Home prices have been massive lately, but there is an asterisk. It’s easy to look at glowing stats and say, “Dude, prices are up 16%, so my house is worth 16% more.” But lofty county or regional price stats don’t always show up the same in a neighborhood. Let’s talk about this.
TWO REASONS WHY PRICES ARE SO HIGH ON PAPER:
1) The top & bottom: There have been more sales at the top of the market and fewer sales at the bottom. In fact, when comparing the past four months this year with last year, we’ve seen 20% fewer sales under $400,000 and 75% more sales above $750,000. Here is a brand new visual to show the change in various price ranges. If you’re not in Sacramento, is this happening in your area too?
The effect: Having a big change in volume at the lowest prices and a hefty change at the top has simply boosted price metrics. Thus on paper price stats are really high compared to last year, but when pulling comps in a neighborhood we don’t always see anywhere close to this sort of explosive growth.
Here’s another way to look at the same data:
2) Larger homes: I’ve mentioned this before and I’m not trying to beat the dead horse, but during the pandemic buyers have been purchasing noticeably larger homes over the past four months. Do you see the spike? In short, having larger homes has boosted price stats, so when talking about growth it’s good to remember that part of the reason for higher prices is due to larger homes selling more often.
The takeaway: There is no mistaking the market has increased in value quite a bit this year. I’m not saying it hasn’t. I’m just saying if we’re not careful it’s easy to get infatuated with lofty regional price stats which can sometimes blur our vision for a neighborhood market. My advice? Know why the numbers are the way they are and focus on comps instead of county or zip code stats. Moreover, don’t expect the market to be the same temperature with every location, price range, or property type.
I hope that was interesting or helpful.
Questions: Have you seen some neighborhoods where prices have risen greatly and others where growth is more subdued? Did I miss anything? Any stories to share?
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So in addition to the jet fuel of historically low interest rates and low inventory, add increasing home size/superior quality to the Sacramento regional home price bonfire?
No wonder the Sacramento market IS ON FIRE!
(lol)
Haha. Yes, let’s add that to the bonfire… 🙂
Leave bonfire out, I am a sensitive to fires right now….
Although Joe is right on target. Wonder if interest rates were at 3.75% would we have this mess. Good grief 3.75%, heck my first house was 14.75%, go figure. We are 12 years in this cycle, makes me a tad bit nervous on what happens next. I bet our stats are a whole bunch different in the next 12 to 24 months. Heck it may take that long resolve who is president. LOL
Brad, I hope your property escaped the fires recently… Low rates have made an incredible difference. I find sometimes it’s easy to talk about buyers playing the market right now because they’re making up for what they missed during the beginning of the pandemic when we were on lockdown. I get that, but the market today is more about rates being so incredibly low. It’s like a steroid for the market when rates go down to new levels. There is no way demand would be this strong without rates simultaneously doing what they are doing. I’ve said often that we have a market that is hyper-sensitive now to rate changes because of our struggles with affordability.
Great information Ryan. Yep, you always need to look at a competitive market to get stats on any particular type of home or segment. Agents in our area will often take the report that comes from the local MLS and use that number for appreciation. It’s dangerous.
Well said. Thanks Gary. One of the dangers here is what the public hears when the real estate community quotes price metrics. At the least there is some unpacking to do to explain why prices are the way they are. This is where real estate agents and appraisers get to be market interpreters to help clarify trends.
I’m in St. Petersburg, FL. I’ve been reading your blog for a few years now, and I have learned so much from you.
This “apparent appreciation” post particularly resonates with me.
In the past 3 years, housing prices in St. Pete have skyrocketed except in the ultra-luxury range. Houses I looked at in early 2017 and rejected as hopelessly dilapidated are now back on the market at double the price with only minor/cosmetic improvements and they’re selling rapidly at or near asking.
(Everything real property, tax & financing is public record and online here.)
Cash-out refinancing activity based on (I assume) comp appraisals is also so frantic that processing time now exceeds 120 days (up from 60-90).
I don’t know how, in a state with an uncontrolled pandemic, millions of unemployed people and millions of people with no health insurance at all, where every home is vulnerable to extensive property damage from hurricanes & tropical storms (much of which occurs outside designated “flood” zones where most people don’t carry flood insurance), this price appreciation is sustainable.
It’s not 2008 – there are different factors at play, and it’s concerning nevertheless.
Thank you very much Henry. I appreciate the commentary. I always like to hear about other markets too.
I think lots of people share your concern. Nobody would’ve guessed the housing market would be behaving like this during a pandemic. Yet we’ve also never had rates below 3% either. So far it seems the power of low rates has been a bigger factor to motivate buyers than the pandemic.
On a side note, when the pandemic first began I had numerous homeowners call me who had a divorce appraisal in months prior from me. The question was always the same, “Has the market dropped?” or “What is going to happen?” The idea was that we would soon see the market plummet. I completely understand this thought process because it’s frankly what lots of people thought. To be fair for a couple months the market was pretty dull, but then it went wild around June as rates began to drop substantially.
The interesting part to me about the trends I’ve talked about today is this is what is happening in many markets across the country. While there is no such thing as a national market, we certainly do have some similar trends in quite a few areas…
Thanks again Henry. Please pitch in your two cents whenever you’d like.