The housing market has likely peaked for the year. Today I’d like to show some ways I’m seeing this in the stats. I’m focused on Sacramento, but this is likely showing up in many markets. Skim by topic or digest slowly.
UPCOMING (PUBLIC) SPEAKING GIGS:
7/20/23 SAR Market Update (in-person & livestream)
7/26/23 Fair Mortgage (details TBD)
8/18/23 Details TBD
10/23 SAR Think Like an Appraiser (TBD)
PRICES HAVE LIKELY PEAKED FOR THE YEAR
It’s normal to see prices peak around June. Sometimes it happens in May. I can’t say with absolute certainty that prices have peaked, but weekly regional metrics have started to go flat, so it seems very likely. This is the median price, and the average price looks similar.
Here’s a monthly view, and in a normal year we should see the trend turn down around this time. By the way, do you see how much closer we are to the peak from last year now? I’m seeing that when pulling comps too.
MULTIPLE OFFERS HAVE PLATEAUED
It looks like the percentage of multiple offers peaked in May, which is normal. June was actually a little lower than May, which is also normal. Since July about 55% of pendings have multiple offers, which shows the percentage has gone down more. The wild part is the percentage right now is actually higher than a normal year, which means it’s really competitive out there. We should see this percentage decrease ahead unless demand unexpectedly changes for some reason (lower rates).
DEAR SELLERS, WE MISS YOU
We’ve had over 6,000 fewer new listings this year in the Sacramento region compared to last year, and it’s been the x-factor in changing the feel of the housing market lately. We went from an ice bath last year to what’s felt like a bloodbath at times these past few months. It’s not that the market is normal, but we have a situation where low supply and low demand have met.
NOTE: Nearly 11,000 sellers have listed their homes in 2023, so it’s not like nobody is listing, but the missing portion is glaring.
HOUSTON, THIS IS NOT NORMAL
Here’s a snapshot of active listings on July 1st each year in Sacramento, and in a normal year before 2020, we’d have more than two thousand additional active listings. I know this is only one day, but the monthly trend looks similar.
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VOLUME HAS BEEN DOING THE LIMBO
Sales volume has been low all year, and it’s not just because of listings being down. Granted, if we had more listings, we would have more sales. But let’s not ignore the elephant in the room, which is affordability. The most significant reason we’ve seen lower volume stems from buyers backing off the market after mortgage rates shot up. June volume was down 39% from the pre-2020 normal. Here are a few ways to look at what’s happening.
NOTE: Volume typically peaks around June each year
MISSING ALMOST 5,000 SALES THIS YEAR
There have been 4,873 sales missing this year from the pre-2020 average. It’s been stunning to see buyers on pause. Yet, there have been nearly 8,600 sales through June that happened, and sometimes that’s getting lost in the conversation.
IF YOU WORK IN REAL ESTATE:
If you work in real estate, I suggest keeping your focus on the part of the market that IS happening rather than the part that isn’t. It’s glaring to see about 36% of buyers missing in Sacramento, but 64% of the market is happening. What do you need to do to position yourself to work with buyers and sellers who are here today? Who do you need to get in front of? What type of content do you need to put out? What skills do you need to add? What expenses do you need to cut? How can you increase the size of your network?
NEW CONSTRUCTION IS GLOWING
The resale market for existing homes has been struggling, but new construction has been raging. New homes growth has been vibrant this year so far. Let’s remember a big part of this has to do with builders buying down the rate and offering credits.
FOCUSING ON THE MEDIAN PRICE IS NOT A SCARE TACTIC
This week I heard someone say a focus on the median price is a scare tactic used by the media, but that’s silly. There is nothing sensational about talking about price metrics – including the median. Granted, we don’t want to obsess over the median and treat it like it applies rigidly to every neighborhood and property. That would be a mistake. But ironically, the average sales price and average price per sq ft are showing the same trend as the median. Should we throw out those metrics too? I say NO. The key here is to understand the strengths and weakness of each metric and what makes each of them change too. That’s what real estate expertise looks like.
PRICE GROWTH HAS BEEN PRETTY NORMAL THIS YEAR
The median price is up 10.6% in the region between January and June, and that’s a pretty normal number overall. Keep in mind this does NOT mean every property increased in value by 10.6%. The median price does NOT translate rigidly to every property and area. Keep in mind Sacramento County is up 6%, so not every county is going to show 10%. When pulling comps, I’m noticing prices are still down from the peak in 2022 in most areas, but prices have been getting really close again.
TODAY FEELS SENSATIONAL NEXT TO AN ICE BATH
After the ice bath fall season from 2022, it’s felt remarkable to see the market do what it’s done this spring. While the growth has technically been pretty normal, being next to a dull market last year is what makes these stats feel stunning. In short, we’ve had a definitive spring uptick.
APPRAISERS: For my appraiser colleagues, how did we do at capturing spring appreciation in reports and adjustments?
SELLING ABOVE IS STARTING TO FLATTEN
The housing market looks to have peaked for the year, but we don’t have a dull market right now. In fact, it’s been more competitive than normal lately. I know there is so much to unpack in these images, but the black lines represent 2023 and they’ve been more aggressive than normal levels lately (red lines). For instance, in a normal year we might see 42% of sales in June sell above the original list price, but this year it was 52% (still nothing like 76% in 2021). I wanted to mention this because sometimes when we talk about seasonal slowing, people assume it’s slow. I sometimes get people arguing with me at this time of year also about the trend. Friends, let’s look to the stats and realize multiple things can be true at the same time. The market can be slowing for the season AND be more competitive than usual.
NOTE: Do you see how the black lines have started to flatten? This is a sign of seasonal slowing.
SELLING OVER LIST PRICE STARTING TO FLATTEN
On average properties in the region sold 1% below the original list price last month. This is normal for the time of year as a percentage, and it’s way lower than 2021 when properties sold 4% above their original price on average. Do you see how it looks like this percentage has flattened? That’s typically what happens around this time of year (another sign of a seasonal peak).
UNDER 500K: Properties under $500K sold an average of 1% above the original list price last month in the region, and that reminds us the trend isn’t the same in every price range. And it was 2% over in Sacramento County.
Here’s another way to look at it. All the orange dots above the 0% line went above the original list price, and the dots below sold below. This is a good reminder that the story isn’t the same for every escrow. Remember, 1% below is the average, and that doesn’t perfectly describe all properties. Some units last month sold 20% above and other sold 25% below. But the average of everything together is still 1% below.
RATES MATTER FOR THE SECOND HALF
What happens with mortgage rates matters greatly for the second half of the year. If they go up, it’ll take demand out of the market, and if they go down, it’ll bring more demand into the market. I know, that’s obvious, but it’s important to consider as we look ahead.
Okay, this is getting long.
YEAR-OVER-YEAR STATS
MONTH-TO-MONTH STATS
I hope this was helpful.
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Questions: Are you seeing any seasonal slowing? Or is it getting worse out there? I’d love to hear your take.
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We shall see, if 30 year fixed drop to low 6% it could soar again.
If rates get back to low 5’s in 2024/2025 what would happen? Will the increase of new sellers offset the increase in built up buyer demand?
For sure. What happens with rates ahead really matters, and I tried to unpack that in the post. For now, statistically it looks like a peak, and that’s what should happen at this time of year. It would be strange to see the market “un-peak” so to speak, but it could happen with the right circumstances. It happened in 2020, yet that was a unicorn situation. Rates matter greatly right now. Let’s keep watching.
If the Fed raises rates again, and we see mid-7% 30-year money, the low supply might lose to even lower demand, and we would rationally see minor price capitulation through the rest of the year. The higher rates, however, also cut out the move-up buyer and end up restricting demand, because the vast majority are sitting with low-3 or even high-2% fixed on their mortgages and the swing from that to a 7%+ rate isn’t a rational, or even feasible, economic decision.
But given where we’re at with CPI, and especially given we’re FINALLY seeing core inflation capitulate as cars and CRE now turn over, the fed may decide to call their July rate hike off and stay where they are for 9-12 months or so, and just let the drastic changes they’ve already made take their course. After the hot jobs report, I think a lot of people took it as a given that the rate hike in July would play out, but most people also underestimated last Month’s progress on core inflation, which is the real metric the Fed is watching anyway.
It seems pretty clear from this last year that there’s a reasonable consumer tolerance for 6% mortgages, but when we hit 7% is when people really start tapping out. Each successive good CPI read – and I believe there’s more good news for July – is going to have the potential to relax mortgage rates toward that 6% sweet spot and that would bring demand back. In other words, for homeowners worried about price peaks: it’s temporary. The catalyst for long-term supply to outweigh consumer demand for residential (currently) doesn’t exist. Enjoy your incredibly low interest rate on your mortgage, and stay put!
Just one man’s opinion. Thank you for the regularly informative content!
Thanks Aidan. Yeah, if rates go up much more, I would expect to see more active listings on the market in the immediate future. It wouldn’t be due to sellers rushing to list, but it would simply be the byproduct of having fewer pending contracts. It would be an increase to active inventory by weakening demand. This is actually what we saw happen last year. From a stats side, this is 100% why we want to watch both the number of active listings and the number of new listings. Two different stats, and both important.
Time will tell. So far mortgage rates have dropped the past couple of days after better inflation news. Either way rates go, it can affect things. That’s for sure.
I appreciate your thoughtful commentary, and this is exactly the type of stuff I’m watching right now. I tend to agree with 6% vs 7% too in terms of consumer sentiment, but even at 6% the local market still needs more affordability. We’re in a hard place right now where the market needs to become more affordable, but a lack of new listings has created more competition and hampered the market from becoming more affordable in my opinion. This doesn’t mean we can’t see prices go down in the future. It just means it’s a weird dynamic at the moment, and a very non-traditional market where the traditional rules about supply and demand may or may not apply.
“Volume has been doing the limbo”
Awesome! Where’s the meme?
It’s crazy hard to appraise a lot of properties right now. I stopped looking at comps older than 6 months in my last report because the market had changed so much. I couldn’t get older sales to make sense without a lot of work. But it was easy to make positive adjustments after the market bottomed out….
Seriously, Joe. I’ve been noticing a lack of sales lately. I was just in Garden of the Gods the other day, and I was looking at trends in many surrounding areas to get a better sense of things. A lack of sales and a lack of listings makes for challenging valuations.
Great information. Yes, like Joe says, this market makes appraisals hard. Not just less recent sales, but things have changes so much that older sales are more difficult to use.
Thank you Gary. Agreed. Yet, sometimes all we have are older sales. The wild part about today is current value is similar to a couple of previous points in early 2022 and mid-2022 statistically when looking at county trends. It won’t always be this way exactly in actual neighborhoods, but sometimes the trend really does follow what we see in county stats. I’m finding situations where I’m using some older comps and having to adjust because the market isn’t back yet, but sometimes I use some older sales and the market has surpassed where it sold for previously. And then there is a spring uptick too. It’s a hot mess.
According to the agents I speak with the market is just fine. Apparently, they are looking at a different market than I am. Which is not unusual as it seems I am always looking at a different market per my local agents (hmmm one agent told me I wasn’t be optimistic enough, second hmmmm).
Is it me or is the Orange Dot Chart telling us something looking at over $1M. A) I bet your high-end market is not as chipper as it once was and B) I see a whole bunch more drop in pricing in that market based on your handy dandy chart (seeing the same thing down here). Wonder if that is the High-End market still thinking its 2021, or just general over pricing because the listing agents can’t control them, or C) this market has seen enough of California and is moving on to supposedly greener pastures and decided they had a good run up in pricing and it is time to hit the road.
Last curious item, wonder what your chart for the upper end market alone would show you in pricing trends. Down here, the market between $1M and $1.5M has been relatively stable last 18 months, which is weird as that was the move up market in 2021. The over $1.5M market albeit a lot less inventory has seen a decline in pricing. It is really hard to get a grip on this market based on my thoughts above about deciding it is time to take the money and run to another state. Curious what the smarter, taller and better-looking Ryan Lundquist, Gary Kristensen and Joe Lynch are seeing in their markets for y’all upper end properties?
Hi Brad. I always appreciate your take. It is tough to gauge things sometimes. My observation is the trend looks pretty similar above $1M in the Sacramento region. Inventory is lower and hasn’t recovered. The price trend for a regional level looks pretty similar (could be different when pulling comps). I’ve parsed volume carefully over the past year, and I haven’t noticed a huge difference above $1M compared to other ranges. Basically, every single range is down besides under $400K now. We have seen a shift of buyers moving to lower prices out of necessity in light of prices going down and affordability issues. I’ll have to post the visual I make in my mind to help show this. Yet, there are many more listings that are overpriced at the higher end. While that’s not uncommon, it’s something to watch. For instance, there have been seventeen $3M sales in El Dorado County since 2020, and there are currently seventeen active listings above $3M. This tells me two things. One, the market has grown in recent years, but we are also seeing some clearly overpriced units. Or, we could say there are not enough buyers for these properties. Anyway, let’s keep trading notes. If any onlookers have ideas for tracking this segment too, I’m open ears. I’m always looking for ways to visualize the trend.
All that said, there is a bigger trend to watch here. In California as a whole, properties above $2M have taken the biggest hit in volume per CAR stats. This has been a pretty consistent trend through May 2023, and we’ll see what June stats show soon. https://www.car.org/marketdata/data/countysalesactivity