Finally. We’ve seen a massive change with housing inventory. But is it because sellers are rushing to list their homes? Nope. That’s not the culprit. Let’s talk about supply and some things on my mind about today’s market.
UPCOMING (PUBLIC) SPEAKING GIGS:
7/26/22 Navigating the Shift (sign up here (for real estate community))
8/11/22 Realtist meeting (sign up here starting 7/27/22)
8/15/22 YouTube Live with Matt Gouge (details TBD)
8/25/22 State of Housing Brunch & Learn (sign up (for real estate community))
FIVE THINGS ABOUT TODAY’S HOUSING MARKET
1) The spike in housing supply is NOT due to sellers:
In a short period of time, we went from having three weeks of supply in the Sacramento region to ten weeks. What is causing this change? It’s easy to pin this on sellers rushing to list, but that’s NOT the case. This is actually about fewer buyers getting into contract. We’ve seen close to two thousand fewer sales since May, which means listings that normally would’ve sold are still on the market. In other words, the spike in supply came from weakening demand rather than more listings hitting the market.
SUPPLY PROJECTION: 2.5 months of supply is a projection based on what volume looks like it will be by the end of July. This means the number will be more solid in two weeks once most sales for the month have closed in MLS. A range would be 2.2 months to 2.5 months if we wanted to go wider. I pulled these stats yesterday, and today my projection is 2.38 months for the region. Just a heads-up.
Not kidding about fewer listings: Since the pandemic we’ve been seeing a subdued number of new listings, and there has NOT been a spike lately either (see blue line).
Seriously, this is about buyers: If you don’t believe me about fewer sales, take a look at the black line (2022). Sales volume has taken a nosedive over the past few months, which has been the x-factor in adding to the pile of available listings. Remember, housing supply can grow from sellers listing more often or even buyers purchasing fewer homes.
2) Dating advice or real estate advice?
It seems like lots of housing advice sounds like dating advice lately.
– Be patient.
– Be realistic.
– You have one shot to make a first impression.
– Go all out with your best foot forward.
– It’s tough out there right now.
– It’s different today. Not like what it used to be.
– It can take time to find the right person.
Sorry if that was cringe. Here are price drops to make up for it.
3) Buyers aren’t getting appraisal waivers very often:
Getting an appraisal waiver from the lender during a purchase probably isn’t going to happen. It’s just not that common for lenders to let the purchase go through without an appraisal. It looks like fewer than ten percent of purchase loans are getting an appraisal waiver. Please note a lender’s appraisal waiver is not the same thing as a buyer removing the appraisal contingency.
4) New construction volume is doing the limbo:
June was a brutal month for new construction sales in the Sacramento region. Per North State BIA data, volume was down 58% from last June and more akin to 2014 levels. This is a bigger hit than the resale market, which was down closer to 25% in volume last month.
5) No price range is immune from the trend:
No price point is immune from the sting of higher mortgage rates. Stats from the California Association of Realtors show all price ranges in June in the state saw fewer pending contracts. Of course, not all neighborhoods and property types are going to have the exact same temperature, but there is no mistaking an impact throughout the entire market. Or like the saying goes, all ships rise and fall with the tide.
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. I truly appreciate it.
Questions: What stood out most to you? Any advice you would add to the list? I’d love to hear your take.
If you liked this post, subscribe by email (or RSS). Thanks for being here.
Waiting to see what happens to a family members’ house that was listed on July 8. Custom home on acreage in the Temecula Wine Country. So far only two showings that I have heard. Will see what the estate and agent do next. As to new listings, we are seeing about the same level as previously but just like up your way we are seeing an increase in inventory with the DOM elongating. Course then I talk with listing agents who tell me the sky is blue and the grass is green and there are no issues with buyers in the market. Hmmmmm, not sure how this plays out, but I am thinking we have about 7 months to see how it goes, then the spring season starts up and if that falters then we could be heading for some fun and games (and not the good kind).
Thanks Brad. Good luck to your family member. I’ve heard similar things. Definitely fewer showings happening. Even data from ShowingTime supports this. https://www.showingtime.com/impact-of-coronavirus/ There are narratives and there are stats. And hopefully there are narratives formed by stats. That’s what I’m looking for in today’s market. 🙂
Super good read! Thanks Ryan for alwys bringing top knowledge ?
I posted a brain emoji not a question mark lol
Haha. Thanks so much Catherine. I really appreciate it.
Great Data, I thought is was sellers having FOMO…
Looks like there is a direct connection between the rate and supply. It would be interesting to see a chart with rates and inventory. Then a forecast of where inventory will be if rates come down to 4% which is where I think we will end up but not sure when. Yes, the fed is going to do another rate hike however the 10 year is trending down as some indicators show that inflation is coming to a peak.
If you could put that chat together you can basically predict future values tied to the rates;)
Christian Rooney
Thanks Christian. Yeah, I think the big narrative today is that it’s all about more listings coming to the market. Not true. This is a situation with more inventory being created by fewer sales happening. The trend could differ in other parts of the country of course. And on a related noted, I find when we’re looking at “national” numbers, the trend could be far more tame than what we’re seeing locally too. I like the graph idea, and the idea of predicting the future. I need to nail that so I can buy an island…
Always good stuff, Ryan! Just driving around the area I have noticed a big jump in open house signs! It’s not as scientific as your stats. HA! Since Covid in 2020, open houses were almost non-existent. Just two weeks ago I held an open house and we only had 1 group come in…yes, indeed the demand has definitely cooled.
John Ecklein
Thank you John. I appreciate you sharing. That’s definitely a piece of the puzzle. We can see the market in lots of ways. I find seeing more for sale signs in yards is also indicative of market conditions. Good luck on that listing. That’s a telling story. I’ve heard it quite a few times lately too.
Hey Ryan, it’s nice that we’re seeing the same trends. The low interest rates of the past two years shifted demand forward so I expect we’ll see fewer sales for a while. It’s going to be difficult to figure out values for non-conforming homes in the short run….
Thanks for the appraisal waiver stats. Good to see someone values the appraiser these days!
Thanks Joe. Yeah, that’s on my radar too. How many people bought previously to take advantage of lower rates last year? There could naturally be fewer buyers because of that. Though this doesn’t explain the massive drop we’ve seen lately too (over 30% so far in July in the region and many local counties).
Let’s keep comparing notes. And agreed on the appraiser. While the appraisal system is not perfect, it does serve an important role. It was a concern to basically not have anyone care about market value / appraised value over the past 1.5 years.
Watching for the nosedive in sales to flatten.
Indeed. Let’s see where volume goes. The numbers lately have been quite low. Speaking of seasonality though, over the past few weeks we’ve begun to see fewer new listings hitting the market. This normally happens around this time of year. If anything, having fewer listings coming to the market will help supply and demand not grow as far apart. Of course, the real factor creating less balance is on the demand side of things. All I’m saying is it can help slightly to have new listings crest for the year.
Anyway, what a market we’re in. Let’s keep watching. Hope you’re well Gary.
those steroids as you so accurately described the historically low interest rates have dried up all the lifters (buyers) at the gym! lol
Yes!! I love the word picture.
Buyers are looking for deals now, they want price reduced homes. Now we’re seeing listing agents list fairly high, and rapidly reducing the price to entice the buyers.
Thanks Todd. I appreciate it. On a related note, I think sometimes sellers don’t want to reduce the price, so they’ll opt for giving a credit for buying down the rate. That’s a nice gesture, but buyers still might want a reduced price on top of a rate buy down…
Great data, Ryan. It seems that the price drops are mainly due to the time lag of agents educating sellers on the shift in the market before they list and the additional time lag of sellers accepting that new reality.
I’ve heard a lot of realtors express frustration over a sellers insistence on a higher selling price and then correcting that price 2 weeks later.
Thank you Kevin. Sellers have really been behind the trend. I think many sellers are fixated on headlines from the past and they aren’t listening to agents. Sellers will eventually get there…
As in everything real estate, it depends. My nephew listed his home for and didn’t get any activity for activity for the first week. Then he got a offer 25% below his asking price and I told him to wait a bit. Now he has under contract 5% above asking price just by waiting a week. Not as fast and furious but still hopping along in our area.
Thanks Rachel. Love it. I’m so glad you gave your nephew stellar advice too. There are definitely still examples like this in Sacramento also. In fact, 38% of July sales so far have sold above the original list price. That is far down from last year when it was literally about twice this amount. It’s basically right where it should be for now. Though pending volume and sales volume is really down, so I wouldn’t call this a normal market. Anyway, I’m rambling. On a separate note, all I’m saying is your nephew needs to remember a bigger gift for you during the holidays… 🙂
Hi, Ryan. I like the “pending/new listing” graph. Very interesting pattern. If you add “properties available” to that, the story shows a lot of info. Especially if you go back a few more years. The outlier years stand out in a very informative way.
Thanks Jim. Yes, I agree. That’s a different layer for certain. I think the difference between “new listings” and “available listings” gets lost in translation sometimes in real estate (and in articles). It’s an important distinction to understand.
I bet sale verses list will be headed down. I’m guessing what’s behind the pending sale Curtin is not good.
Yeah, I would expect that sales price to original list price ratio to decline. That should be happening at this time of year anyway, but it makes even more sense today as sellers have been prone to overprice and there are more price reductions. My preliminary stats really show the SP/OLP% is really closer to about 2% below the original list price. Not an abnormal level for the time of year. But like you alluded to, the bigger issue here is the number of pending contracts.
Exactly Ryan, no demand. Back to the power of the
rates……. We will see if the 1/2% drop in the 30 year last week will have a impact on demand. I think we need another 1/2% to see any effect but I hope I’m wrong.
Thanks Christian. That’s definitely something to watch. I asked agents a few days ago on most of my social platforms if they have seen any difference, and the answer is generally no so far. Though a few people said phones are starting to ring and we are seeing some buyers coming back to the market after having been pushed out. That’s all anecdotal. I think the key here is to watch mortgage applications to understand if buyers are coming back or not. A rate around 5.5% still doesn’t help much. The market started to change as rates rose, but there was a blatant shift above 5%. I mention that because there has to be some sort of an inflection to get buyers back into the market. All that said, I think we have to watch buyer confidence also. It’s not just about the rates right now.
I think were close to 5% for 30 year fixed and 4.75 for FHA fixed from Mortgage News Daily. Either way not much of an impact. If we get to 4% I think we will have a balanced market. Might be awhile….
Exactly the other big factor is consumer confidence, we there are recessions concerns and unemployment kicks in it will also have a big impact on demand. You nailed it- rates and consumer confidence! Out of our control…
Yeah, 4% would be a much different story. Time will tell. We have ideas now, and the stories of today from the trenches of listings and escrows will turn into stats eventually… One thing to consider for buyers is a rate buy down. If it’s possible to get a credit from the seller for buying down the rate, that’s a real bonus. I think sometimes sellers and listing agents want to talk about buying down the rate like it’s a silver bullet, but I don’t think it is. It is one tool that will work well in some situations and not work in others. Frankly, some buyers are going to want a price reduction AND a lower rate. In other words, this one tool isn’t a silver bullet for keeping the list price higher…
But we’ll see. The market gets to decide.
Hey Ryan – I have a math question. For the graph on months of inventory, do you use the last month’s sales volume as the denominator in that fraction? Or some average of recent months? I’m realizing that as the pace of sales slows, both the denominator (sales pace) will fall and numerator (active listings) will rise, causing the resulting number to rise rather quickly, right?
Hi Steve, certainly not Ryan, but good question. I use the current sales volume and a “rolling 3 month average” to see the variation. To me its like looking at an average or median sale price data with only 2 or 3 sales during the month, nothing makes much sense. Just my thought, will wait to see what MR. CHARTS has to say.
Thanks Brad. There are many ways to skin a cat…. as the saying goes. I don’t know that there is a right answer here. I do prefer to use current listings divided by the past 30 days of sales to get a sense of monthly inventory right now. The strength of a rolling average is that it’s a solid trend with lots of data points, but the weakness is it might not capture change that has begun to happen very recently.
Hey Steve. That’s exactly it. This is 100% why the numbers can change so quickly. Granted, it’s normal to see these numbers not change so fast, so we don’t tend to see a big spike. But this is exactly what is happening right now. The pile of pending contracts has shrunk fast, so it’s really caused the number of listings to rise quickly (and then fewer sales). It’s supply created by less demand.
Your market is a leading indicator for my market in the Medford/Ashland Oregon area. I am always happy to see your information.
Thanks so much Mark. I really appreciate it. Keep me posted if you ever see anything interesting in your area.