The market is slowing. We’ve been hearing that all over the place lately and it’s been a common clickable headline. But it’s not just hype because there’s some truth to it. Today I want to show this reality with a few visuals, mention three takeaways, and unpack a huge Sacramento market update for those interested. I hope this is helpful – whether you’re local or not.
Tighter Prices: Is the market slowing? How would you show that? Take a look at the rate of price changes in the images below and let me know what you see.
OCTOBER:
PAST 90 DAYS:
ENTIRE YEAR:
TAKEAWAYS:
1) Slowing: Prices are still up, but they’re not up by as much this year. What I mean is in years past we’d regularly see 7-10% price increases when running stats, but over the past few months we’re starting to see 4-6% increases instead. This helps show the market as a whole is slowing.
2) Dull fall & critical thinking: Stats have begun to change more significantly these past few months since a slower feel hit the market. A few months back sales volume dipped, but now after multiple months of lower volume this is becoming a trend (at least for the fall). As we watch this unfold and see that prices are much tighter together as I showed in the charts above, let’s consider two things: 1) Price stats today are more subdued in light of a much duller fall season (duh); and 2) Last year’s fall season ended up being a little more flat than usual, so higher prices from then could be helping this year’s numbers appear a little more depressed. I know, it sounds like I’m trying to soften the idea of the market slowing, but that’s not it at all. I’m thinking critically through the numbers and explaining in part why they are the way they are. Ultimately I find myself interpreting these numbers cautiously, and I think we need to get beyond this fall to see the bigger picture of what the numbers show us and where the trend is going to go.
3) Wide & narrow view: I chose to share stats in three ways on purpose to show something important. Did you notice a difference in the price change depending on how wide or narrow the dates were – whether 30 days, 90 days, or 12 months? Basically the more data we considered, the tighter the price gap was. This is a good reminder to look at the market in different ways to try to discern the trend. It’s also a good reminder to be careful of pulling older data because sometimes that can mask a trend that is happening right now.
The future: Naturally when hearing about momentum slowing in a market it’s easy to start predicting the future as we see price gaps tighten. Many say the market is going to crash, others say it will correct by 10%, and some say it will level off and progress into a state of balance. All three of these ideas have one thing in common. They’re guesses.
I hope that was helpful.
—–——– Big local monthly market update (long on purpose) —–——–
Last year the fall season felt more flat than not, but this year is a different story. We are definitely having more of a dull seasonal lull that reminds us how the market felt in 2014 when the fall season was definitively soft. Here are some of the things I’m watching right now. I’d love to hear what you are seeing. Please comment below or send me an email.
Graphs for your newsletter and social media: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy my post verbatim).
Adjusting to rates: Buyers have seemed to back off the market a bit lately, and we’re seeing the effect of that with lower sales volume. What’s up with this? The culprit could be increasing interest rates and a growing lack of affordability.
Balancing of power: Buyers have gained more power in recent months, though I don’t think sellers got the memo since they are still struggling with overpricing and pretending it’s an aggressive market from 2013 instead of a slower market in 2018. This doesn’t mean buyers have total control though. Keep in mind 41% of all sales last month had multiple offers, which tells us it’s not the type of market where buyers can lowball sellers and get whatever price they want.
Pricing lower this fall: Since the summer the median price has softened by 4% in Sacramento County, 5% in the region, and 7% in Placer County. This doesn’t mean every neighborhood lost 4-7% in value. These are county stats and they don’t translate into every area or price range. Keep in mind it’s normal to see a 5% or so reduction in the median price during a given fall season, but this year it wouldn’t be surprising to see a more pronounced price difference between spring and fall (we’ll see how it pans out).
The story of sales volume: In September volume was down a whopping 16% in the region, and that raised lots of eyebrows to make people wonder if the market was starting to tank. This past month sales volume was not as weak, but it was still down nearly 9% in the region and about 4% in Sacramento County. Over time we need to keep watching this trend to better understand if it’s a sign of a definitive change in the market or if it’s the byproduct of a dull fall season (or both). One thing to remember is despite a few months of gloomy sales volume recently, volume is only down 2% in 2018 in the Sacramento region.
Listings did peak: I’ve been talking about listings looking like they were peaking for the past couple months, and the stats now definitely show listings have crested for the season. This is normal for the time of year as sellers tend to pull back from the market and wait until spring to list. This is why the fall sometimes feels like a market of leftovers since many sellers are waiting until the next year.
Concessions and credits: Buyers have more options today, so they’re tending to ask sellers more often for credits, repairs, and concessions. It would be wise for sellers to listen to buyers and be aware they may need to give something to get the deal done.
I could write more, but let’s get visual instead.
BIG QUESTIONS:
1) How did the market change from last year?
2) How did the market change from September to October?
3) Where are we in relation to peak prices in 2005?
4) What’s happening with sales volume?
SACRAMENTO COUNTY VOLUME:
Key Stats:
- October volume down 4%
- 2018 volume down 1% (January to October)
- Annual volume is down 1.9% (past 12 months)
- Volume has been strong this year, but it’s definitely been down over the past 4-5 months.
SACRAMENTO REGION VOLUME:
Key Stats:
- October volume down 8.8%
- 2018 volume down 2.1% (January to October)
- Annual volume is down 2.5% (past 12 months)
- Volume has been strong this year overall, but it’s been down over the past 4-5 months.
PLACER COUNTY VOLUME:
Key Stats:
- October volume down 20.6%
- 2018 volume down 4.9% (January to October)
- Annual volume is down 5.4% (past 12 months)
SACRAMENTO COUNTY (more graphs here):
SACRAMENTO REGION (more graphs here):
PLACER COUNTY (more graphs here):
I hope that was helpful.
DOWNLOAD 60 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 in the market right now? What are you hearing from buyers and sellers? I’d love to hear your take.
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Thank you Ryan for all the work you put into this. I hope that the slowing is just a “Dull Fall”.
Thank you Gary. We shall see. Sales volume definitely does slough during years when the market is dull, so it’s no surprise to see that happen today. Though it also sloughs when a market begins to turn. This is exactly why we need to keep observing the way the market unfolds an live in the tension of not knowing the future.
Ryan, such a thorough monthly report, as always. We are seeing very similar signs of slowing in our markets as well. Prices are still up but only slightly and nowhere near the double-digit percentages we had been at. I agree with your comments about what might happen in the future. All are guesses.
Thank you Shannon. It’s fascinating to watch markets change. We cannot deny it as the stats are showing us the market is slowing down. This is why it’s so critical to watch the numbers carefully.
Just joined the local mls board. Unpublished statistic: the more rosy the realtors get the worse things are!
Thanks Mark. On a different note, the more real estate agents there are, the closer we are to the peak… 🙂 I hear that one stated quite a bit.
At the 2008 collapse, wasnt there more realtors than there were listings?!
Hi Gilbert. Thanks for chiming in. I cannot speak to national numbers, but in Sacramento we had more listings than agents around that time. The problem is nobody was buying. At the darkest moment in the market we had a 14-month supply of homes for sale. There were enough agents to handle these homes technically, but nobody was shopping for a while. The number of agents has really been growing lately. Its not back to the peak of what it was at the height of the market yet, but it’s getting much more competitive out there for agents (and loan officers).
Agreed 100%. Realtors are collectively panicking right now. I deal and transact with a lot of them. They are fist pumping nonsense like, ‘oh well kids are back in school now’ and ‘it is the holiday season.’ They will make this chant all the way until values reach 2009/2010 levels again, which is where they will settle for obvious economic reasons (which I assume everyone knows–global QT, rate movement, inflation etc.)
I encounter people sometimes who don’t want to look at the market honestly. I get the idea of being in a sales position and rebuking negativity so to speak and disallowing bad vibes because they can hamper forward progress. But the market is an exception and isn’t a negative vibe. It is what it is and we have to know the market well so we can price properties realistically, offer advice to clients based on the real market, and even think ahead of the market to anticipate who future clients might be. In short, ignoring market conditions is sort of like ignoring health issues. It might work for a little while…. until it doesn’t.
Ryan, thanks so much for the honest post. Candor is very uncommon in the REIC. As a former high-volume commercial myself I can say with experience that many real estate agents are not honest about the marketplace and ‘sell their souls’ to get deals done. I can think of endless examples of this from my own life watching people change after getting licensed. But that is not what my post is about.
The market has shifted, this is not seasonal. It is refreshing to hear you no simply write this off as ‘kids being back in school’ like silly uninformed RE agents often attribute any change of any kind to. The data shows this is not merely a seasonal change. I think it is pretty obviously a cyclical market shift and there will be massive downward pressure on prices moving forward.
Thanks for being a rare voice in the REIC that is honest about the marketplace and not caking on the ‘sales’ BS factor. It doesn’t work on experienced investors like me. I secretly eye roll often when talkative agents start preaching about the market trajectory without knowing who they are talking to. They should ask more questions and yap less. There’s a great tip for you realtors. Stop talking and ask and learn and listen. The guy coming into your open house in overalls and a crappy pickup truck may be worth $50M and have some ethos for you to glean.
Watch this market downtrend moving forward. Stagflation is coming and low volume RE markets will persist. My same posts from the past several years on your blog stand. It is all happening right now. I was early in my call but everything is happening exactly how it is supposed to if you simply follow the leading market indicators (which your site tracks so closely.) No Crystal ball needed.
Thank you for the kind words Mr. Miyagi. I sincerely appreciate it. No BS, a focus on stats, and humility about not knowing the future is the way I roll. I’ll keep telling the story as new stats and trends emerge.
I will only argue with your persistent ‘wait and see’ notion. I think this is flawed logic. It is akin to seeing a dying man on a hospital bed and “waiting to see” if he will live or not. Sure, an act of God can happen, but let’s just follow the likely outcome and make our decisions based on that. I don’t think there is much ‘guess work’ in real estate at all. If I simply waited to see always I would not be able to make money because that is what all of the low information realtors and lemming bubble investors do. They wait and see and then it is too late to sell and capture profit or they wait and see if prices recover and miss value buys that define a successful investor. I’ll stop here but you get the idea. I disagree that any waiting and seeing is necessary at all. Let’s read the writing on the wall together. -Miyagi
That’s fair and I get where you’re coming from. When I say, “Wait and see” I’m talking about future stats rather than investment advice. You’re right that “wait and see” would be lousy for a financial advisor. This is simply me exercising humility in not knowing exactly what the stats are going to say in coming time. When I say “wait and see” I am essentially saying we need to keep watching the market closely. I fully acknowledge red flags in the market right now as well as there being many layers of value that make the market move. For instance, it is a big deal to see sales volume sloughing. Though if the market recovers from a stagnant fall and has another year of “normal” price increases and normal volume, then we would have been wise to not have sounded the “bubble” alarm. Know what I’m saying?
We are seeing writing on the wall in some respects, but I am still in a place where I think we need a little more time and data to see more fully how this trend of sales volume being lower is going to unfold in the immediate future. This is where I am cautious – and maybe overly cautious to some, but I’m okay with that.
On a side note, for any onlookers,here is a graph I made of 20 years of the annual median price in Sacramento County. This graph didn’t make it to my market update, but I shared it on Twitter a bit ago. It’s fascinating to see a few real estate cycles and to anticipate what coming years might look like too. https://twitter.com/SacAppraiser/status/1062092483050450949
Wow! Lot’s of great information in your market update. I always enjoy your comprehensive analysis and awesome charts that really tell the story well. I am also seeing our market slowing in terms of sales. That is normal this time of year. But it does seem that market activity has slowed a bit more
than what is typical. I do believe that higher interest rates in combination with an extended shortage of inventory has had an impact on the market. It will be interesting to see what the next few months bring.
Thanks Jamie. Way to watch your market carefully too. It’s interesting to begin to see multiple markets across the country begin to struggle with slumping volume. One thing to watch too is the number of housing starts. Lots of smart folks say it’s a leading indicator for the housing market when housing starts slough.
Truthfully, I have not really watched housing starts closely. I will start paying more attention to those.
Hello Ryan, excellent info as always and appreciate reminder to stay humble too. Just to clarify, low number of housing starts shows decline, correct?
Hi Yuliya. Thanks so much. Right now it looks like housing starts are a bit flat or maybe even softening. Realistically it’s been anemic and new construction just hasn’t gotten back to where it was 10+ years ago. I think we see this locally especially. Here are two sources to follow no the subject:
1) FRED: https://fred.stlouisfed.org/series/HOUST
2) Calculated Risk: I couldn’t find his latest post on the subject because he has LOTS of posts to sift through. I find the author does a good job talking about new construction and other topics. https://www.calculatedriskblog.com
From the quick reading I’ve done it seems that many sources are saying starts have been showing some weakness, but I haven’t heard anyone say yet that there is a clear and definitive decline. If anyone has other links or insight, please chime in.
Thanks Ryan, as always, good info.
Thank you so much Rick.
Thanks again Ryan. I’ve been looking for a stats-based expert in the Sacramento area for a while. Glad I found you via Doug’s channel. Look forward to working with you one day.
Thanks Marvin. I look forward to being connected. Cool you found me through Doug too. He stopped by my office the other day and shot a bunch of videos.