Do you feel that? It’s change. The housing market is still elevated, but there’s no mistaking a different temperature – especially over the past week.
STUFF ON MY MIND: This is designed to scroll quickly or digest slowly. The goal is to highlight stats and things I’m watching.
An elevated market with a shift in demand: We’re not back to normal levels for inventory, the number of multiple offers, and basically every metric. This means the market is still elevated. In other words, it still feels like the market is on steroids on some level. Yet, there’s no mistaking a rise in uncertainty as affordability has taken a beating lately.
Hot pockets: The housing market is like a hot pocket taken out of the microwave a tad too early. Some portions are blazing hot while others are only warm. What I mean is not all neighborhoods and price ranges have the same temperature. I first shared this analogy in 2016. And now it’s back.
Slower open houses last weekend: I talked to nearly fifty local real estate agents about traffic at their open houses this past weekend. Obviously, this isn’t a scientific study, but the word on the street is there has been a slowing in traffic. Of course, there were also some REALLY busy open houses, so save your hate mail. Keep in mind this doesn’t mean offers won’t come in. In fact, a few agents that told me of slow open houses do have 1-2 offers in hand. By the way, check out Showingtime data for California for 2022 (orange line) for a wider perspective on traffic. This is something to watch.
It’s play-by-play time: Stats can become stale fast these days, so it’s important to watch the numbers by the week, and then change our narrative as needed. I gave a big market update last week, but if I were presenting today, I would be talking about more slowing and dull open houses.
Number of offers chopped in half: I’ve been hearing from agents that the number of offers being chopped in half. So, instead of getting 8-10 offers, it’s more like 3 (sometimes way more). The percentage of multiple offers among sales in April so far is about 71.5%. This number should be closer to 50% in a normal year, so we still have an elevated market. But pending contracts over the past week show 62.7% had multiple offers, which tells us the temperature is changing.
Buyers are starting to pay less above list price: This visual show buyers are starting to make less aggressive offers. I suspect in another month we will see these lines at lower levels because demand has begun to shift. For context, it would be normal to see buyers pay about 2% below the list price at this time instead of 3-4% above. Thus, we have a way to go before we get back to normal levels. How soon can we get there? Well, that’s to be determined. One more thing. This visual below is based on sales, so it really tells us more about what the market was like one month ago when these properties got into contract. I have a visual like this that I’ll share in a few weeks that shows the past 4-5 years of data. Stay tuned.
Demand likely peaked for the season: It’s possible we’ve peaked in demand for 2022. I’ve been mentioning this in passing on my social channels for a few weeks, and as we get more stats, I think a seasonal peak is likely unless something happens to reverse the slowing trend. What I mean is inventory is increasing, price growth is slowing, and we’re seeing fewer multiple offers. Keep in mind, it’s not unusual to see multiple offers peak in either April or May, but this year was slightly earlier than usual.
Price reductions are increasing: Price drops are more noticeable. We’re not at alarming levels, but this past week we had about 250 price reductions in the region. Three things: 1) You can overprice at any level; 2) There are more price reductions at the top half of the price spectrum; 3) We should be seeing more price reductions around this time of year, so the key is to watch the market for any abnormal level of reductions. In other words, let’s know the seasonal trend, and interpret price reductions in that context.
More price reduction stats: Redfin also shows price drops have increased. The black line is 2022 for the Sacramento region, and we’re inching above 2019 levels. Altos Research shows similar data. In short, price reductions have increased beyond levels of the past couple of years, but they’re not freakishly high either. This is something to watch by the week.
Sellers & buyers are exchanging power: Sellers have lost some power, and buyers have gained some power. This is not a dull market, but sellers would be wise to price reasonably, negotiate with buyers, adjust prices as needed, and lower expectations about the number of offers and price you can command. If the market surprises you with something higher, great. But aim for the market – not the unicorn. Most of all, recognize you are now listed in the midst of a temperature change, which means it’s critical to listen to your agent and buyer feedback. And buyers, you’ve gained some power, but there are still many situations with multiple offers. This is especially true for lower price points and good product. Yet, we are starting to see overpriced listings, so go after those ones.
More inventory is hitting (but 1,000+ fewer listings): We are seeing more listings hit the market. We are still far below a normal level, but if buyers start to back off, that’s going to make it feel like even more inventory. Read that last part again. Right now, we have about 2,000+ listings available in the region on any given day, but in a normal year we could easily have about one thousand more listings (seriously). Two things: 1) Supply is still anemic; 2) Supply is finally starting to open up more.
Price growth looks to be slowing: So far, sales price stats are looking lackluster for April, but the month isn’t over yet. I wanted to give a heads-up that for now price growth looks to have slowed down after a few truly exuberant months. It’s possible that the monthly median price will actually be lower in April compared to March for the region, but like I said, we need another week of sales to know for sure (so don’t write home over this).
Dude, we just went $100K over asking: We’re still seeing some examples of going way above list, but those properties don’t typify the market. They are there though.
Watch pending contracts closely: Let’s keep a close eye on weekly pendings. Redfin has a great tool to look at metros and counties. Here’s a look at the Sacramento region, and the black line shows pendings dipped last week. I’m not ready to call this a trend because it’s really just one week, but this is important to watch as a gauge for demand. There are many buyers who are simply shocked right now and we’re going to need some time to see how they react.
Lower volume ahead is plausible (we’ll see): Here’s a look at weekly sales volume in the Sacramento region. The black line is 2022, and so far, it’s been a normal year, but that could change if we start to see fewer pending contracts. This is something to watch by the week, but in light of affordability becoming a glaring issue for many buyers, it’s plausible to see volume soften. NAR Chief Economist, Lawrence Yun, said recently that national volume could be down by about 10% this year compared to last year. That’s a national stat, but it’s something to watch locally too. One more thing. The California Association of Realtors states volume was down 7% in March 2022 compared to last year for the entire state, but volume in the Sacramento region was actually about the same as last year. Thus, on a real level, Sacramento has been doing better than the state so far. And again, there has not been a dip in volume yet, but this is absolutely on the radar to watch in light of affordability changing so drastically lately.
Calling it a meltdown or correction: All we know right now is we are in the midst of a temperature change, market stats are still elevated beyond normal, and we should also start to see slowing for the spring around this time of year. Is this a beginning of a seasonal slowing, or is it something bigger? We need time to know. I say this because I’m being objective. I don’t have any interest in wearing rose-colored or doom lenses.
We need time to see the trend: The bottom line is the future hasn’t happened yet, so in the meantime we need patience, objectivity, and weekly stats. We also need to be careful not to be swept away by every new sensational market narrative. Know what I’m saying?
Anyway, that’s what’s on my mind today.
Thanks for being here.
Questions: What are you seeing out there in the market? What are you hearing from buyers and sellers?
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The change-I can feel it. I also smell something. I thought it was the smell of brakes, perhaps it’s actually a burnt Hot Pocket? Mortgage rates are up and the brakes are on. Lenders and appraisers are wondering what the heck just happened. That’s the smell of 5% interest rates folks.
Mark, you are such a wordsmith. I know I say that quite a bit, but I love the way you sling words together. Yes, this is the smell of the effect of 5% rates. On one hand change feels like it’s on hyper-drive, but we still need to be objective and watch the trends. Let’s keep watching.
The market is getting interesting. I’m glad you keep bringing the stats.
Thanks Gary. Let’s keep watching. There is so much sensationalism right now. We really need to stay grounded and upack the trend. Let’s keep doing that.
Bankrate says 5.25%
friends in small group are starting to ask ‘why isnt my dollar going as far’ “why does the 7-11 reciept say $100”
Fuel prices not softening…
First under asking price sale ive heard of in ~3 years happened last week locally.
inventory jumped from 63 active(steady rate for last ~6+ months) to 66 from last week. Should be 2-300.
yeah-the market is slowing and its going to slow down faster as soon as media gets ahold of it(not you Ryan) and starts blazing with the newest 2008 story-its going to falsely decelerate the market.
‘Auction fever’ in reverse.
In machinist world, its called ‘tolerance stacking’
or the straws that broke the camels back.
Thanks, Mark. It’s been wild to watch rates increase so dramatically. We’ll see how the trend unfolds. It is shocking though to see the difference in the monthly mortgage payment in a very short period of time. This is a big layer of the cake so to speak, and we are starting to feel the effect in the marketplace. I have heard many say things like, “This market is so strong that nothing can slow it,” but demand is being tested right now. We cannot have mortgage payments about $500 more expensive this year and think it will have no effect. Time will tell.
I think we will have inventory issues for a while. It will be very difficult for move up buyers to sell their home financed at 2.75% and get into a 5.5%. This increase in rates alone alone for the same house could be $800+ per month added to the mortgage payment and that’s before taking into account a higher purchase price and a new/higher property tax basis. The cash buyers are not as much impacted by rates and first time buyers’ affordability got decimated in the last 4+ months losing roughly 6-8% on their debt to income ratio taking only interest rate increase into account. We’ve seen many buyers that were comfortably qualified in Dec, barely squeeze into their Loan in March/April.
Thank you, Paul. That’s a sobering number. And you’re right that the increase in payment often doesn’t factor the rise in values too. Cash has been about 15% of the market in Sacramento (technically 15.4% of sales in April so far). It’s been pretty steady overall, but we’ll have to watch and see if it increases. Though if traditional buyers drop off and cash buyers remain constant, it can look like an increase on paper (always have to consider stuff like that in the stats). Let’s keep watching. Please pitch in your two cents any time.
I’ve personally noticed a change in the market, in Central NY. Contracted sales prices are generally not very much above listing price, and a huge request in HECM closeout appraisals.
Thanks Joseph. I appreciate hearing.
Great post Ryan! I love your hot pocket illustration! I’ve been seeing the same thing in my area. The lower price point homes are still on fire out here in many neighborhoods. But ar the mid and higher price points, things have been slowing down. Just as you’ve mentioned, I note affordability and market uncertainty as some of the reasons why. Thanks for another great analogy!
Thank you Jamie. It’s good to hear about your area. It sounds like many markets across the country are experiencing a temperature change. Let’s keep watching. And for any appraiser colleagues, let’s continue to be objective. Namely, we need to be cautious about imposing any sort of narrative on the market. No doom and gloom. And no rose-colored glasses. Otherwise, it’s easy to see what we think is happening (sort of a confirmation bias thing). Let’s the let stats set the basis and tell the story. I suspect in some areas we might say the market is increasing, while in others we could talk about stabilizing or whatever. There isn’t just one answer.
I agree Ryan! Doom and gloom predictors are only good for click-bait. One week at a time and one neighborhood at a time. Each market area is different. Never a dull moment in real estate!
Totally agree. I read an article recently where the title was ultra sensational (about a housing crash), but all the stats in the article said the exact opposite.
LOL! Awkward! They ought to actually look at the data every now and then.
I’m Central Jersey, we just held an open house and had nearly 40 families, plus another 25 schedule private showings. Our realtor said the total (65) may be the highest he has seen in 15 years.
We also attended other open houses this weekend. Some were mobbed (20-minute wait just to get inside) and others were empty, so it is definitely uneven.
Thanks Bruce. I think uneven is a good way to put it. My sense after talking to so many agents this weekend is there is definitely a slower vibe. BUT not everyone was slow, and like I said, it’s still a statistically elevated market.
When rates started to go up earlier this year, demand at first appeared to increase, or hold steady anyway, as shoppers already in the market sensed that rates would continue to climb, as they have.
The increased interest rate now seems to have delivered the mortgage payment sticker shock that will prune marginal buyers out of the market and demotivate non-marginal buyers that have the option of staying in place.
Yesterday I opened my mail to see that one of my mortgage payments will soon adjust from a ridiculously low 2.5% rate up to 3.75%. This results in a $236 monthly payment increase that will be soon be passed on to tenants. It is a given it will increase by at least as much in six months. It will probably go up the full 2% cap (~$364) in November. That means the payment will have gone up by $600 from $2700 in the first quarter to over $3300 in the final quarter.
Extrapolate this experience across the country. While I am in the privileged position of being able to squeeze this extra $600 out of the next set of hapless tenants, I suspect I am something of an outlier.
Borrowers with adjustables are going to find that refinancing into a fixed rate only locks them in at the new higher rate and payment. Many will realize it is finally time to sell, even if they have to pay capital gains. Others will realize they have no choice but to sell as they are no longer able to service these higher mortgage payments either from rents if they are investors, or from wages if they are workers.
The new rate environment thus acts to increase supply, while contemporaneously lowering demand. I will hope this leads to a balanced market rather than a rout. More likely I predict anti-inflation measures will be applied too vigorously, as they always are. Anti-inflation policies traditionally harm the real estate market disproportionately compared to other sectors. To plagiarize the promo line from Game of Thrones: “Winter is Coming”
Thanks so much Jim. And bonus points for using a Game of Thrones reference. There are many factors moving the market, and here we are seeing just what you said. Supply is increasing, and demand is softening. I have heard about an increase in ARM loans, though hopefully there is strict underwriting behind that. I’ve yet to hear of any fog a mirror ARM loan. Let’s keep watching, and keep me posted with what you are seeing from the trenches.
It definitely felt different this weekend. While the traffic on my new listing was still high (30 people between Saturday and Sunday), I do not have any offers as of yet and there were no calls after the open house. I am on a higher price point; however, it still felt very different than a month ago.
Buyers are not jumping immediately to make offers and they are spending more time at the properties before making a decision….
I think they are definitely pressing on the brakes and I believe it is all about the increase in interest rates.
Thank you so much, Claudia. I appreciate your take. There was a notable change in the market over this past week. I’ve heard this quite a few times from agents. There is definitely growing uncertainty in the marketplace, so I suspect buyers will be even more discerning about what they buy. It’s easy for sellers to think buyers are so desperate that they will purchase anything. That’s just not true.
Thanks for the tour of trends in your area. I appreciate your ability to present data and then explain it so that valuation professionals and others can all understand.
Thank you so much for the kind words, Jessica. I really appreciate it. Now that you have an approved comment too, you can post without moderation (unless you share a link). Just a heads-up. No pressure at all.
My market has responded to the rate hikes with an explosion of cash offers and offers far above asking prices (which were already inflated). There is palpable fear that prices will go up higher as will rates, and inventory plummet further.
Thanks so much, Rachel. It’s good to hear your take, and it’s a good reminder that the market is not the same everywhere in the country (though the trend is remarkably similar in so many places). In my area, I would say we had an utterly massive fear-based run to the market for the first few months of the year. Rising rates seemed to strongly motivate buyers. I saw this in the average amount buyers were offering over asking, which was about twice as much as one year ago. Seeing the averages basically double is astounding actually since last year was previously our most aggressive market ever. Now buyer demand is softening, and we’ll see how that unfolds. I don’t sense a FOMO vibe right now in the stats or the sentiment from the trenches, though I suspect it’s present in some still. Thanks again. I appreciate you pitching in. The market is always moving. Let’s keep watching.
Do you have any idea how appreciated your blog is by so many in the real estate industry? (Is that sentence grammatically correct?…you may have to ask your wife). I frequently encourage my clients to subscribe…such great information…and presented in an easy-to-understand format. Thanks for doing what you do so well!
That makes my day to hear, Janet. Thank you so much for the encouragement. That is so nice of you to say. I appreciate your support.
So let’s see a few months back, some idiot with a Stetson made the comment of mid 2018. There were a few side bar comments and inventory came up in multiple responses. All correct I might add. BUT mid 2018 is looking familiar and I don’t think the Fed cares this time to come rush in and save the day. As to the Fed’s soft landings, one of my dogs came in yesterday with a pretty good scratch under her eye. Her soft landing apparently wasn’t very soft, wonder if Fed will have the same issue. PS dog is fine this morning still can’t figure out what happened. Hope the Fed doesn’t have the same issue. Folks I am knocking on 70 so I still have about 30 to 35 more years in the saddle (only the good die young I am told, so I am safe), but the insanity of the last two years has to change. Like one of my dogs it might be painful, just doesn’t require a ER Vet visit. Y’all be safe out there and stayed tuned as think some of Ryan’s stats in his next two posts might get a tad bit interesting.
Thanks so much Brad. I’m glad your dog is okay. In 2018 we saw volume slump as buyers stepped back. Let’s see if the same thing happens today. The big difference of course between now and then is prices are hundreds of thousands of dollars higher… Let’s keep watching the stats, and letting the stats form our narrative. No spin. Just the straight dope (I know, that didn’t sound very cowboy of me to say).
That is exactly what I am going to do. Wait for your stats and then see what I should be researching in my market as you always come up with a stat I hadn’t thought about. YOU THE MAN>….. Take good care of yourself and all my best to your family. Heck I might be back up Sacramento way soon. If I do head up we can meet somewhere other than Starbuck’s as I know you aren’t doing the coffee double pump with two twists of something, creamer thing you got the last time we met. Take good care my friend and thank you for all the great work and thoughts you provide to us.
I’d love to get together if you find yourself here. I am still drinking tea, so Starbucks is completely good. The benefit of tea is I save money from expensive cappuccinos (I do miss them though).
What a great find in my normally sensational Google feed! As a certified appraiser in the new home of Californians, seeming all of them, in Bend, Oregon I too can attest to the changing of the tides. Quite frankly, I have little to add other than attesting to all you have stated here being noted here. From the decreased showings, to the handful of pockets still experiencing above list offers, to slight increases in the inventory. I would only add that additional factors on top of rate increases in interest rates would seem to be buyer exhaustion, economic and international fears, and a sense of increased awareness that we may have gotten out of hand. Add on the increasing sensational articles referencing 2008 and it might seem we are also creating the narrative towards a self fulfilling prophecy. Keep up the good work!
Thank you so much Dano. I appreciate your commentary. I completely agree about buyer sentiment right now. There are many tired buyers. They’re exhausted and sometimes discouraged too with how high prices have gotten. Some buyers seem to be running low on patience with sellers who try to counter back too high. I think buyers are profoundly aware of prices right now also. My sense is they’re not willing to pay top dollar for junk, and they are expecting more if they’re shelling out so much more money due to rate changes. I’ve been hearing about more buyers falling out of contract, though that’s a difficult stat to easily track. The reasons given have sometimes been buyers no longer qualifying for mortgages, buyers getting cold feet, and buyers not being willing to play games with the seller who is being unreasonable for today’s temperature. At the same time, I had an agent tell me yesterday about 18 offers on a property at the entry-price point, and then 13 offers at a much higher price point. So the experience in the market isn’t just one thing (hot pockets).
By the way, you now have an approved comment, and you’re welcome to pitch in two cents without moderation from here forward (unless you post a link, which is always moderated). Thanks again.