Sellers have been sitting, and it’s been a game-changer for the housing market in 2023. It’s also made valuations more difficult. Today I want to share some stats and talk about appraising in today’s market. Scroll by topic or digest slowly.
UPCOMING (PUBLIC) SPEAKING GIGS:
8/18/23 Details TBD
8/29/23 Elk Grove Regional MLS Meeting
10/4/23 KW Sac Metro Big Market Update (register here)
10/23 SAR Think Like an Appraiser (TBD)
10/26/23 Orangevale MLS Meeting
WHY ARE SELLERS MISSING?
The math is tough right now. It just doesn’t work for many households to afford a replacement home. So many would-be sellers have a low mortgage payment, and trading for a higher payment isn’t in the cards at the moment. Even my own mortgage would be at least $1,500 more PER MONTH at 7%. Also, many homeowners remodeled in recent years, so some people are staying put since they have the house they want.
7,000 FEWER NEW LISTINGS IN 2023
NOT MUCH HOPE FOR NEW LISTINGS
I’m an optimist in life, but there isn’t much hope to see the trend change for new listings for the rest of the year unless there is a change with affordability, economic pain, or some other mechanism we’re not thinking of. Right now, we are simply in a holding pattern. This is our new normal for now. Expect low volume and low listings. It won’t always be like this, but we are stuck for now.
WHO IS LISTING?
There have been over 13,000 single family detached units listed in the Sacramento region this year, so it’s false to say, “Bro, nobody is listing. Everyone is sitting out.” It’s difficult to parse the exact reasons why all of these sellers listed, and it’s not just one thing either. But there are many situations where heirs have inherited a home, the owner is leaving the state, or the couple is getting divorced. There are many other reasons too, but these categories have been dominant as I talk with the real estate community. These groups all have strong incentive to list despite affordability challenges. Lifestyle is simply colliding with the market, so it’s time to make real estate decisions.
This is from a presentation I gave last week. My advice? Consider all the reasons why people might buy and sell today.
MISSING SELLERS WAS A THING BEFORE 2023
My observation is ever since rates hit 3% in 2020, we started to see fewer new listings in Sacramento. The blue line represents quarterly new listings over the past decade, and when rates hit closer to three percent, we started seeing fewer new listings. And it’s been a new crazy low level in 2023.
NOT MUCH SELECTION FOR BUYERS
This graph only shows one day of the year, but I like it. This is a look at active listings on August 1st every year since 2015. The monthly trend actually looks really similar (email me if you want to see that). In short, there aren’t many options out there for buyers right now since the number of active listings is sparse. Yet, to be fair, there aren’t as many buyers either. Keep in mind active listing is not the same thing as new listings (two different stats).
This market is strange in that we’ve seen low supply meet low demand. It’s 2007 volume vibes, but it’s felt like 2020 in terms of competition. And I know, I’m probably at the end of being able to share Barbenheimer memes. Trends change quickly, right?
IT’S TOUGH TO VALUE PROPERTIES TODAY
One of the challenges today is valuing properties in the midst of seeing fewer listings and sales. This means there aren’t as many data points to understand value. As I talk with appraiser colleagues and real estate agents, I’m hearing this sentiment quite a bit. And I feel it myself. I’m finding I have to spend so much more time pulling comps. Not only am I studying the immediate neighborhood, but I’m spending more time in surrounding neighborhoods. It’s not that I would never look at other neighborhoods before, but there just isn’t much data today, so looking to nearby neighborhoods is helpful to understand the trend AND how nearby areas might sell for higher or lower amounts. What’s going on with pendings? What’s happening with actives? What can I discern from recent sales compared to older sales? What does it look like prices are doing? I haven’t altered the way I pull comps, but there just hasn’t been much to work with lately in some neighborhoods, so I’m noticing a real need to spend more time dissecting nearby neighborhoods and considering those properties as comparables sometimes.
WHY ARE APPRAISERS USING OLDER SALES?
I’ve heard critique about appraisers using older sales lately, but there aren’t many newer sales to use. In valuation we can either go out further in distance for comps or go back in time in the immediate neighborhood. For a balanced view of things, why not do both? No matter what, let’s not hastily pull newer sales from further away without understanding if the other location is selling for higher or lower. Anyway, I don’t mind going back in time and out further, but my preference in an appraisal report is to use older comps from the immediate neighborhood and adjust for how the market has changed since those properties got into contract. Of course, if a lender asks an appraiser for newer comps, then obviously going outside the neighborhood could be the only option.
WHEN DID IT GET INTO CONTRACT?
Do you see the circles below, and how prices are similar to today? The wild part about the market right now is there are some much older comps that don’t need any adjustments because the market might be at the same level today. Keep in mind all neighborhoods don’t follow a county or regional trend rigidly, so it would be dangerous to look at this image and impose the trend on every neighborhood and price range. I’m just using this as an example, but I am saying I see this dynamic in neighborhoods when pulling comps lately. One of the ways I see price change over time is to make graphs. I use the “scatter graph template” in particular for neighborhoods. There are many ways to do this, but seeing the market visually is really helpful for me.
ADVICE FOR REAL ESTATE PROFESSIONALS
My advice to real estate professionals right now is to buckle up, have realistic expectations about low volume, cut expenses, put people first, and focus heavily on those who have incentive to buy and sell due to lifestyle changes. Moving up, moving down, inheriting a property, having a change in family status, buying a first home, etc… We are poised to continue to see low volume until it becomes more affordable for buyers and sellers. The truth is affordability isn’t just something that buyers need. Sellers also need to be able to afford the resale market.
Thanks for being here.
Questions: What stands out to you about the stats? Has it been a bidding war or crickets for you lately? I’d love to hear your take.
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I’ve complained to agents that they need to sell more homes so I can figure out values. Unfortunately, no one is listening.
I had the same thing happen recently when I needed to use a sale from August 2022 and didn’t make a time adjustment. I’m spending more time thinking about which comps to use than ever before, especially in small markets like many in Yolo and Colusa Counties. It’s tough for appraisers now.
Haha. Love the complaint. C’mon people. Listen to Joe. Same thing I’ve done with comps. I find it’s not so easy to see where the market is at too. The trend changed so sharply last year, so the trendline on my visuals doesn’t always behave perfectly.
Yeah, I’ve had to play with my graphs this year too because we’ve had so much change in the past five years.
I love the way that Joe has flipped the script. Thats right agents, sell those homes at higher and higher prices. If you dont sell em for more, we cant appraise them for more. Its on you! Note to Sellers, 2020 was three years ago, so were 3% interest rates. The prices have not really changed a lot over the past year-take the money and run. If sellers are looking for greener pastures, I hear Texas and Nevada are lovely this time of year. Oh and the winters in Idaho are spectacular-you can keep your beer on the back porch and it will be icy cold. Californian for Life-Viva la California, Eureka!
Haha. I’ve heard Nevada is green and lush. Thanks Mark. You know, for sellers intent to check out of California, prices are still historically high after spring appreciation.
At what price point will holders of sub 4% mortgages jump back in? my guess is higher.
David, I’m guessing higher too. It doesn’t have to be even. It just has to make more sense. Many people think 5.5% would be an inflection point. I generally agree somewhere around there, but it’s hard to say with certainty as we are in uncharted territory. I’ve been sharing an image from FHFA in my presentations lately that breaks down mortgage rates in the United States, and just over 80% of all current mortgage are under 5%. About 60% are under 4%. Less than 10% are more than 6%. When I see images like this, it reminds me it’s not so easy to unlock supply from sellers where the math doesn’t work right now. While lifestyle is the ultimate trump card for people in real estate, the math matters greatly too.
Appraisers’ full employment act of 2024. Make all mortgages assumable.
Could you imagine what that would do to the market? Or portable mortgages? That would be wild.
The locked in low rates of previous years, the slowing economy are good reasons for sellers to stay put. I’ve even heard homeowners say if they move, their property taxes will increase. They are loving the slow to increase property tax of when they purchased their home. Who can blame them?
Exactly. Thank you for sharing. I agree. Sometimes people in real estate get a little edgy about sellers staying put, but people in real estate are staying put too. It just makes more sense for the bulk of the market to sit still for the time being. Though technically speaking, the majority of the market is actually happening. If new listings are down 44% this year in Sacramento from the pre-2020 normal, that means 56% of listings have happened…
Great post as always Ryan. And let’s not forget the many other trades that depend upon real estate sales – title companies, insurance companies (ouch!), inspectors, and more! Lower sales volume has a far-reaching effect . . .
So true. There are many people having a difficult time right now. Volume pays the bills in real estate, and missing a massive chunk of listings and sale is absolutely being felt in the trenches. Thanks Melissa.
As always, great information Ryan. Thanks for all you do.
Thank you Rick. I appreciate the encouragement.
I am fortunate enough to be doing mostly estate, divorce, DOD. For private work, I just tell it like it is. I was told a long time ago we don’t make the market we just report it. There are fewer comps, less inventory, fewer buyers due to the cost of money, and fewer sellers due to the want and need to stay put. I go further out to competing neighborhoods that offer similar amenities, or back in time if that is what it takes. What we do have is this market and it is our job to explain how we derived the value in the market today.
It’s always been the case in the foothills. We don’t fit in any boxes and that’s how we learned to write a comprehensive report explaining what the data is showing us. That’s why I like you so much, you give us the stats.
I like that you are diversified into private work. Lender work is really tough right now on many appraisers. I love to hear your commentary on the profession and telling it like it is. That’s always my goal too. I wonder sometimes what it would be like for me if I lived in a more rural area. I think it would challenge me how to use stats to tell the story of the market, and it would challenge me professionally too as an appraiser. Thanks for the kind words. Oh, I referred you something this week. Hopefully the person called. I think it was DOD somewhere in your neck of the woods.
That chart for the monthly listings really does tell a story.
Thanks Gary. Yeah, that is one of the big stories in today’s market. What a change from last year. It’s been wild to watch the trend. It’s logical to see this happening, but it’s still stunning. By the way, I thought of you the other day when I heard Damian Lillard on a game show (Wait Wait Don’t Tell Me).
Hi Ryan:
I enjoy seeing your charts and analyses. I’m in Tucson, AZ. It’s interesting to see how our market when charted follows so closely the charts you develop. Of course, our prices are different, but the trends within the market are quite similar. I believe it shows that buyers and sellers, no matter where they are, probably act in similar ways subject to market conditions. I’m a veteran of 56 years since getting my real estate sales license in 1967. Became a full-time appraiser in 1978 when rates were 17-19% with 5 to 8 points. Oddly enough even with those terms prices in southwest Michigan did not decline, they stayed relatively steady. There just weren’t many sales. Many seasoned sellers opted to carry the paper if they needed to liquidate. The philosophy was to earn the high interest knowing that sooner or later rates would come down and they would be cashed out with a substantial balance remaining. Rates came down in 1985 and 1986 to 6%.
Thank you Ronald. I really appreciate hearing from your experience. It is fascinating too how the trend can be so similar in some areas. I think everyone is trying to adapt right now as they did in the past. This market won’t last since there is always change on the horizon. But it’s here for now.