Is the housing market getting back to normal?

“The housing market is getting back to normal.” I hear that quite a bit, but is it true? Well, yes and no. Let me explain.

UPCOMING (PUBLIC) SPEAKING GIGS:
7/15/2022 Lunch & Learn Market Update (sign up (for real estate agents))
7/20/2022 Beer & Stats at Out of Bounds (sign up (for real estate agents))
7/26/2022 Navigating the Shift (sign up here (for real estate community))

THE VERDICT: NORMAL OR NOT?

NORMAL:

Lots of metrics are technically getting closer to normal pre-pandemic levels. We’re seeing price growth at 6-7% instead of 15-20%, monthly supply has ticked up, properties aren’t getting bid up like they used to, and it’s starting to take longer to sell. Technically, many housing metrics are flirting with normalcy. However, there are also some abnormal things happening.

NORMAL (EXAMPLE 1):

Bidding wars have calmed down. What I mean is the number of properties selling below the original list price is starting to approach normal levels. The black dotted line shows July sales so far, and we are pretty close to normal.

NORMAL (EXAMPLE 2):

Finally, properties are starting to take longer to sell. We aren’t back to normal levels quite yet (red line), but we’re getting much closer. This black will be a whole lot higher in coming months.

NOT NORMAL:

• A sharp rise in inventory
• Sales volume last month was down about 25% from June 2021
• Pending contract volume was down over 25% from June 2021
• Price reductions have seen a sharp increase

NOT NORMAL (EXAMPLE 1):

Sales volume in Sacramento County had another really low month. It was one of the lowest months in the past twenty years.

NOT NORMAL (EXAMPLE 2):

The number of pending contracts is down in most counties by about 25% or slightly more. The number of pendings at this time of year is clearly below a normal trend (see black line). The future hasn’t happened, so we’ll see what this line does, but we’re poised to see pendings continue to dip in volume unless something happens to interrupt the trend.

CLOSING THOUGHTS:

In short, many metrics are hovering around normal or almost normal levels for the time being, so I can understand when people say the housing market is normalizing or trying to find balance. It’s like we were on a honeymoon for two years, and now it’s real life instead of an endless mai tai vacation vibe.

But here’s the bigger truth. We are in the midst of change due to dropping buyer demand and increasing supply. Simply put, a sharp change in mortgage rates is driving a wider gap between supply and demand, which is changing the housing temperature by the week.

We need time and objectivity to see the long-term trend, but for now it’s apparent we’ve seen a blatant shift from a really aggressive trend to more buyers struggling to afford higher prices. There are certainly still deals happening as 75% of pending volume was present last month and 40% of pendings in July have had multiple offers. But understanding the housing market isn’t just about the deals happening. It’s also about the ones that aren’t happening. Let’s keep an eye on both. 

My advice? Be careful not to impose a doom or rosy narrative on the numbers. Also, I recommend paying attention to lots of metrics – not just the ones that fit a certain narrative. The key here is to continue to identify what is normal and what is not normal.

What are you seeing in the trenches? I’d love to hear.

—–——– MORE VISUALS FOR THOSE INTERESTED ———––

I’m maxed out, so I don’t have much time to give commentary to the market, but here are some quick thoughts and stats to unpack June 2022.

A QUICK RISE IN SUPPLY:

We’ve seen a sharp uptick in supply over the past few months. It’s not that so many more sellers have listed their homes. The real culprit is fewer pending contracts, which has caused the pile of available listings to grow exponentially. Monthly supply at 1.74 isn’t historically high, but it’s high enough to help change the feel of the market. Some people say things like, “Bro, five months of supply is normal, so it’s a joke to make a big deal out of less than two months.” I get it, but five months is NOT normal for Sacramento. In short, we are basically at the lower end of a normal range of housing supply right now. With that said, there is still some shock happening where people are freaking out to see so many listings and that it’s taking more than a weekend to sell.

One more thing. We typically start to see fewer listings hit the market around this time of year, so it’s possible the sharp supply uptick could subside slightly due to normal seasonal slowing. But let’s see if we get more FOMO sellers listing their homes (FOMO = Fear of Missing Out). I haven’t noticed a big uptick with these sellers, but it’s on my radar. And most importantly, let’s consider the number of pendings, which has made the most difference thus far.  

PRICE REDUCTIONS:

I’m working hard to figure out ways to show price reductions. I hope to roll out some new stuff soon. I actually had big plans today, but that didn’t pan out. For now, here are a few images.

NOTE: There was an error in my bar graph below. My bad. Basically, the stats weren’t sorting correctly, so the categories were off by one bar. In technical terms, this was histogram sin. But the good news is that it’s been corrected. Basically, this means there are fewer properties getting into contract when reducing the list price by less than $10K (but we knew that).

PRICES ARE SOFTENING:

No matter what the metric, prices are softening. This should be happening around the time of year, but the market crested at least one month early this year, so the timeline for softening feels out of the ordinary. Let’s keep watching this. And as I always say, prices are the last place a trend shows up. If we want to see what a market is doing, look to the listings and pendings first before they become closed sales…

YEAR OVER YEAR:

Annual stats are important to digest, but don’t forget to look at month to month stats. And remember, sales in June really tell us what the market used to be like in May when the bulk of these properties got into contract. Also, not every location and price range have the same trend (big point).

MONTH TO MONTH:

Looking at sequential months is key too so we don’t just get stuck or hyper-focused on last year (the past).

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

Thanks for being here.

Questions: What are you seeing out there in the market? What did I miss? I’d love to hear your take.

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