Sellers are hibernating. It’s been striking to see sellers sitting back so far in 2023, and it’s really starting to create more competition for buyers. Let’s talk about it. Scroll by topic or digest slowly.
UPCOMING (PUBLIC) SPEAKING GIGS:
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
5/10/23 Empire Home Loans event TBA
5/22/23 Yolo YPN event TBA
7/20/23 SAR Market Update (in-person & livestream)
THE HOUSING MARKET FEELS BROKEN
The housing market feels so broken lately with sellers sitting out. This has been a curve ball in 2023 so far. Granted, we’ve been seeing fewer new listings hit the market over the past few years in Sacramento ever since rates went below three percent. But what we’ve experienced this year so far has been ridiculous with close to 3,400 fewer listings in the first quarter of the year compared to last year. Keep in mind the number is even higher when we consider the pre-pandemic normal (closer to 4,000).
MISSING HALF THE LISTINGS
So far in 2023 we’re missing about half the number of new listings compared to last year in the Sacramento region. This is making the market feel more competitive than it should for a time in real estate where a significant number of buyers (almost 40%) are not present due to affordability issues.
CAN WE BLAME THE WEATHER?
It’s easy to say it’s the weather causing fewer new listings, but can we really “blame it on the rain”? (yes, that was a Milli Vanilli dad joke). Look, it’s possible some sellers have held back due to nasty weather, but nearly half of sellers missing due to the rain seems high. Moreover, we’re seeing a missing trend throughout California and even nationally, so that points to something else going on. Time will tell, so we’ll see.
Here’s a look at the national trend from Altos Research. These are active listings (not just new listings), and look how low 2023 has been.
BIG NEWS: MULTIPLE OFFERS ARE HIGHER THAN NORMAL
Mostly all the stats have been worse than normal for many months, but the percentage of multiple offers is starting to outpace the normal trend. This is freakish to see and totally unexpected, but it makes sense in light of such an anemic supply right now. Around this time of year, it’s typical to see 50-55% of properties getting multiple offers in the region, but lately it’s been 59%. This might not sound like a big difference, but this is happening in a market where we’re still missing so many buyers. Keep in mind in 2021 the number was more like 75%, so we’re not having 2021 vibes today.
Past two weeks of pendings (% of multiple offers):
– Sacramento (65.8%)
– Placer (46.2%
– Yolo (67.3%)
– El Dorado (43.2%)
– Sacramento region (59.3%)
UPDATED: We actually have more pending contracts than active listings in Sacramento County right now, which is not normal. This dynamic happened in portions of 2021 and 2022, and it’s a sign of a really lopsided market. Other local counties are not quite to this level, but it’s getting really tight everywhere.
NEW CONSTRUCTION IS IN A GOOD POSITION
So many sellers are not moving, and this puts new home construction in a good position to gain market share. There really isn’t any mechanism in place right now to quickly create more new supply (unless we have huge economic carnage), so builders are ripe to build more units as long as they can make the numbers work. In Sacramento, February was actually a strong month for new construction sales. In fact, it was a rebound month after volume had been down about 50% for many months in a row. The rebound is very likely due to builders dropping prices and offering concessions to buyers. And now we’ll see if the trend can keep up or not.
CAN DISTRESSED SALES HELP WITH INVENTORY?
We are seeing more short sales and bank-owned properties, but this is a tiny sliver of the market. In short, we should see more distressed units ahead, but it’s likely to be a smaller number still. I wrote more about distressed sales a few months ago. For now, here are all current short sale listings, and it’s clear we’re starting to see more listings as a result of market conditions (prices went down). Keep in mind reverse mortgages go back to the bank after the owner dies, so it’s not a concern to see most of these.
CALIFORNIA INJECTING MORE STIMULUS
There is a new loan that launched yesterday in California to give buyers up to 20% for a down payment. It’s CalHFA’s “Dream for All” program, and it’s a shared appreciation loan. It’s to be determined how many buyers jump at this, but there appears to be strong interest based on conversations with loan officers and real estate agents. Look, I am all for buyers getting help in many ways, but I have concerns about stimulating the market when things are already tight with sellers sitting. Moreover, this dreamy program could create chaos in some price ranges by fueling more competition. We’ll know more soon. Please keep me posted with what you’re seeing.
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: Why are sellers listing right now? What are you hearing? What do you think of the “Dream for All” loan? I’d love to hear your take.
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Always an interesting perspective. Interesting to see the odd way this market helps builders and how suddenly we have more multiple offers again.
Yeah, it’s been wild. This has been a real curve ball for the market and the housing narrative. Listings were shrinking since last year, but it’s been on steroids in 2023, and it’s unfortunate to see how competitive it is at the moment for the amount of demand that is still missing.
If sure seems like a risky time to offer the CALHFA Dream For All programs at this time; the owners will end up being 20% under water right out of the gates upon COE, which seems sketchy in a volatile market. You also nailed it with the concern about fueling an already tight buyer-demand market. I guess that would be the only saving grace for owners hoping to get that 20% equity build (for the loan program payback).
Thank you Scott. Yeah, I’m not a huge fan of the timing of this. I suspect this was “dreamed” up a long time ago, and now it’s being implemented. I could be wrong, but the government takes a long time to act on things like this in many cases. For now it just feels like throwing fuel on the fire. I suppose the one good thing is this program shouldn’t last too long because funds will likely run out quickly.
“So broken…curve ball…ridiculous…worse than normal…freakish…could create chaos.” Thank you for passionately and correctly describing a detrimental and unnecessary situation. If you’re also implying the anti-free-market warping of reality by evil or foolish government at both the national (the Fed) and state (CalHFA) levels is the cause of this harmful effect, you’d be right again. Because government didn’t get out of the way — it’s in the way.
Boom… “mic drop!”
Thanks Scott. The more I study the market, the more I distance myself from a simple narrative of real estate being about supply and demand. Nope. Policy is such a massive factor in shaping the way the market feels (and shaping both supply and demand). It’s a mess right now, and I think we’ve only scraped the surface at understanding the consequences of rates below 3%. Nobody really knows how long sellers will hold. We have ideas, but only time will tell. I was just talking to a group today though about policymakers and the need to focus on the supply problem eventually. CalHFA focuses on demand, but we might need some policy help in shaping supply ahead. I talk somewhere at least once a week, and I often ask people if they have a rate at 3% or below. Then I ask these people who has incentive to sell this year. Very few people say YES. Today literally nobody said yes out of 50 people, one person out of 60 said yes last week, and recently zero out of 200 said yes. Welcome to the housing market in 2023. That’s exactly the sentiment among owners at the moment.
Remember some of Ronald Reagan’s most terrifying words. ‘I’m from the government and I’m here to help.’”
Haha. Sounds about right.
We’re suddenly seeing buyers re-engage lately, with a bunch of folks looking in the $500k and under range. That segment is surprisingly hot, and we’ve lost out to multiple offers a couple times now, even when offering a little over list price. For that price range, it’s feeling a lot like last spring again 🙁
Thanks Steve. I appreciate you sharing. It’s starting to feel really lopsided. The past two weeks of pending stats really show an elevated level of multiple offers, and that was even before the CalHFA program. It could get incredibly tight ahead at lower prices in particular. Last week I pulled some stats to show 91% of pendings with ten or more offers since March were under $485,000 in the entire region. I think that’s extremely telling.
Hang in there. And yes, this is not a depressed spring market any longer. It’s getting really tight. It shouldn’t be this way for many reasons, but it is.
Maybe the “something else going on” with the lack of listings is homeowners wanting to move but can’t bear to leave their 3% mortgage behind for one that’s more than twice as much. That has got to be a contributor to the situation.
Thanks Dave. Agreed. I suspect many of these owners literally cannot afford to move also. There is desire, and there is ability. The problem today with not moving can often involve ability. Even if there is desire, it’s so hard to trade a 2.5% rate for something so much higher. I talked to someone this morning who said trading a $2,600 mortgage for something else today could mean a much higher payment at $1,000 or more per month, so the math just doesn’t add up for her. I’ve heard similar things from tenants who state it’s cheaper to rent than own at the moment. Simply put, we are in a market where the math isn’t going to work for a good chunk of people. Yet, many will move because their lifestyle is colliding with market conditions at the moment. So it’s time to buy that first home, invest, move up, move down, do a 1031 Exchange, move out of state, move back to California, etc…. Sometimes the narrative is that literally nobody is moving, but that’s fake news. We’ve been missing about 40% of the market, which means 60% of the market has been here.
For my real estate friends, this is a market of hearing many NOs before you hear a YES. Hang in there and obsess over the part of the market that is happening. Why are people buying? Why are people selling? Those are the two most important questions right now for focusing business. Be a part of the market that IS happening.
There’s a reason you’ve “rose to prominence” over the past 10 years Ryan… you get it… you’ve got mad skills in charting trends… and you’re in the trenches as a local appraiser! Cheers to ya mate! 🙂
Thank you so much Scott. Appreciate it.
Is the rise in multiple offers partially due to an increase of frivoulous offers on listings? I get offers at 50% -70% of market value/LP from wannabee investors. If I report these silly lowballs in mls, it makes it look like it was more competitive than it really was
Good question. I wish there was a way to really know that. There are certainly some offers that aren’t legit. This is why we need to look to a number of metrics to understand the trend instead of pinning it on just one thing. The % has been increasing all year as it should, but it’s ticked up beyond normal seasonal levels lately. Being that inventory is getting pinches right now, it seems reasonable that is the culprit. But to your point, there is always more to the story.
How about homeowners who have paid off their homes, like boomers? I’m surprised they aren’t cashing in by selling their homes and downsizing to a home they can buy with cash free and clear and still have extra cash leftover.
There is surely some of that happening, but it’s not enough of a trend to boost volume to normal levels. Speaking of Boomers though, I did publish some stats last week to show about 50% of sales in Sun City Lincoln Hills are cash transactions. This has been a fairly consistent trend over time, and it shows Boomers are bringing money to the table in that 55+ community at least. https://sacramentoappraisalblog.com/2023/03/21/the-housing-market-is-a-mixed-bag/
67 out of 100 homeowners with a mortgage have a rate of 4% or below. They have no incentive to list. The average time in a home was already increasing before the shutdown. This one fact will prolong time in a home. These volumes could be the new normal… and multiple offers are a sign that after the initial shock of the rate increases home buyers still desire to buy!
Thanks Mike. It’s such a weird dynamic right now. It’s like we’re experiencing 2007 subdued volume, but it’s starting to feel like 2020 competition. Demand has been subdued, and I think we hit an inflection where the market has become so much more competitive in light of fewer new listings basically meeting or getting worse than demand levels. It seems supply and demand and going in opposite directions right now, and it’s breeding competition. We’ve only scraped the surface of understanding what it means for us to have so many owners with low rates. Agreed on needing to keep an eye on new normal. If affordability was better though, we’d have many more buyers out there.
A lot of these offers are below asking – buyers just testing the waters – and not truly reflective of the buying power as it existed about a year ago due to lower rates. I am worried about larger investment companies gobbling up the low inventory and that we’ll become a nation of renters – us this just the beginning?
It would be great if we had stats on a big scale as to the price point of all offers. I suspect as inventory tightens, offers will only need to get more aggressive. This is an extremely unfortunate dynamic right now since affordability is a glaring problem. It’s what we have for now though. The market changed very quickly over the past month as we hit an inflection, and we’ll see what other changes are ahead too.
Tarah, I share your concern about investment fund activity in residential real estate. They are salivating for a piece of the pie, and I’m not a huge fan of Wall Street invading Main Street so to speak. That is not something we want to see as it’s basically real life Monopoly. With that said, I’m not hearing about any activity right now among big funds. It seems like market uncertainty has helped them hit the pause button. For instance, Invitation Homes last acquired a house in the region in July. Though to be fair, Invitation Homes constantly changes the name they are buyer under, so it’s possible they could have a different DBA at the moment (this makes it difficult to track their activity also). But that’s consistent with what I’m reading and hearing in other parts of the country too. We have seen some articles about big groups raising money, so I would expect a targeted effort at some point. Time will tell. Any onlookers can pitch in.
Very interesting 5/19 short sales and foreclosures are investor owned, that seems high? Is that typical or a new trend? How are you calculating that they are investor owned? I’d be very interested in analyzing the raw data myself, Is this data for only the first 9 days of March?
Hi Patrick. I’m not ready to call that a trend because there is one big investor with financial issues, and these properties have been hitting the market in recent months. I’d have to check if all those properties are just that one investor. I manually looked these units up in Tax Records. There are other investors who are struggling though right now too. I talked with a loan officer about a hard money loan last May, and the investor is underwater on the mortgage now. I’m not sure why the rehab didn’t happen, but price change has made all the difference. Most of all, what I’m starting to see when I pull stats like this is more owner occupants who bought in 2022 (and now 2021) list their homes as short sales. Very few people will turn around and sell in just one year, but we should see more situations like this ahead as life circumstances motivate some people to have to sell.
This data is through March 9th and consists of all short sales listed in MLS. On many of my graphs I tend to include a date, and the data runs through that date.
Ryan,
If the a reverse mortgage borrower(s) move out, or pass away, while living in their home, the loan becomes due upon sale or death. At the time of sale, or death, if the loan value has grown to be higher than the home value, then this would trigger a short sale. Here’s some of the rules:
1. A reverse mortgage is a Non-Recourse Loan. This means that the lender has no other asset than the home itself to recover the funds that are due to them. If the home is upside down, after the home is sold (either by the borrower, heirs, or lender) the lender files an insurance claim with FHA Mortgage Insurance Pool for the balance that is due to them.
2. If borrower has passed away and the home is upside down, the heirs have 3 options:
a. They can buy the home for 95% of the appraised value. The lender is paid off that amount and the balance owed the lender comes from the FHA Mortgage Insurance pool after the lender files a claim.
b. The heirs can sell the home themselves even though there’s no real benefit. The only benefit is the Realtors get paid on the sale and the commission is covered by the lender who gets reimbursed by the FHA Mortgage Insurance pool. The lender benefits from this because they don’t have to manage the sale of the home remotely.
c. If the heirs don’t want the home at 95% of the appraised value, or want to sell the home themselves, they can sign a “Deed-In-Lieu of Foreclosure” and walk away.
Tim
This is great. I appreciate you sharing. I think there is so much confusion over reverse mortgages (especially when people see reverse mortgage on short sales lists like I shared here). Thanks Tim.