Real estate price cycles & getting bid up

I’ve got two things on my mind today. Price cycles and getting bid up during the first week. Well, and banks failing. And my 23rd wedding anniversary this week. And getting in shape. Anyway, let’s look at the first two things.

UPCOMING (PUBLIC) SPEAKING GIGS:
3/24/23 How to Think Like an Appraiser (at SAR)
3/28/23 Downtown Regional MLS meeting
4/1/23 NAA Conference in Sacramento
4/13/23 Realtist Meeting
5/4/23 Event with UWL TBA
5/22/23 Yolo YPN event TBA

HELLO, I’M A BANK FAILURE EXPERT

I had no idea there were so many bank failure experts, but they’ve been all over social media this week. Haha. Seriously though, this is something to watch, and we need time to see if other banks will follow Silicon Valley Bank.

NEW PRICE CYCLE GRAPHS

It’s been a number of months since I’ve updated this visual, so I wanted to share a new version. Here’s price change in Sacramento since the days of shag carpet in 1975. This is based on the Freddie Mac Price Index, and I adjusted it for inflation since that helps show more pronounced change.

Here’s what the nominal price data looks like (not adjusted for inflation):

A FEW THINGS ABOUT PRICE CYCLES

1) Up and down: Markets go up and down. Bottom line. A simplistic explanation of real estate is that it’s about supply and demand, but what happens behind the scenes with the Fed and financial policy is a massive factor in shaping the housing market (including supply and demand).

2) Seasonal price bumps: The graphs above don’t show it, but a spring seasonal uptick can happen during a declining cycle. For instance, the spring in 2007 and 2008 saw a seasonal increase in both volume and prices. We’ll see what happens in coming months now that rates are higher, but in early 2023 there has been a seasonal price bump so far. I find in many neighborhoods there was a huge price decline from May 2022, but now prices are flat or slightly higher in light of growing spring demand. In short, the sharp decline from last year has seemed to flatten over the past few months.

By the way, appraisers, what box are you checking right now?

3) Cycle length of five to six years: Prices in Sacramento tend to drop for five to six years when there is a declining trend, and we should be in tune with that. But it would be a mistake to say we’re locked into a predetermined period of time for this cycle ahead. Ultimately, the market feels so uncertain right now with high inflation, the Fed trying to break something, and the volatility of mortgage rates, so we need to see what happens (while being in touch with the normal trend). Also, it’s worth noting we have such a weird dynamic of sellers sitting out of the market right now, and we’ve only scraped the surface of understanding what this will mean for the next few years.

STARTING TO SELL QUICKLY

The market has been heating up for the spring, and properties are starting to sell quickly again. This is nothing at all like early 2022 in the stats, but half of pendings since March spent 15 days or less on the market, and that’s lightning speed compared to the ice bath fall season.

GETTING BID UP DURING THE FIRST WEEK

Yes, some properties are getting bid up today, but it’s nothing like early 2022 levels. If bidding up happens, it typically occurs during the first week or so. When properties get bid up, it’s usually 5% or less above the original price. And the longer homes are on the market, the lower they tend to sell from their original price (duh, thanks). Right now, we’re seeing about a quarter of sales close above the original price, which is a little lower than normal for the time of year, and profoundly lower than the last two years.

GOING BELOW DURING THE FIRST WEEK

There are also lots of properties that sold BELOW the original price in the first week. Kudos to sellers for listening to buyers and responding quickly.

SOME FRESH VISUALS

A few people asked me for more visuals like this, so here goes. These graphs show the relationship between days on market and how properties sold compared to their original list price. By the way, it’s easy to only see the glowing portion of these visuals, but don’t ignore the rest. Oh, and the original list price obviously makes a huge difference here. I find when properties get bid way up today, it’s often a reflection of being priced way too low.

LASTLY, THANK YOU

I’ve had so many speaking gigs lately, and I’m having an absolute blast. I wanted to say thank you everyone for showing up. I’m deeply honored. And thank you to event organizers for having me out. Photos from Carlos.

I hope this 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.

Questions: Are you seeing a spring bump when pulling comps? Or are prices still down? What do you think of the new visuals? I’d love to hear your take.

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