I have a few things on my mind. Let’s talk about more home owners, slumping volume, confidence, and outliers. Anything to add?
Increasing home ownership rate: There’s so much dreary news these days because of slumping sales volume. So here’s some good news first. We’re seeing an uptick in the home ownership rate (especially with buyers under 35). Check out the right side of the graph. It doesn’t look like much, but it’s welcome news. Image source: Len Kiefer.
Slumping volume & the Superbowl: Last week CNBC published a story stating national sales volume was down 6.4% in December. This is something we saw in many markets across the country, though the Sacramento region was down a whopping 25%. Right now we’re watching closely to understand how this will play out in the new year. The market is starting to wake up, but it still has a subdued feeling as early January is usually slow. In Sacramento many agents report the market starts to heat up after the Superbowl. Being that the big game is this Sunday, let’s watch stats closely in coming weeks.
Confidence: I like what NAR Chief Economist Lawrence Yun had to say about sales volume in this CNBC article: “The latest decline is harder to explain. Perhaps it is the decline in consumer confidence that’s been occurring in the latter half of 2018.” As Yun mentions and we’ve been talking about, interest rates going up really slowed down the market last year. But is it more than just rate changes? Could it be consumers losing confidence in the market? That’s something we have to explore and watch over time. How do you think we’d gauge that? I’d love to hear your take in the comments.
The Governor’s outlier purchase: I mentioned California Governor Gavin Newsom just bought a house in Fair Oaks for $3.7M. Well, here’s what that purchase looks like on a graph. It’s an outlier in price, but it’s also an outlier because of the huge lot size and square footage. It’s the fifth highest sale ever in the county and definitely the highest ever in Fair Oaks.
That $238M sale & Sacramento’s Top 10: You probably heard about that $238M sale in New York. Crazy, right? Did you know $238M would allow you to buy 25% of all listings right now in Sacramento County? That’s nearly 500 homes. Speaking of high sales, here’s the region’s Top 10.
I’m expecting really dull January stats: I imagine we’ll see dull sales stats in many markets in January, and that’ll be the case in Sacramento where it looks like sales volume could easily be down 15-20%+ again. I’ll know more in two weeks for sure when I pull my stats. In short, it’s a big deal if we don’t start to see this trend turn around over the next few months. It would be a sign the market has changed. Let’s remember though that January stats don’t actually tell us about the market in January. In fact, January sales tell us what the market used to be like in November and December when these properties got into contract (and then closed in January).
Preview of 2019 trends right now: The big question right now is what the market is going to do in 2019. We’ll begin to see that in sales stats in March and beyond, but right now we’re getting a preview in the listings and pendings of today that’ll eventually become sales.
I hope this was interesting or helpful. Thanks so much for reading.
Upcoming speaking gigs: I’m speaking in so many places lately. It’s been insanely fun. Here’s some upcoming talks in case you’re around. I’m doing a blogging class soon too.
Making graphs: Last week I asked if anyone wanted to learn to make graphs. Here’s a tutorial for how to make neighborhood sales graphs. This was a game-changer for me to learn. I’ll do a tutorial soon for how to make the price per sq ft graph I showed last week (hopefully in the next couple weeks).
Questions: What are you seeing in the market so far this year? Normal January or not? And Rams or Patriots? I’d love to hear your take.
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Good stuff, as usual, Ryan. Re: Governor’s Mansion, Gov. Newsom has made a couple bucks in his professional career before entering politics. If he can afford it, let him buy it. Just as long as the we tax payers didn’t foot the bill.
Sacramento is not a “Jobs Mill” for sure; other than state government, we don’t attract industry, nor the jobs that come with. It’s common knowledge that our influx of buyers has come from the Bay Area. I believe that will likely continue, won’t it? I read a story about a guy who works at Google. He lives in the parking lot in a pick-up truck with a camper shell, because he can’t afford to buy in Mountain View on his meager $450,000 a year salary. I’d be happy to sell him my house!!
My 2-cents,
Tom
Thanks Tom. I agree about the Governor. Politics is a hot issue and even the mention of his purchase makes people’s blood boil. I agree though. If he bought this with his own money, then that’s just the way it is. The truth is most politicians are rich. In fact, here’s a Wikipedia article that lists the top 50 wealthiest members of Congress. It’s astounding. https://en.wikipedia.org/wiki/List_of_current_members_of_the_United_States_Congress_by_wealth
In terms of jobs we are a government-driven town, but we also have massive amounts of healthcare jobs, and it’s good to see that industry expanding. I hope we can create more tech jobs in the future too (and train locals ideally). In my mind Bay Area buyers are a force, but they are not the driving force or culprit behind all of our sales. The Greater Sacramento Economic Council states there are 27,000+ Bay Area residents moving to the Greater Sacramento Region every year (they define the region as six counties). We see this and initially think this means 27,000 sales, but it’s really not true. Obviously these people are living or buying somewhere, but they’re certainly not all buying. When we look at all sales in the region of data I track (Sac, Placer, Yolo, & El Dorado), we only have about 30,000 sales per year including condos. When I talk to agents, nobody is saying Bay Area buyers are picking up 80% of the market. They’re there, but they’re not buying everything either. Though in your case I hope that guy from Google does buy your home… 🙂
Thanks for the update Ryan. I love your take on things. In my area to the north, we are seeing early signs (measuring ;-)) that there are a lot of listings coming so hopefully there will be buyers for all those listings.
Thanks Gary. Yes, I hope there will be buyers. I think we’re seeing a similar thing here in that some listings are coming to the market, but we just haven’t hit the full-fledged stride yet. That makes perfect sense for the time of year of course. If any onlookers have a different take, speak up.
Good stuff Ry-Guy. Did you get that a lot growing up? Hopefully I didn’t stir up any unresolved name baiting issues from the playground. If so sorry.
Now to the million dollar question…people generally don’t like to commit to hard predictions about the future, which I get. But, can you commit to a month in 2019 that you think you will be able to call the general direction of the marketplace? In other words, by the end of ___________(insert month) there will be enough data finally to call this a secular market shift, or not, you can tell me prices will continue rising forever (I’ve heard that many times from agents.) I’m not asking you to call the direction, I’ve tried to encourage that many times and tend to get the standard ‘no crystal ball’ response. 🙂
As you know, personally I’m settled on where this market place is heading barring extreme acts of financial wizardry/federal intervention with monetary policy. Short of that I’ve been calling a tank as you know for a year plus. I think we are in a bubble as anyone knows who asks my advice professionally or just on a personal level.
I am asking your blog followers here (agents etc.) to propose a month/date this year when they will be able to reliably call the direction of the market based on springs sales etc. Again, I am settled, but for those amongst us who have taken a ‘wait and see’ approach, I’d like to hear the date/month when you think the market direction will become generally accepted.
I will give everyone a hall-pass on the ‘we have no crystal ball’ thing, but you can’t be directionless and agnostic forever. At some point you have to make a call, so when will that be, when is enough data in for you? Let’s not find Jesus on our collective death beds here. Let’s use our insight, experience, and the data to understand the coming real estate market. Otherwise it’s useless.
I’ve heard a lot of folks say they’d have to wait to see what happened in 2019, but now we are there, so let’s dial this in some more. I dare ya.
This isn’t a challenge to you directly Ryan, you do enough with the contributions of this fantastic blog and data etc. Although I’d love to have you participate, but for anyone else here that considers them a expert in any way, or a student of real estate etc., this shouldn’t be a challenge you need to avoid. Let the rubber hit the road a bit, it’s ok to have opinions.
Hey Mr. Miyagi. That’s pretty funny to hear “Ry-Guy”. A couple people have called me that in life. It reminds me of two friends in particular. Ha.
Great thought and I appreciate it. The market definitely has been in a slump. Like I said, sales volume for January will be meager and I’d suspect something similar for February too. Thus the market will have most likely two months of dismal news, so it’ll be curious to see how that further affects the psyche and confidence level of buyers….
From a pure data standpoint I am still wanting to see technical 2019 numbers which we’ll start to see in current pendings and then sales in March. Will 2019 continue this slumping trend or will something happen to dissuade it? So far it doesn’t seem like there’s much on the horizon to change this trend, though we do have to see what lower rates will do (they’re really just a temporary solution or bandaid on the real problems in our market).
I have a few different answers. Technically once we grasp January & February pendings, if they are down, I think we can say the market is slumping in 2019. We can can call it a downtrend too. I would be cautious on calling it a meltdown because there’s a big difference between an utter crash and a market that is turning down. In other words, severity matters. But I’ll feel even better once we start to get March sales volume numbers. From a data perspective it’ll be most beneficial to have two quarters of data of course. I’m a huge fan of more, but I think we can probably manage with a little bit less here as long as the stats are clear. Like you said, this won’t tell us what will happen in the future, but it would describe what is happening now.
So in short, from a stats perspective I think we’ll likely get a pretty good sense of 2019 between now and March or April at the latest. It could be even sooner in the next month or so. It depends on the clarity of stats and how decisive the numbers look. That’s my instinct for now….
Great reply. I concur with everything you said. I agree that by March everyone should really have a handle on where this giant cruise ship has turned.
I also agree that the severity piece is still somewhat nebulous.
Thanks for accepting the Mr. Miyagi challenge.
Right on. Thanks again. This is a valuable discussion.
I might even have to revise some of my previous statements that this market is toast barring acts of God (the Fed.) The more I have studied the issue I think I am close to saying that the Fed will not be able to do anything to save this RE market.
They will try of course. In fact they are already are, the Powell about-face we just saw is the first attempt to stop the cratering in equities and RE. Not only will short term rates likely NOT get raised this year, I think there is a chance they are hacking our already ultra-low overnight rate as a rescue attempt by years end.
I also think they will not unwind the balance sheet at all and we will see a full reversal to QT/money printing within 12 months or so.
This is a big dog and pony show. The emperor has no clothes. The tide is rolling out and we will see who has been swimming in the buff.
The indebted American is in for a major haircut again when this current boom/bust cycle unravels (which is in process.)
I don’t think it can be rescued. RE will be one casualty. These spring numbers will still be interesting though. It will be a massive effort to save this market. The Fed, The Gubbment, Trumpy, lenders, realtors. All hands will be on deck to prevent the coming slide. Will it work? Only time will tell.
Thanks Mr. Miyagi. Here we are in an environment where mortgage rates are expected to fall in coming time. While this is only a temporary solution for the market, I am curious to see if it can pull buyers back in or not for the immediate season ahead.
Much like the Trump tax cuts which were simply a sugar high providing a temporary artificial boost by stealing from the future with deficit spending, new lower interest rates may lure some otherwise unqualified borrowers back into the market yes. That it fundamentally bolsters the RE market is probably unlikely. But I agree, some ‘bounce’ may happen from artificial low rates and creativity/magic from lenders. I just think the Fed might be completely out of ammo for this next gun battle. At 2.25% fed funds rate our entire economy started to break down! The stock market went into near free-fall and the RE market as we know is drying up like a slug that mistakenly wandered onto a hot sunny sidewalk. Truly the Fed policy capitulation/about-face in light of the systemic problems that just resulted from rates going to still extremely low levels is a big tell. This is a precarious market and economy, to put it mildly.
Thanks. And for any onlookers, we are poised to have a seasonal market still. There will be more eyeballs on the market in the spring. That’s very normal. The big issue though is whether we will have a normal amount of sales or not. That’s a key metric to watch to know what the market is doing.
It’s good to see the increase in home ownership for buyers under 35. On another note, I’m super impressed with the number of speaking gigs you have scheduled. You’re an inspiration for me to work on getting out and speaking to the public about the market and the appraisal process.
Thanks Tom. I agree. This is a really positive trend. I think it bucks the narrative too that younger people don’t want to buy homes. There were so many articles out there trashing young people, but here we are. The stats show that young people are jumping into the market.
Thanks for the kind words. I love seeing your posts on Facebook when you’re speaking at different places. Keep putting yourself out there. You’re doing an awesome job.