How much have home prices gone down? That’s the big question right now, so let’s talk about it. But I want to highlight a pressing issue that’s been coming up about the stats. I hope this is helpful, whether you’re local or not.
UPCOMING (PUBLIC) SPEAKING GIGS:
1/12/23 McKissock Webinar (register here)
1/18/23 WCR Market Update in Cameron Park (register here)
1/19/23 Big market update at SAR on Zoom (register here)
1/23/23 Residential RoundUP on Zoom (register here (free))
2/8/23 SAFE Credit Union market update (details TBD)
3/10/23 PCAR Market Update Lunch & Learn (detailed TBD)
4/1/23 NAA Conference in Sacramento
5/22/23 Yolo YPN (details TBD)
BUYERS WENT FROM FOMO TO FOGS:
First, here’s a clever way to describe some buyers right now. Buyers went from the Fear of Missing Out (FOMO) to the Fear of Getting Stuck (FOGS). This obviously doesn’t describe everyone because lots of buyers simply cannot afford the market, so stepping back isn’t just about fear. But this concept resonated with me since some buyers have been really concerned about buying at a higher price only to see prices go down later. This concept came from David Osborn, and I made a meme out of it. And now let’s see what happens at the Fed meeting today. So many buyers are hungry for housing, but affordability has been the main roadblock. As I keep saying, we’ll get more buyers back as affordability improves. Bottom line.
NOT EVERY LOCATION IS THE SAME:
Home prices aren’t doing the same thing everywhere. Here’s an image from Lance Lambert of Fortune Magazine using data from the Black Knight Home Price Index (through October 2022). What do you see?
A PRICE MISTAKE IS HAPPENING:
This makes ALL the difference. Most local price metrics are down less than 2% from last November, so some people think, “Prices are barely down. Why is everyone making such a big deal about this?” But we have to look at price change from the spring too.
A HELPFUL METAPHOR:
How much do I weigh compared to one year ago? And how much do I weigh since the spring? Those could be two different answers, and that’s how real estate stats are working right now. Two very distinct numbers.
LAST YEAR vs MAY 2022:
When looking at the image below, do you see how there isn’t much change from one year ago? But there’s been a giant change from May. As I said last week, prices have dipped three times faster than the normal rate this year. But if we only focus on last year, price drops look modest. Friends, I had this conversation at least a dozen times this past week when sharing year-over-year stats, and lots of smart people were thinking prices weren’t down that much. This is an easy mistake to make.
Sacramento County looks similar.
Another way to look at it. The median price is down 1.6% compared to one year ago, but there’s been a hefty price change to get here.
ACTION STEP:
It’s key to get into the habit of looking at year-over-year stats AND recent stats. I think it’s been so long in real estate since we’ve thought about declining prices, so there is a learning curve to get back into the rhythm. Unfortunately, some people will focus on year-over-year stats, and they’re going to walk away with an incomplete picture or even perpetuate a false narrative.
I hope that was helpful.
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? Do you have a helpful analogy for the importance of looking at recent and older stats?
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Great thoughts Ryan! This is a tricky time. I know in my market in Cleveland, prices typically decrease from the peak summer months of June/July thru December due to seasonal changes, which are probably a little different in the Sacramento market. Right now, it’s difficult to determine how much of the six-month decline in our area is from typical seasonal changes and how much can be attributed to increased mortgage interest rates. No doubt a little of both. Historical trends help. The next few months of stats will help clarify things I believe. Thanks for the great insights as always!
Thanks Jamie. Great commentary. I appreciate it. It really does take time to understand the trend, and we’ll have more insight as the months pass. I think you are spot on about understanding historic averages (or medians). In Sacramento the rate of decline this year has been three times faster than the pre-pandemic average, so price change has been on steroids lately. Normally we dip 4% or so from the spring by now, but we’re 12% today.
Sacramento top 10!
Oh, that’s bad, isn’t it? I’d be interested to see affordability for the markets that have declined so little.
Sacramento Proud!!! It’s ironic how we went from making the super hot list to the not list. From sizzle to fizzle. But then again, we went up so fast, that it makes sense to retract quickly also. Hey, see you tomorrow at the bias class. Looking forward to it.
Yeah, tomorrow should be interesting. Just got off the phone with John D and can talk to you about the conference.
Right on Joe. Yeah, I need to respond to an email about a session they asked me to co-teach. I just don’t know much about what is happening. It’ll be good to get filled in. Haha.
Thanks for the update Ryan!
So it looks like we lost a year’s worth of equity in about 5 months? How far into the gains made in 2021 do you reckon we’ll go?
Yeah, it’s been quick. I think that’s a fair way to say it. Another factoid is we’ve seen 40% of the pandemic gains disappear over the past seven months. It’s impossible to predict the future with certainty. If rates remain at 6-7%, that should put more downward pressure on prices. Bottom line. If rates go down to 5% like some people think, then that can infuse more demand into the market. But still, prices need to come down more to make things more affordable. No matter what, we can’t expect modest rate declines to be an instant reset market to bring back the missing buyers. I have ideas about how much prices ought to decline for the sake of market health and affordability, but we’ll see what the market actually does.
If we base it on monthly mortgage affordability using rate metrics before the rates shot up in the past six months, I figure home prices would need to come down 20 to 25% in order to be as affordable as they were over the past years for homeowners.
Thanks Scott. It would be healthy to see prices come down to promote affordability. 20% from right now would actually put us back at the very beginning of the pandemic (for the median price anyway).
Great Insight Ryan! I would love to see a chart with avg home prices and avg rates. My bet as rates went up, we saw prices go down. I’m sure once rates come down again, housing prices will stabilize. I have had plenty of calls from folks that wanted to buy but couldn’t afford what they wanted. We may be creating some pent up demand with lower than avg inventory. This could bode well for future appreciation.
Thanks so much Dennis. I do have some charts that I may add to eventually with rates, prices, and volume. I’ve just found through the years that rates haven’t always been the driving factor for prices, so it’s not always an incredible visual. Right now rates are an extreme factor in shaping the market though. I’ll tinker around eventually, and I’ll keep talking about both the importance of rates as well as price declines in promoting affordability.
I agree that rate declines will help. There are people on the sidelines ready to play the game when they can. But we are also missing 40% of buyers right now in the region, so modest rate declines won’t likely instantly bring these buyers back. I could be wrong, but it just seems like it’ll take some time to get volume back to normal, and potential change ahead is poised to be shaped by the extent of rate changes (up or down). Sharp rate increases altered the market, and modest rate changes can change things, but probably not sharply.
Please keep me posted with what you are seeing in the trenches in terms of mortgage applications, what you’re hearing from sellers and buyers, etc… Thanks.
Hey Ryan,
Mortgage rate applications are down 35% for purchases and 85% for refinances year to date.
Thanks Dennis. What a striking stat for refinances especially.
This is a big problem up here in Portland. The local MLS posts a table of area statistics that many real estate professionals use as there primary source of market directly. Those tables are year-over-year rolling average, so they’re not just the month compared to the same month the prior year, but the year prior to that month. It’s so misleading that prices will often be going down for a year before those stats post a negative.
Oh wow, that’s a bummer. This means the narrative could really lag the trend. And what a disaster for some sellers who aren’t being taught to think about the market from the spring AND year-over-year stats. This is where it really matters for pricing strategy. I can how easy it would be for sellers to say, “No biggie. We’re only down 2%.”
What spurred this post was having lots of conversations this week on Twitter and Facebook in particular about this very issue. I realized right away that there was a real need for clarity. For any onlookers, this is 100% something that the real estate community has an opportunity to talk about. Let’s bring clarity and understanding about the market that actually exists.
Timely post for my current assignment, Ryan. I have to update an appraisal that I did last January (2022) for a divorce case. Your narrative speaks directly to my update and will help me organize my thoughts. Thanks.
See you tomorrow.
Right on Bill. That’s awesome to hear. See you tomorrow.
Don’t you wish you were in Buffalo, now??? Just think , you could tell all your Sacramento relatives how smart you were to pass up Sacramento!
I get it. We tend to do wilder swings in California, so it’s part of the package here. Let’s not forget California weather…
Ryan,
Great insight, as always! Curious, though, in looking at Lance Lambert’s image showing Sacramento being down over 8% since the peak (thru Oct), and your numbers show the Sacramento area being down over 12% (thru Nov)…was November just that bad or do you know what the difference is in how Lance is pulling his data??? As you are well aware, getting real, consistent data is paramount in real estate, especially when things begin to change…thank you for your efforts!
Hi Bob. Great question. Well, there are a few things I can say. November stats were flat in the region as a whole for the median price at least, but down in Sacramento County (our largest county). In short, it’s a mixed bag for November depending on what area you are talking about. For further reference, December stats look like they will slump based on pending contract data for November (and preliminary closed sales stats so far for December (but we’ll see)).
A price index is not relying on the median price or average sales price. The idea is that any price metric has strengths and weaknesses, and the price index will theoretically help strip out any weaknesses, and therefore provide a solid view of what prices are doing. I mentioned the John Burns Real Estate Index a few months ago here while I discussed the median price. https://sacramentoappraisalblog.com/2022/10/10/home-prices-are-close-to-dipping-below-last-year/
In terms of Black Knight, we have to concede we don’t know what Black Knight means by “Sacramento,” and we also don’t know if this covers every single property type. This can definitely affect the numbers. But what I’m seeing is Sacramento is making the top ten list here, and that as a trend is spot on. I’m not ready to embrace Black Knight as 100% accurate, but I will absolutely say Sacramento making the top ten is legit according to the metrics I’m pulling and how Sacramento has fit into lots of other stats nationally for months.
I think it’s a good idea to look at metrics like median, average, and average price per sq ft, and also look to see what big data companies are showing for their price indexes. It’s really important to understand what is shaping the average and median too. For instance, if smaller homes start to sell, that could end up skewing the metrics. And here’s the thing. We have to look to actual neighborhoods too to see what change looks like. On one hand 8% seems subdued in lots of areas right now when I’m pulling comps. But at the same time, being that this index doesn’t include November, it’s really pretty close to the traditional metrics I’ve shared too. For instance, last time I checked in September, our local metrics were down about 9% I believe, and John Burns Index showed 7%. That’s pretty close.
One last thing. From my perspective, the key here is to understand that the metrics I’ve shared have changed about three times faster than normal for the time of year. I think that’s a massive takeaway because it shows the speed of price change has been on steroids.
Any thoughts?
Thanks Ryan. It is definitely a serious translation right now and just over the past few months, let alone a difference from the spring. I just completed a flip in Carmichael. Beautiful home with large yard. Perfect first time buyer home. 3 months ago when I bought it there were two very comparable homes listed at $599. Both subsequently went Pending and then sold for $610 and $625. Mine was not complete until mid November. A big turnout for open house but then totally dead for three weeks. Luckily was able to get in to contract for $572,500. First time buyers are paying $4k/month mortgage.
Was happy to get the sale, but interest rates definitely having an impact, especially on the middle class, paycheck to paycheck people.
So yes, I can see a 5-10% decrease in prices just in the past couple months.
Thank you for sharing. And now that you have an approved comment, you can comment without moderation. This is a great example because you are 100% correct. Big changes. This is exactly what I’m seeing in the stats when pulling comps. I find there to be a pretty big disparity at times between sales from May and June compared to stuff getting into contract right now. On one hand there is growing optimism among some real estate professionals in light of potential rate declines ahead, but so far we haven’t seen any real change in the marketplace that is notable. It’s true there has been a modest uptick in purchase volume applications in recent weeks, but nothing to really write home over as far as I can tell.
In terms of your flip, this type of quick change can eat away profit. No joke. I’m glad you got it sold. It seems like buyers are hungry for solid properties that check all the boxes. Please keep me posted with any insight or questions. Thanks again.
Thank you for the great post Ryan, as always.
Will appraisers consider comparable sales from a year ago to support today’s market values?
I’m talking to a seller in a Folsom subdivision (Sac County) where there are no recent sales, but there are some that sold during the peak in April/May.
When I consider the approximate 12% decline from the spring, the comparable sale from a year ago supports the estimation.
What are your thoughts?
Hi Kelly. Excellent question. Some thoughts.
We have to be really careful about imposing county trends on neighborhoods. Maybe they work. Maybe they don’t. Not all neighborhoods and price ranges are going to conform rigidly to county or ZIP code trends. I don’t actually take my county stats and apply them to any property really. My goal is to look for neighborhood data instead to understand what is happening on the local neighborhood level.
Comp selection? This is where we have to look to neighborhood comps or competitive neighborhoods to help understand how prices have changed. I think it’s going to differ by the appraiser since there is more than one way to skin a cat (choose comps). I would look at everything though.
– How much has the market changed since those properties sold in April and May?
– How similar is today’s market compared to sales from one year ago? (I find quite similar in some areas, but that may not be true everywhere).
– What is happening with current listings and pendings in the neighborhood right now?
– And what other neighborhoods compete with the subject neighborhood that might give a clue into where value is at right now?
– Are there any clues we can get from expired or cancelled listings too?
I find some comps are going to need big adjustments because the market has changed significantly since they got into contract. But other comps might need a more modest adjustment if they sold very recently. And if I use a sale old enough, and the market is at the same price point, maybe that comp needs no adjustment.
I hope that helps.
I think is good habit to look at the data you are showing us, but we also need to take into account what external forces are driving these changes, and much more these external forces will continue to affect the market. There is more data missing to make such assumptions, such inventory, migration, jobs, type of jobs, etc… there is more data that needs to be taken into play to make good assumptions for the short and long-term trends.
Thanks J. It’s hard to argue with that. We always have to ask why the numbers are the way they are. The truth is there are many layers that drive the market, though one of the bigger pieces of the puzzle right now is mortgage rates spiking. That hands-down altered the overall market trend. It’s still important to concede that rates are not the only driver in town though. I think it’s simplistic to say the market is just about rates. History shows us otherwise as we’ve had multiple up and down market cycles despite rates basically declining over the past four decades. But right now the change has been so sharp that it is a massive layer. With that said, we also have to be careful about imposing external factors on housing stats too. I find sometimes people will talk about the future so much that I wonder if they’re being objective about the stats in front of them. I’m not saying that’s you. Just wanted to share my two cents.
I do believe looking at historical data, but usually each market cycle is driven by different factors. My main point was that there are other factors other than historical when trying to project local and national trends.
Thank you. Agreed too. Markets are like children from the same household. They likely have some similarities, but they could be way different also. 🙂
In the Fortune graph, it is interesting that Buffalo, NY is listed twice. It’s at the bottom and again in the middle of the graph. I wonder if the bottom one is supposed to be in a different state. There are a number of states that use that city name.
Great eye, Mark. I’m not sure.
Ryan: I’ve been tracking sale prices in a similar fashion in the Tucson market for about 6 months.
What I’ve found is similar to what you are doing. But I’ve broken mine down into quarters (3 month periods) When doing the year over year there’s usually a little residual increase, sometimes it’s flat, once in a while it’s a slight negative. the negatives are increasing as time passes. Most of the time the most recent 3 month period shows a negative trend. If I look at the prior 4-12 month period three’s an overall increase from 12 months ago to 4 months. As time goes by that increase is decreasing because we are working with a moving scenario. Every one of my reports has a table which we use to chart the change in the defined market area surrounding the subject property. I tried to cut an past the table to this commentary and it didn’t format correctly.
The table includes:
Time period
# of sales
Avg Sale Price
Avg Sale Price PSF
Avg GLA
Median Sale Price
Median Sale Price PSF
Median GLA
Combined Sale Price (composite)
% Change (from prior quarter)
Combined GLA (composite)
% ?Change (from prior quarter)
I display the chart for 5 quarters. It’s a fairly simple display which provides a good view of what’s happening in the market within which the subject resides.
We try to use sales which closed in them ost recent quarter. Adjusting for time based on that quarter’s results.
If it is necessary to use a closed sale from the 4-6 month period, our market time adjustment often shows and increase from the sale date to the beginning of the most recent quarter. Then a negative adjustment is made for the elapsed time in the most recent quarter. In other words I’m using a cumulative market time adjustment which may go in two different directions.
I have found that the results can vary substantially from one neighborhood (market area) to another within the Metropolitan area.
Thanks for your input.
I love it. Thank you for sharing, Ronald. I really appreciate it. I think at the end of the day there are many ways to discern market trends, and there’s not just one way to do it. The only thing that matters is credibility in the trend and adjustments. The tricky part I find these days is there can be such a difference between the pendings and even recent sales at times. Keep up the great work, and please keep me posted with anything interesting you’re seeing in your market.
On a different note… For any onlookers, I actually sent this link to a friend this morning who was in need of some data from a few markets where she doesn’t have MLS access. While this isn’t perfect, I think it’s a good start. Redfin has a weekly database, and I think this is a cool tool that is worth bookmarking. I’m a big fan of watching various markets around the country, and this gives a quick view of things. https://www.redfin.com/news/data-center/
I guess the lesson here is looking at things with perspective. As with all statistics numbers can be used to illustrate a certain story depending on what you want it to say. Looking at something from multiple perspectives can give you a different picture and help explain the full story of what is happening.
Well said, Tom. Totally agree. It seems like the same thing is true in life when we seek multiple perspectives on a topic. That usually works out better.