New construction has been on fire, but the resale market has been cold. It’s been stunning to see the difference in volume between both markets. Let’s talk about the trend and look deeply into what’s going on with concessions.
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8/18/23 Market & Mimosas (register here)
8/29/23 Elk Grove Regional MLS Meeting
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10/23 SAR Think Like an Appraiser (TBD)
10/26/23 Orangevale MLS Meeting
THE MARKET DID PEAK IN JUNE, BUT PRICES…
I’ll have my July recap stats out next week. I want to wait a couple more days before pushing out the numbers. I would have maybe published tomorrow, but I’m going to a Foo Fighters concert… Anyway, the problem is we’re having low volume, so the stats can be off if we pull them too early. Ultimately, despite metrics showing we hit a seasonal peak in June, it looks like July squeezed out a little more price growth. Normally prices peak in June, but if the stats hold, our price peak will likely be July. I’ll talk about that next week. My advice? Don’t get so stuck on prices that you’re not seeing other stats that show a June peak.
NEW CONSTRUCTION HAS BEEN ON FIRE
The first seven months of the year have been really strong for new construction in the Sacramento region. In fact, the only other higher year over the past decade was 2021. Words like “strong” and “growing” haven’t been used to describe the resale market, but new construction has been experiencing a different trend.
BUT CONCESSIONS FROM BUILDERS ARE A HUGE FACTOR
Volume has been glowing from builders, but one of the reasons we’re seeing more sales is builders are offering concessions to buyers. It’s true buyers are looking more to new construction since sellers have been sitting out, but builders are also enticing consumers with rate buydowns and credits for closing costs. In short, these glowing volume numbers wouldn’t be happening without concessions.
IT’S NORMAL TO SEE VOLUME DIP IN JULY
Volume ticked down between June and July, and that’s normal for new construction. Here’s a crazy way to see what 2023 volume looks like in the midst of two decades of sales. Do you see how volume typically slides down for the rest of the year? That’s what normal seasonality looks like.
TOP TEN CITIES FOR NEW CONSTRUCTION
Roseville is yet again top dog. Here are the top ten cities for new home sales in July per North State BIA data.
NEW HOMES ARE A BIGGER CHUNK OF THE MARKET
New construction has been a bigger chunk of the total market lately. For instance, nearly 29% of all sales in the region this year have been brand new homes. The blue portion represents existing sales and the black portion is new construction. The percentage is brand new homes compared to the entire market.
NOTE: Even though new construction has been a larger chunk, it’s still much smaller compared to the existing market for older homes.
THE EXISTING MARKET HAS COLD VOLUME
New construction volume has been hot and growing, but the existing market for older homes has been cold all year. It’s sobering to be missing almost 6,000 sales from the pre-2020 normal in the Sacramento region. Of course, the good news is over 10,000 sales have happened, so we don’t want to neglect seeing the market that is here by fixating too much on the missing portion.
BUT THE MARKET DOESN’T FEEL COLD
Save your hate mail people. I’m not saying competition is cold. It’s not. What I’m saying is volume is cold since the number of sales has been so depressed lately. In terms of what the market feels like, competition can be fierce today. The wild part about today’s housing market is volume feels like low 2007 numbers, but competition feels more like 2020. We have a situation where low supply and low demand have met. Yet, like I talked about two weeks ago, it’s either bidding wars or crickets.
YES, VOLUME PEAKED FOR THE SEASON
The orange line below shows volume dipped between June and July, and that’s normal for the time of year. Like I said, stats are showing we hit our seasonal peak in June (even though prices ticked up in July). In a normal year we should see volume slide down through December, and that’s what I expect to see unless mortgage rates drop substantially.
EVERYTHING YOU DIDN’T WANT TO KNOW ABOUT CONCESSIONS
Let’s look at what’s been happening with concessions lately. This information is for the resale market (not brand-new homes).
CONCESSIONS BY PRICE RANGE
This is a brand new visual. Do you like it? I dig it. The only problem is some categories don’t have many sales, so the numbers can be a bit wonky. But generally speaking, there are more concessions at lower prices – especially between $400-$500K. Keep in mind there is typically more cash under $400K, so it’s not a shocker to see lower concessions in that price category. Concessions still exist at the highest prices, but not as much. I did double-check data above $1M in Sacramento County, and it’s accurate. However, there were only about forty sales, so take that figure with a grain of salt.
TEAM BAR CHART OR TEAM LINE GRAPH?
Here’s a way to look at the same data from the chart as a line graph. Are you team bar chart or team line graph?
CONCESSIONS INCREASE DURING THE SECOND HALF
During the second half of the year, we typically see more concessions. Part of this is demand softening for the rest of the year, which means sellers have to be ready to meet buyers where they are at. But it’s also about smaller homes selling between July and December. The size factor is important because smaller homes tend to have lower prices, and there are more concessions at lower prices. Do you see how concessions have ticked up over the past month on the right side of the chart? That’s normal for the time of year. Of course, what happens with mortgage rates for the rest of the year will play an enormous role with what we see with concessions.
HOW MUCH ARE BUYERS GETTING FROM SELLERS?
Here are some scatter graphs to show concessions in four local counties. The goal is to see what is happening by price range. Generally speaking, there are more concessions at lower prices, which reminds us the market isn’t the same in every price tier. Basically, buyers at lower price points are getting more assistance from sellers (not a shocker). But keep in mind it’s not just one amount buyers are getting. As the graphs show, it’s rare to get more than 3%, and there are many situations where a dollar amount of $5,000 or $10,000 seems to be a threshold. Personally, I like seeing both the dollar amount and percentage number. Some people want to cage fight me over percentage graphs being better, but I like both.
SACRAMENTO COUNTY
PLACER COUNTY
EL DORADO COUNTY
YOLO COUNTY
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Questions: What are you seeing happen with new construction or concessions? I’d love to hear your take.
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I found this extremely informative as a Realtor covering the Central Valley area and based in Oakdale and really appreciate the time put into this article. I believe that $5K-$10K concessions have become the norm for the current market that we are in here in the Valley with rates increasing and buyers needing more help from sellers to maintain affordability since prices aren’t necessarily coming down.
Right on. Thank you so much Chris. We are not in the same exact place, but isn’t it interesting how similar the trend can be? I concur about $5-10K in many transactions. I think those are safe numbers that seem doable in many cases from a percentage and dollar standpoint. And buyers really have needed some help from sellers lately. Concessions were especially prominent one year ago when the market got dull, so part of their presence or lack thereof comes down to what the market is doing too. I think many buyers are hoping to have more power to be able to ask for concessions.
Thank you Ryan for all the time you put into these stats. Always something new. I’m glad the market is doing well in spots.
Thanks so much Gary. It’s wild to see the juxtaposition of new homes and existing homes. It’s a good reminder that the market isn’t the same in every price range, location, or property type. Hope you are well these days.