Nobody is buying today. Everyone has left the market. Or wait, I mean, it’s only buyers at the very highest prices who have backed off. No, maybe it’s first-time buyers who are getting crushed. There are lots of ideas floating around, so let’s take a look at some stats. I hope this is helpful, whether you’re local or not.
UPCOMING (PUBLIC) SPEAKING GIGS:
10/07/22 Market update with SAR (9am-10:15am Sign up here)
10/11/22 Folsom MLS Meeting (9:15am)
10/13/22 Market update in Midtown (12-2pm Sign up here)
10/18/22 Orangevale MLS Meeting Q&A (9am)
10/20/22 How to Think Like an Appraiser (9am-12pm) (Sign up here)
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The goal today is to offer a glimpse into current buyers. This isn’t a full picture because we’re still at the beginning of change.
ALL SHIPS RISE AND FALL WITH THE TIDE
We’ve seen a dip in sales volume at every single price point. This means no price range has been immune from the trend. In other words, all ships rise and fall with the changing tide. This is a new visual. Do you dig it?
IT’S NOT JUST A DIP AT THE TOP
Here’s a different way to look at volume with the number of sales instead of percentages. This gives a different view of things, and it’s clear that change isn’t just happening at the top of the market. The housing narrative is often that it’s really the high-end that’s experiencing change, but that’s simply not true when looking at the numbers. So, we often talk about the median price being affected by fewer sales at the top, but let’s not ignore lower-priced sales also. The median price in the Sacramento region in September is $569,000 for reference, and what happens at lower prices can affect price metrics too.
THE SKINNY (FRESH STATS)
Here are a bunch of different stats to try to get a sense of what is happening. Remember, we are living in the midst of change, and we’ll understand more fully what is happening as we have more time and stats.
NOT JUST ONE BUYER
This is a perfect tweet from my friend Erin Stumpf because it shows there isn’t just one buyer out there. It’s easy to fall into the trap of thinking this market only makes sense for one group of people, but that’s not true. The market is never all good or all bad for everyone, so we need to be careful about sweeping statements about entire groups of people. This isn’t me sugarcoating the problem of affordability either, so save your hate mail.
CONCESSIONS, GET IN MY BELLY
The percentage of sales with concessions to buyers are increasing, which is to be expected in this market as sellers are bending toward buyers to help get deals done. We pretty much see sales with concessions throughout all price ranges, but there are clearly more credits happening at lower prices.
A CREDIT IS NOT A SILVER BULLET
The truth is a credit to the buyer doesn’t guarantee you’re going to sell at or above the original price. In other words, giving a credit isn’t a silver bullet to keeping the price higher (even though it likely helps). This visual shows how properties with concessions sold in relation to their original list price. Anything above the 100% line sold above the original list price, while anything below this level sold below. In short, the bulk of sales right now are selling below the original list price in the entire market, and it’s not a shocker to see that happening with homes getting credits too.
WHAT FINANCING ARE BUYERS USING?
Watching the financing buyers are using will be a clue into the market. Over the past few months, we’ve seen slightly more FHA, a dip in conventional, and slightly more cash.
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 stands out to you today? What sort of buyers are you seeing out there right now? Who is winning and struggling?
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Thanks, as always for the good info. In NJ, this spring many list prices were artificially low, as sellers knew they’d be bid up. You’d be lucky to be able to buy a house listed at $700k for only $800k. $100k over asking price was common. This summer, that flipped suddenly. The sellers started pricing at the top of the range but accepting lower. So, they’d list that same house at $825k but accept a “lower” price of, say, $795k. So this distorts (or make useless) the statistics about what houses were bought above or below asking price. The way sellers priced their houses suddenly changed from a floor to a ceiling. But the price buyers pay didn’t really change much. Your stats show that median and average sale price didn’t change much in Sacramento either (went up a little bit YoY). Do you have data on asking price? I’d guess it went up, even though sale prices didn’t.
Hi Bruce. I appreciate hearing about your market, so please keep that coming. And thank you for the kind words. I think you are spot on to think through the numbers. We always have to ask why the numbers are the way they are. In Sacramento, properties sold about 5% below the original list price last month. This percentage isn’t so much about pricing strategy here, but it’s been shrinking for two reasons lately: 1) Many properties have been overpriced, so they naturally need to sell for lower amounts. Literally half of all listings have had a price reduction for quite some time, so we’ve been in an overpriced market for sure; and 2) We’ve seen a heightened change in price trends since May. We are technically still up year-over-year, but that’s poised to change soon. I’m going to push out some visuals to talk about that next week. Keep in mind we were seeing price metrics up easily around 15% for quite some time, so to be up only 2-3% (or less) shows a massive change. The asking price has been going down as the market has softened, but it has taken a bit for sellers to adjust to a very quick change in the market, so sellers have been lagging. In other words, the asking price has been disconnected from what buyers were actually willing to pay (or could pay).
Thanks for your reply and additional data. Here is just one anecdote for two houses on the same street. One went on sale in late April (under contract a few days later, and closed in early June), which was the local peak here, I think, as rates were starting to rise. Listing price was $725k. Had 65 people at the open house, which was extremely robust for the area. Garnered only three offers, but they were $750k, $819k, $825k. Realtor felt others didn’t bother bidding, knowing it would go for $100k over asking and they couldn’t afford it. Around here, for a certain range of buyer, they’re priced out of anything over, say, $700k, and people who can afford $850k might also be able to afford $1m. So, there is definitely some drop off in customer base in that range. House sells for $819k and closes in early June. Identical model house, 2 doors down, in similar condition want on the market about 2 weeks ago (late Sept). Asking price is $750k. They’ll probably get at least $700k but probably no more than $745k. So asking prices went up but sale price will go down. BUT, if you look at monthly mortgage payment buyers are shelling out, that also went way up. With difference in interest rates, paying $745k today will get you the same mortgage payment (at nearly 7%) as a $900k house at 4% a few months ago. So, even though inventory is growing, and sellers know they’ll be able to find a house to buy elsewhere, they may be giving up a 3% mortgage and having to take out a new 7% mortgage. So, unless they have a lot of equity and can pay mostly cash for the new place (and are downsizing), the math doesn’t make sense. They’re giving up a cheap mortgage payment for a more expensive one, regardless of the “lower” price of the new home (in a down market). That is, sellers are getting LESS but buyers are still paying MORE (in monthly payments)! The difference is all in the interest going to the mortgage holders!
Thanks for the example. Sellers really have to count the cost today. While some sellers can hold on to the house due to having a low rate / low payment, many are going to need the proceeds from the house to fund a future purchase. I think it’s going to be fascinating in time to understand the long-term consequences of having such low rates. Will it keep people locked in their homes? For now it looks like that could be an issue for lots of people, but the proof will be in the stats ahead. Can’t wait to see more.
Interesting stats. I remember hearing agents saying that when changing homes, it doesn’t matter what market you buy and sell in as long as you buy and sell in the same market. However, in this market you might be giving up a great interest rate to change homes.
Thanks Gary. Yeah, it’s not so easy to trade up and down right now. It’ll still happen because of lifestyle changes, but it’s not as easy to pull off since rates have changed so quickly. And on that note, we’re seeing stats come out to show rates haven’t changed so dramatically since the early 80s. Len Kiefer of Freddie Mac pushed out a striking visual the other day to show this. Still, there are questions to ask for today’s sellers and buyers. Where do you want to be? What does your lifestyle mandate? And of course, what will your finances allow? I hope all is well.
While I am seeing buyers ask for credits upfront in the offer, it’s after inspections that sellers are getting hammered. Four, five months ago we would see very low credits for repairs. Sellers would just say no, knowing there were plenty of buyers out there. My last two closings (closed this week) had a $10,000 and and a $12,000 credit. Both sellers feared they would fare worse if they went back on the market. The first was in a contingent upon close deal they did not want to lose out on.
This is great. Thanks George. It makes good sense too. This is fantastic for buyers, and I like hearing that sellers are aware of the market dynamics at hand.
Do you think $10K or $12K credits for repairs mean that sellers are getting hammered? If a house, is, say, $900K, that is just a little over 1%, which feels pretty reasonable to me. I was involved in 3 transactions in the last 18 months, and the average credit was maybe 0.75% of the sale price.
Great content as usual. LOOK AT THOSE DAYS ON MARKET! Holy Cow!
That chart of conventional vs. cash purchases going back to 2009 is so great. It really shows just how “bad”/crazy things were back then. I remember so much fear, and so much resentment towards people buying with cash.
Thank you Joda. Yeah, it’s mind-blowing to see days on market today. Though today we are so much closer to normal than last year (in terms of days on market at least). It’s been wild to see real estate change over time. The market is always moving…
Certainly, the number has increased a lot recently, but the days on market are still pretty moderate by historical standards, right? Six months ago, every reasonable (and many unreasonable) properties went under contract the first weekend after showings began. If they didn’t, they were clearly dogs or way overpriced. Sellers would with cut their price or take them off the market entirely. Now, even appropriately priced properties are sitting 3-4 weeks, and no one is rushing to make an offer, but that is pretty normal by historical standards. 20 years ago, only severely underpriced properties got snapped up the first weekend. Now, sellers should know not to expect a quick offer of they are at the market price. In my area, there are 2x-3x as many houses for sale as in the spring, and maybe 1/4 the number of buyers. Some of that is seasonal, of course, and not wholly cyclical.
Thanks Bruce. Yeah, we are a bit above the pre-pandemic normal. In this regard, I think lots of people have forgotten what “normal” should feel like. It should be taking over a month to sell at this time of year for the bulk of properties. That’s exactly what the stats show. Here’s an image I posted last week to help show this visually. https://twitter.com/SacAppraiser/status/1575520465581330436/photo/1
But I think this is also a good example of the importance of looking to multiple stats when trying to figure out what the market is doing. If we were to pin the trend on days on market alone, then things look pretty normal. But clearly we are seeing volume drop and other notable glaring changes. So that’s why we have to look at multiple metrics. In short, right now some of the stats are technically “normal” so to speak, but there are also abnormal things happening.
Do you have any older stats of days on market? FRED only does back about five years, that I can find. I’m curious about the Great Recession period.
I can’t speak for other areas, but I have an image to show over twenty years of days on market (and CDOM) in the Sacramento region. This is an annual metric since it’s from a recap post, but it should do the trick in helping to show the market over a larger span of time. First main image in this post. I’ll be adding to this again come January when I do a 2022 recap post. https://sacramentoappraisalblog.com/2022/01/10/the-most-aggressive-housing-market-ever/
Prices are dropping in Scottsdale, AZ too, which I think will become an increasingly better value compared to suburb cities in California. Look at this house near a TPC golf course.
https://www.redfin.com/AZ/Scottsdale/7979-E-Princess-Dr-85255/unit-4/home/27739504
Could be. But if all ships rise and fall with the tide, prices will dip there and in California. It just depends on how prices change. We’ll see.