Everyone is entitled to an opinion, but I find some people sounding off about housing seem disconnected from the actual market. I want to talk about that below and share some trends. Skim by topic or digest slowly.
UPCOMING SPEAKING GIGS:
4/25/24 HomeSmart iCare Realty (details TBA)
4/26/24 Prime Real Estate (private)
5/9/24 Empire Home Loans (details TBA)
5/15/24 Investor Meetup (details TBA)
6/6/24 Golden 1 Credit Union (details TBA)
6/11/24 Elk Grove Regional MLS Meeting 8:30am
6/13/24 Sacramento Realtist Association (details TBA)
CONSUMERS ARE JUGGLING
This is a meme I made a few days back, and unfortunately it perfectly describes the moment. And this is why mortgage rate increases lately aren’t easy to digest since buyers are already juggling so much.
STRONG OPINIONS ABOUT THE HOUSING MARKET
Look, you don’t have to be a practicing real estate professional to have a housing take or know the market. I’ll be honest. It bugs me when people are told to stay in their lane because they don’t work in a field. As if I can’t have an opinion about Taylor Swift since I’m not a musician. Or I can’t talk about basketball because I don’t play for the Kings (put me in coach). Or an athlete can’t talk about politics because she isn’t a politician (oh, that one got real). Of course, there is such a thing as expertise, so I’m not planning to lecture today about paleontology or the history of communism. Haha.
When it comes to housing, there are some people spewing opinions that are pretty disconnected from the actual market since the narrative just doesn’t line up with what it’s like in the trenches. I find this to be especially prominent with a housing crash narrative that paints everything with darkness, but doesn’t tend to concede it’s been competitive.This can happen on the rosy side too when people aren’t willing to look at red flags in the marketplace because they’re distracted by multiple offers. Ultimately, some people only want to promote a narrative, and I find that to be very limiting because the market isn’t just one thing. We ARE really struggling with affordability, AND the market has been intense considering the lack of affordability.
In short, everyone gets to have an opinion, but not every opinion has credibility. On that note, how do you gauge credibility for a housing analyst? And does credibility even matter to people today?
Long story short. 54% of pendings over the past week had multiple offers in the Sacramento region in the midst of rate hikes, so it’s not totally frozen like some people are saying. Of course, could the housing temperature change very quickly ahead if rates continue to rise? You betcha. Do you know what would be surprising? If the temperature didn’t change with rates around 7.5%.
GETTING CLARIFICATION ON CONCESSIONS
In light of the NAR lawsuit, Fannie Mae and Freddie Mac clarified yesterday that if a seller pays for the buyer’s agent commission, it will NOT count within the allowable amount for concessions (as long as it remains customary for sellers to cover the buyer’s side of the commission in the marketplace). This isn’t new policy, but it’s nice to have some clarity since we’ve been wondering. I wrote about concessions a few weeks ago, and I updated the post with links to the press releases. I also posted on my socials yesterday, and the posts have quite a bit of attention.
SELLER GREED ISN’T SEXY
I talked to a real estate agent this week who has an upset seller that the property didn’t go even higher above the asking price. Bro, it’s not 2021 out there, so don’t expect that dynamic. Technically, if you’re a seller wanting a bidding war, just price lower. Don’t expect buyers to go substantially above value though in a market where affordability is a struggle.
LOOKING FOR HOUSING TEMPERATURE CHANGE
One of the things I’m watching closely right is what sellers are giving buyers in terms of concessions. What are you noticing? About 38% of sales last month had concessions in Sacramento County, and it’s normal to see this number decline during a traditional spring. Do we start to see sellers have to offer more to buyers ahead if rates persist higher? My advice to sellers is to listen closely to what buyers need, and be open to lowering the price and/or offering concessions if the market requires. Please don’t take rate increases lightly. Go to a mortgage calculator to see how much it costs to buy your house right now.
MORE ADVICE FOR BUYERS PLEASE
Agent friends, I’d love to see more content that focuses on the buyer side. How do you get an offer accepted? How can a buyer get concessions in a market like today? What types of situations do you recommend offering below the list price? When do you need to go above? Often real estate professionals focus heavily on sellers, but buyers need attention and help right now.
EXPECT LOWER DEMAND
In coming weeks, we’re going to understand more about how higher rates are affecting buyers and sellers. I’d be shocked if the number of pendings didn’t dip if rates keep this high, but only time will tell. No matter what, we’ll see the trend first in the listings and pendings. If we only look to sales, it’ll be a month or two to see the trend since it takes time for properties to get into contract and close. Remember, the stories of today turn into the stats of tomorrow.
So far, pendings and new listings for April as a whole have been pretty normal seasonally (still way lower than usual though). But let’s watch very closely ahead from this week onward.
SOME ENCOURAGEMENT
A few thoughts I shared on my social channels yesterday. Just some things on my mind. I wanted to offer some encouragement in the midst of what feels like uncertainty salad in the economy and real estate market.
WATCH GROWTH IN LISTINGS
I had the hardest time explaining this until I used blocks. In the fall of 2023, I made a reel with blocks to explain how listings can grow. At the time, we were seeing more active listings, but it wasn’t really due to sellers rushing the market. Well, today we’re legit having more new listings, but it’s still buyer behavior that can make the biggest difference.
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Questions: What are you seeing in the market right now? What are buyers and sellers saying? What do you think of Fannie Mae’s clarification on commissions? I’d love to hear your take.
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Love the bit about buyer guidance!
Thanks Geoff. And national stats show an increase in the percentage of first-time buyer too. Just seems like a good focus. 🙂
Since I am VA approved, it turns out that 90% of my VA Appraisals are purchases. The VA borrower can buy with 0% down (not including the initial deposit) and with new housing developments, the VA borrower can now enjoy a robust interest buydown… a power that the private seller cannot offer…
Thanks Bruce. And VA can be at any price too if I’m not mistaken. We sometimes see some lofty sales in our market going VA. I do wonder how VA is going to handle the commission issue (if seller doesn’t pay buyer’s side).
VA does not allow the Veteran to pay any costs of the sale/commission. This is Statutory and will require the Secretary to request a change by Congressional authority to the rules for Veterans. As you know, this process can be very slow to get a bill passed. I just returned from Washington where I was attending the NAR Legislative conference. I was present at the Real Property Valuation Forum and this was discussed at length. In addition, NAR and President Keven Sears sent a letter about 2 weeks ago to the VA Secretary requesting this Statutory Change. Also, 5-6000 Realtors including agents and appraisers visited Capitol Hill on Tuesday to visit with our Representatives and Senators. This was one of the major talking points. They are aware and all were receptive to helping our Veterans obtain a home. Sorry to be so long winded.
No, thank you. Please share whatever you want. I really appreciate this. I have to think this will get solved, but it doesn’t seem like it will be easy. I think legislators talk freely about how much they support veterans, so they better get to work here. VA is about 4% of our entire regional market, but it’s much higher in some counties and cities around military bases.
Sacramento’s long moving average home sale price is down 15% over 2022 peak. El Dorado Hills same. The Schiller national home value turned negative in Nov 2023. If the long value trend continues down, then, by any definition, it’s not a “competitive” market. It’s a slow-motion repeat of 2006-12. Probably the only reason the U.S. housing market hasn’t imploded faster is because of the $5T Covid stimulus, which has kept the U.S. at full employment and limited inventory. But that’s artificial. A debt bounce. Once the employment numbers start rising, inventory will flood the market and downward home valuations will accelerate nationwide. My personal sense is that the FED will do everything it can to avoid this happening before the next presidential election, and then mid-2025 will see the beginning of this acceleration.
https://www.spglobal.com/spdji/en/indices/indicators/sp-corelogic-case-shiller-us-national-home-price-nsa-index/#overview
Thanks Josh. I always appreciate your take on things. It has been very competitive, though that doesn’t mean we are without red flags. It would be really healthy for prices to correct for the sake of affordability, but limited supply has been the roadblock. It’s hard to get a flood of inventory with current dynamics. If buyers back off ahead due to higher rates, we could get many more listings, but technically the bulk of it is just more listings due to fewer pendings. The problem today is we are 30%+ below a normal level of new listings hitting the market due to sellers being stuck in place. This really puts unfortunate pressure on prices to not implode like a 2007 event. I’m not saying there couldn’t be downward price pressure ahead. I’m just saying it’s not 2007 rapid deceleration type of pressure. We are seeing an uptick in unemployment, but so far that hasn’t meant much of anything to the housing market. Let’s keep watching and comparing notes.
Josh, by definition competitive is, “relating to or characterized by competition.” By definition any market could be described as competitive and competitive is something that doesn’t need to correlate to price trends. I think Ryan is just trying to describe the feeling of buyers and sellers in this market where it can feel like there is competition for the fewer well priced listings and competition by the motivated sellers for the fewer serious buyers.
Thanks Gary. That’s exactly it. I find there are multiple things that are true right now. There are some deep underlying issues AND it’s been very strange to see how competitive things have been in light of how low sales volume is. On paper, if we were to see it’s basically been flirting with 2007 volume, one would guess prices would be plummeting and inventory was skyrocketing. But that hasn’t been the vibe. I find sometimes on Twitter people don’t seem to even believe me or they think I’m sugarcoating when I talk about competition right now.
Okay so how about this little bit of insanity.
1) right now, I look at 3-year, 2-year, 1 year and 6-month trends. I am looking at scatter diagrams with polynomial 3 order because I trying to see the timeframes where the interest rate changes up, down, or stable are creating gaps in sales volume. 32 years not seen this type of fluctuations up and down in such short timeframes.
2) working on a large tract home, over 4,000 sf. Finding that small lots are impacting the price and ability to sell in less than 10 to 15 days. Based on what I hear due to Covid overhand, people wanting a bigger back yard for their own entertainment and/or pool being added. Interviewed 4 listing agents of large tract houses on small lots. Finding out that the extra GLA is not helping the price. Been analyzing at $0 to $40/ sf and it is all over the place. This phenomenon is not something I had seen before but it appears to be affordability, being supported by your comments about changes in interest rates. Seems the changes are hitting some of the larger tract homes in weird ways. I thought 2006, 2007, 2008 and 2009 were nuts. Nope since March, April, May 2022, things have really been strange. Thanks Ryan and appreciate all your thoughtful posts.
Opps don’t think my normal adjustment range is $0 to $40, the data analysis was showing very low adjustments with a very low correlation factor. Been scratching my head. My bad on lack of data.
Thank you Brad. I love hearing stuff like this from the trenches. And on a side note, I don’t know what happened, but it looks like my blog emailed this post out again this week. I think I wrote it a few weeks ago. I don’t know what the heck happened.
“One of the things I’m watching closely right is what sellers are giving buyers in terms of concessions. What are you noticing? About 38% of sales last month had concessions in Sacramento County,..”
You’re right; it’s a canary in the coal mine. However, it is difficult to know what is really going on when concessions aren’t required to be reported as a dollar amount. I know some do, but it isn’t a MLS rule.