi Scott. Thanks for the comment. I appreciate it and I’m glad to pitch in some thoughts. Last month there were only 39 sales in Woodland, so there isn’t much data. For reference, there were 581 sales in the City of Sacramento last month. In truth I’m always a bit more hesitant about comparing entire cities because there are so many different price ranges within a particular city or county. For reference, the median price in Placer County is always higher than Sacramento County, but we have to consider the difference in housing stock too in that Placer County on average has 400 sq ft more in size than Sacramento County (this is true nearly every single month when I pull stats). So we could make value claims when comparing the two counties, but we aren’t really comparing “apples to apples” so to speak if one county has much larger homes. If we really wanted to see true value differences it would be best to compare similar homes in both areas. This brings me to say it would probably be most meaningful to take a neighborhood in Woodland and compare it to prices in a similar neighborhood in Sacramento rather than Woodland vs. Sacramento. I suppose there is still some value in looking at stats for the entire city of course and I would be very interested to run some stats, but I guess the anal part of me thinks through these issues first and foremost before crunching any numbers. I just know it’s easy to get lost in the stats and think they say one thing when in fact they might not.
In terms of the median price, I will say a few higher sales doesn’t typically sway the median price much since the median price is the figure in the very middle of all the sales stats. Thus a few high sales or low sales doesn’t tend to mean too much for that figure (which is one reason why I really like the metric). However, a few higher sales might skew the average sales price though. I think you nailed some of the contributing factors for why buyers buy in Woodland. Nice job.
If you have any pointed questions, I’m game to talk shop. I have a colleague who is in Woodland too and I’d love to invite him into the conversation if we want to kick around some ideas.
Thanks again.
P.S. And the days on market seem comparatively fewer in Woodland than Sacramento.
I like to compare pending sales to the pancake you just took off of the griddle and it’s still sizzling. It is the best indicator of value because it is happening right now. Of course all pending sales are not the same. A listing that had a contract written last night is not the same as the contract that has been accepted, the borrower has been approved, and the house has appraised. When all of this is done and you’re just waiting to close now that is a good pending sale.
Thank you Tom. I love it. You have a really key point in the quality of a pending. Sometimes a pending is more of an outlier too. We all know it is not realistically going to close at that level (or it shouldn’t at least). This is why we cannot base the entire direction of the market on only one pending. Just as one sale doesn’t make or break a market, one pending doesn’t either.