“Buyers are crazy!!! How can they be paying these prices?” That’s what we tend to hear from people who are NOT trying to buy a house right now. It seems like onlookers really don’t understand what it takes to get an offer accepted these days. But for anyone actually in the game, the truth is blatant. If you want the house you’re probably going to have to pay above the list price.
Fresh stats: Today I have some brand new stats. I’ve never broken out numbers like this before and I’m excited to share. Even if you’re not local I hope this gives perspective or ideas for how to visualize your market.
Quick thoughts: On average properties sold four percent above their original list price last month in the Sacramento region. Or in other words, buyers on average paid $23,787 more than the original list price. Keep in mind these stats represent the average and there are many properties that went above and below this amount. There are also quite a few homes that sold at the original list price. In short, this doesn’t mean literally every buyer paid $23,787 above asking. Also, there are few sales below $300K, so take that stat with a grain of salt.
Four reasons why prices have risen so quickly:
1) Supply & demand: Prices have been increasing rapidly due to supply and demand being so lopsided. It’s no secret we have a shortage of listings and excessive demand. This has created a market that feels like chaos where the median price in April in the Sacramento region is up 11% since January. Of course rates below 3% have also played a role in supercharging the market.
2) Appraisal gap: Buyers are paying above the appraised value or bridging the “appraisal gap” so to speak (the difference between the appraised value and the contract price). In some cases appraisal waivers are also helping properties close at higher levels.
3) Priced too low: Let’s be real. Some listings are being priced way too low and this causes properties to get bid up. I’m not minimizing how aggressive the market is. I’m just saying there are cases where listings are painfully low.
4) More at the top: We’ve been seeing more sales at higher prices in the local market as well as across the country. Therefore when looking at lofty price stats we have to realize some of the massive growth has to do with what is selling rather than pure price appreciation.
I hope this was helpful. Thanks for being here.
Questions: What stands out to you about the stats or points? If you are a buyer, what are you experiencing out there? What did I miss?
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Thanks for this info Ryan! It does seem crazy! Is there a way to check for the median amount over asking in a price range? And also the mode amount in a price range. While the average is helpful, it seems we are commonly seeing $50,000+ over asking in some price ranges so it would be interesting to see what amount is most common. and what amount is in the middle.
Thanks! I always value your information.
Hi Nan. The median can be checked, but I don’t have the bandwidth to do that right now as this takes significant time to compile. The truth is we’re going to get value out of the average and the median, though they might be different (hopefully only slightly). The problem with the median of course is the number in the middle won’t tell us about the numbers below or above the middle, so we would still have limitations. I suspect if I posted median stats I’d be seeing comments that say, “But I’m seeing offers above that amount.” So I guess it just points us to the reality that no one stat is going to perfectly represent every transaction out there.
You can get this information on Metrolist. Open Prospector, Standard Search; Status: Closed; Enter Closed Date: 90-days (or whatever time frame you prefer; Choose Counties, Check areas in the County, Click Ok; Enter List Price range. Scroll up to Blue Bar and click “Statistics”. The results will show the Median List Price and Median Closed Price. You’ll have to do the arithmetic from there to get your Medium Ratio.
Median Ratio… 🙂
Thank you. Yes, that is a great tool. However, I think that might be the most recent list price rather than the original list price. I tend to pay very little attention to the most recent list price because the original list price is the most telling and valuable focus. I wish the focus on the stats tab was on the original list price. If I’m wrong about this, someone please correct me. I hope I am.
And thanks for taking the time to put instructions. That was really cool of you Tom.
Do appraisers have adequate theory to understand the relationship between listing prices and market value? The common sense assumption has always been that listing price sets the ceiling on value, and sale price is usually negotiated down from listing price. Is it not the listing brokers’ strategy now, if the market is strong, to list below the expected sale price, in order to get more buyer interest and start a bidding war? How are appraisers interpreting listing price now?
Great question Vince. It’s a good idea for appraisers to not fixate on the list price. Value is not found in the original list price. Value is found in the comps. There are many times a property is listed far too low and we cannot penalize a property because the market responded at a much higher level (or maybe could have been listed so much higher because that’s where value was). What story do the comps tell? That’s the main focus for us appraisers. Of course we can glean insight by the number of offers and how buyers responded to the original list price, but we cannot make the mistake of thinking the list price is the most meaningful representation of value. Nope.
Pricing is part of the strategy. But it has to be honest pricing, meaning the seller must be willing to accept that price if priced low. If priced high, seller has to wait for buyers to set the real market price. Either way, buyers and their agents must do their homework before offering to determine what they feel is the value of the property and what it might appraise at. If buyers and their agents fail to do this they will be gambling. There’s a meme going around about someone offering $50k over asking and depending on the area, that can be too low. Interesting times!
Thank you. I totally agree about doing homework. It would be a huge mistake to simply look at regional stats like the ones above and automatically offer 4% above the list price. Nope. There are definitely still properties that sell at or below the list price. I feel for buyers out there right now. On some level it seems like the comps don’t even matter (but they do).
Lots of realtors have glommed onto the ebay pricing model-list low=auction high.
In my low price market people are paying 5-15% over ask. I didnt run the stats-this is based off of lots of observation and data in comps.
However.. thats not 15% CA money, thats 15% rural money and equates to between 20-30,000 so it may not be the percent but the amount….
And dont come here for the prices-everything is overinflated, in short supply, and we only want freedom refugees… not economic refugees.
Thanks East Texas. Even here I’m seeing something similar where the biggest change in what buyers are paying over asking price is 5-15%. I haven’t run April stats yet, but there was no mistaking huge growth last year in that range. I’m not sure what a freedom refugee is. I welcome you to parse the difference if you wish.
Interesting statistics and not far from what’s happening with your neighbors to the north. The market has turned into an auction.
Thanks Gary. Yeah, auction is the right word. Wild times.
Always, good stuff, Ryan…thanks for your hard work.
Nobody has a crystal ball but do you have insights as to when inventory will start to climb so we might have a few more homes to sell? Personally I think as we get this pandemic behind us maybe people will start listing their homes and just maybe the rush from bay area will slow. Any insights. I have a lot of buyers that gave up and are sitting on the sidelines
Thanks John. I appreciate the kind words.
Technically we are seeing inventory increase. Right now we have about 1,500 listings on any given day in the Sacramento region compared with about 1,100 or so a few months ago. So we are seeing a seasonal uptick in the number of listings. The problem of course is this number is about half the normal amount around 3,000 listings for this time of year. Moreover, we likely have nearly twice as many buyers trying to get into contract (well, there are literally twice as many offers happening). Of course one reason why we have so few actives is because so many properties are in contract, so while listings have technically been chopped in half, it’s sort of a stat with an asterisk because pendings are really strong right now.
In short, we need to see some changes on both the supply side and the demand side. In terms of supply it seems reasonable to think we’d have more sellers list once we get through the pandemic. Many people talk about sellers not listing because they don’t have a place to go, but I’ve been more prone to think not listing has been about the pandemic since listings really started to slough as soon as the pandemic happened in 2020. Part of the listing problem is likely not having anywhere to go too, but I think that narrative is maybe missing some of the importance of sellers definitively backing off the market since this pandemic began. Trendgraphix has a great image I share to show this. If I remember I will share it next week when I do a big market update. Ultimately we simply need to get through this and have people’s confidence increase so we can see more listings.
But on the demand side it will help to have mortgage rates go up. Last week I wrote about rates and I got some flack for saying I think rates need to tick up. While rates are obviously not the only driver of the market, rates around 3% are helping to create excessive demand, so it will help the market when some buyers back off if rates went up a bit. In all the housing conversations our focus is often only on supply, but it’s important to realize increased demand is helping to diminish supply, which is why rates matter right now.
Ultimately there are no quick and easy solutions toward increasing inventory because we are in a deep hole. Building our way out of a housing shortage is going to take a long while. But part of this shortage does have to do with the pandemic also, so getting through this pandemic will hopefully help a little.
One thing to watch of course is affordability and buyers backing off the market. While I hear stories of some buyers sitting out, I have to say in mass buyers have not collectively backed off the market yet. We are seeing huge volume each month and frankly volume would be much higher if we had more listings. Nonetheless this is something to watch.
I hope that was helpful. I feel like I said everything and nothing. 🙂
Hi! My hobby has been watching the market for the past 13 years and yes, it’s been a wild ride! I personally don’t think it’s the pandemic that’s keeping folks from selling their homes. I believe it’s three things. 1. The climate of the US right now is volatile. People like me are sitting on our home because we’re just watching to see how this present social chaos plays out.
2. We’re also not selling (even though we’re sitting on a gold mine for profit) because we’re just not willing to pay a ridiculous amount for our forever home. The taxes alone wouldn’t be worth it. We’re willing to let our house value depreciate and then buy when the market either goes back to normal or we hit another recession. We paid $279k for our home in 2009. Our exact model just sold for $525k! Insane.
3. CA isn’t stable right now with Newsom. With the recall this Nov. and the uncertainty on whether or not he wins and tries to push the injection on Californians, has us watching and waiting. We’ll leave this state if it becomes mandatory. Imagine the supply then!
Our main reason though is because we’re not secure with where this country is headed and we’d rather watch and wait. So there ya go, people feel secure staying put. In retrospect, I’ll have to agree that the pandemic plays a role. Why buy a new house if you’ll turn around and sell it so you can flee CA if the injections become mandatory? I hope that’s not the case…I think the inventory will definitely increase by April of next year.
Thanks Bridget. I appreciate your take and I think there are clearly factors keeping people in their homes. In fact, I’d like to expand on my comments above because I was pretty narrow in my focus by only focusing on the pandemic (which was the issue at hand). The pandemic is definitely making a huge difference with the number of listings coming to the market. Here is the image I mentioned that I would maybe share next week with updated stats. I think it’s hard to argue with this image as we can see something began happening with listings at the end of the first quarter in 2020 and we just never recovered to normal levels. https://i2.wp.com/sacramentoappraisalblog.com/wp-content/uploads/2021/04/listings.jpg?w=737 In other words, when looking at this image it’s very clear in the Sacramento region that we’ve had fewer new listings coming to the market since the pandemic ensued.
However, I want to clarify my comments above where I focused heavily on shrinking listings during the pandemic because there is something else going on too. We were already in a housing shortage before this whole thing began and demographics were already shifting so people have been staying in their homes longer. In fact, in 2019 Redfin reported people are staying in their homes an average of 13 years instead of 8 years (which was the figure from the previous decade apparently). Thus we legitimately already had less listings coming to the market – not to mention fewer newer homes being built. Part of people staying in their homes could do with homes being larger in size and maybe more suitable for households. I’m sure there are other factors too. I do wonder if this number will increase even further with so many people dialing in their backyards, remodeling kitchens, etc… during the pandemic.
So my comments above really focused on addressing the pandemic only, but I wanted to take a moment to clarify an even bigger narrative that inventory has been shrinking for years. I think the pandemic has simply magnified the issue to a level that is just gnarly (technical term).
All that said, there are absolutely people like you who are sitting and just feel the cost of a replacement home is so huge – not to mention political reasons too (which ironically seem to propel others to move). Unless an owner is downsizing or moving into a lower-priced community it’s not so easy financially to buy a house. Granted, there are still ways to make it work and deploy a decade of equity, but I think lots of people look and say, “Wait, how much is it to buy?” That’s a real thing.
Thanks again for your commentary. I appreciate the conversation.
Great post, as usual! The market is obviously very competitive right now but it’s nice to have statistics to back up the anecdotes.
Do you have any insight into this giant “foreclosure wave” that the doom & gloom crowd is talking about right now? Is it coming? Is it sensationalism/clickbait? Is it more like a wake than a tsunami? Is it just “who knows”? Future post, maybe?
Hi Luna. Thanks for the kind words. For now it doesn’t look like there is a giant wave on the horizon. The stats just don’t show it for now especially in light of forbearance numbers hovering around 4.5% of the market (when they used to be 9.0%). Ultimately forbearance numbers are heading in the right direction. Anything can happen in the future of course, but I tend to think a wave is hype because it’s been promised for a LONG time. Even years ago there was supposed to be a second wave that was talked about, but it never came… At some point I would think there could be more distressed units, but for now it’s hard to imagine a wave. Frankly, we have such a severe housing shortage that a small batch of distressed units could be easily integrated into the market without feeling much effect.
If I am wrong I will be the first to change my narrative. I just don’t see it in the stats at all right now. One thing to watch of course is foreclosure and eviction moratoriums ending to see what sort of effect that may have (many months down the road). Here is a presentation I gave a couple of weeks ago. This link should open up to a portion where I share some visuals and talk about the foreclosure wave…. https://youtu.be/jNFqBEj5Ddw?t=2311
Thanks again.
I believe that there are some listings that have been intentionally priced below market so that there will be more of a bidding frenzy. I can see where a listing tactic like this will result in a price higher than if the property had been listed more in line with what other similar homes are being listed for. It begs the question, “is this market value”? In the past, the prices that some of these properties are bringing would have been considered outliers but it seems that now they may be the norm. When will it stop?
Thanks Tom. Yeah, this is a listing strategy at times. It’s amazing to see 2,500 sales last month collectively show a 4% above list price though. That speaks to a wild market. There is no mistaking some wonky pricing though.