Ten things to know about price reductions in today’s market

Price reductions are growing fast and sellers are still behind the ball. Eventually they’ll catch up, but they haven’t gotten there yet. Let’s talk about price drops today in the Sacramento region. Is the trend similar in your area? Let me know what you’re seeing.

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TRUTHS ABOUT PRICE REDUCTIONS

1) Nearly 40% of active listings have had a price drop

Here are some fresh numbers to show the percentage and number of listings that have had a price drop in the Sacramento region. Not every county is the same, but most areas are more or less hovering around 40%. By the way, I need to admit a mistake. I pushed out an image last week that showed Placer with 50% reductions, but that was an error on my part (sorry).

2) Many sellers are distracted with hot headlines from the past

Lots of sellers are stuck in hot headlines from the past, which is causing sellers to list way too high. But demand has shifted. The market has changed. It would be wise to recognize the massive difference higher mortgage rates have made for affording the market. Buyers are easily paying $500 to $700 more PER MONTH for a mortgage compared to what they would’ve paid about six months ago.

3) We’re easily seeing twice as many reductions as last year.

Is 40% a normal level of reductions? That’s the big question. Here is a quick way to visualize price reductions through the years. The following visuals are from Altos Research. First off, do you see how there is an up and down rhythm through the years? This is important because we should be seeing more price reductions around this time of year. But we can also see price reductions have clearly outpaced last year by twice as much (or more). Moreover, price reductions are higher than they’ve been since 2019. I don’t have a visual to show reductions prior to this time, but I’ll figure that out if I can. Overall, there has been a blatant spike in price drops lately and it hasn’t slowed down yet. Statistically I would say we are still pretty close to normal levels, but we are seeing very quick change. If reductions keep going up, then we’ll be in abnormal territory (thanks Captain Obvious). Let’s keep watching by the week and changing our narrative as needed.

Altos links: Sacramento, Placer, El Dorado Hills.

4) No price range is immune from the slower trend

You can overprice at any level. That’s the truth. There are overpriced homes spread throughout all ranges like the image below shows (price reductions this past week). Over time we can watch the trend to understand who is being affected more – buyers at higher prices or lower prices. For now, don’t buy into the myth that some prices are immune from the effect of rate hikes.

Pricing for Bay Area Unicorns:

5) It’s going to take longer to sell, so adjust expectations

Earlier this year you could’ve listed on Thursday and had a stack of offers to review by Monday at 5pm. But that ship has sailed because it can easily take multiple weeks or longer to sell in today’s market. Granted, half of pendings in June got into contract in 12 days or fewer in the region, so there are still properties that are moving fast, but listings have been on the market now for an average of 34 days, which shows lots of homes are sitting for much longer. My advice? Don’t expect your home to get into contract the first weekend. If it happens, great. But statistically speaking, it probably won’t.

6) There are more price drops between 2-4 weeks

When are price drops happening? Here’s a look at all listings with a price drop over the past week in the Sacramento region. Very few listings had a reduction in the first week, which makes sense as sellers are still feeling out the market. But we start to see more of an uptick between 2-4 weeks.

7) How much should sellers reduce the price?

People ask how much they need to reduce the price, but there isn’t one answer. It really depends on how overpriced the property is. I would advise looking at similar homes in the neighborhood that are actually getting into contract because those could be clues for what buyers are willing to pay. And sellers, remember, you are not giving up value if value was never there in the first place. So, if you’re priced $75,000 too high, you probably need to make a significant reduction and not take it personally.

How to read these graphs:

These visuals consider ONLY listings with a price reduction right now. Let’s look at the first image for clues on how to read the graph. In the Sacramento region, only 5.73% of active listings reduced the price between $1,000 and $5,000 (see bar on right side of visual). This tell us the bulk of reductions are more than just a few thousand dollars. This makes sense because if you’re not attracting traffic and offers, it’s probably not because you’re overpriced by two thousand dollars. In contrast, 32.85% of listings with a reduction have reduced the price by $5,000 to $10,000. Anyway, I hope that makes sense. I do have a graph that shows the dollar amount reduced before properties got into contract, but I ran out of time to make that one today.

8) How much of a percentage price drop is happening though?

But Bro, what is the percentage reduction? I get asked this all the time, but there isn’t just one answer. The truth is percentage reductions are all over the place. Here is a look at price drops under $2M with the dots representing individual listings that have had a price reduction from the original list price. Keep in mind the bulk of listings are under $1M, which is why there is a bigger cluster below $1M. It would be a mistake to say there are more reductions at lower prices simply by looking at this cluster. Literally half of active listings in the region are under $649,000 today (while half are above). Like I keep saying, you can overprice at any price point, which is why we see examples of 10-15% reductions at basically every price level.

9) Poised to see more price reductions

We are poised to see more price reductions until sellers start getting a better grasp of pricing. It just takes time to get used to a different market and for now sellers aren’t up to speed. But it’s not just about sellers. We are seeing fewer pending contracts right now, and that’s causing a spike in the number of available listings for buyers. We’ve had more than one thousand fewer pendings in the region over the past few months, which means there are over one thousand more listings that stayed on the market and didn’t sell. In short, this dynamic creates a need for more price reductions since there is less competition. Sellers, did you hear that?

10) Buyers have more opportunities

The emphasis in real estate is often on sellers, but let’s talk about buyers. The reality is buyers have more opportunities now to get into contract without giving up their firstborn child or removing contingencies. Buyers are also in a place where they have a little more space to make decisions instead of having to offer 10% over list price on the spot. On a related note, this means sellers actually need to negotiate with buyers and even offer concessions sometimes. And I know, there are still lopsided examples out there. About 42% of pendings over the past two weeks in the region have had multiple offers. What I’m describing here is the entire forest – not individual trees.

JOIN THE PRICE REDUCTION CLUB:

Sellers, if you aren’t getting any traffic or offers, and enough time has elapsed, it’s probably time to join the price reduction club. I’ve heard this a few times, “I know the market has changed, but my property is still going to sell for more.” But here’s the thing. The market has shifted, and your property has shifted with it. My advice? Don’t expect to be the exception to the rule, pay attention to what is happening, and act accordingly. Listen to the stats and be open to advice from real estate professionals.

MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.

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Questions: What stands out to you the most above? What did I miss? Anything else to add?

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