Buyers aren’t impressed yet with lower rates

Mortgage rates have gone down, but buyers aren’t that impressed yet. It seems like the real estate community is really excited about lower rates, but buyers aren’t sharing the enthusiasm so much (yet). Let’s talk about it and maybe kick around some language to describe today’s housing market.

Skim by topic or digest slowly.

UPCOMING SPEAKING GIGS:
10/18/24 Prime Real Estate (private)
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10/29/24 Orangevale MLS Meeting
11/19/24 Downtown Regional MLS Meeting Q&A 9am

WEIRD VIBES IN REAL ESTATE

When talking to the real estate community across the country, the word “weird” is often used to describe the housing market. I keep hearing stuff like, “It was priced to the comps, but nobody is even coming to look at it.” Or the market feels so uneven, and it’s either multiple offers or crickets. The truth is buyers are extra sensitive about price, condition, and location. Additionally, there could be some heightened sensitivity in light of the uncertainty of who is going to pay for the buyer’s agent commission (NAR lawsuit). I was talking with Realtor Desiree Taylor today, and she was telling me quite a few contacts are saying they’re going to wait until rates drop more. Have you been hearing that? In short, there are many layers to the weirdness.

NO BIG CHANGE IN PURCHASE APPLICATIONS (YET)

When looking at national mortgage applications data, there’s been an uptick in refinances, but purchase applications have been pretty flat. This shows we haven’t reached an inflection point yet where the math is working enough for buyers. In other words, buyers need more affordability to be able to play the game, and we’re not there yet. Granted, if rates persist to drop, we’ll definitely get some buyers back, so let’s watch by the week. On that note, we can hear about a change in buyer demand from the real estate community first before it shows up on a graph like this. Ultimately, we need a sharper change to affordability to get a sharper change to the number of buyers. Many experts think 5.5% or slightly lower is a threshold for more buyer activity, and that seems reasonable to me. But it’s not like all buyers will come back at a certain rate, which is why we need to watch by the week. Only time will tell. Do you think we’re on the cusp of more buyer demand? Am I going to be writing a blog post in a few weeks or months about buyers thawing out?

BUYER FOMO IS SO 2021

We’ve had more closed sales this year in Sacramento, but barely more than last year. As long as rates remain steady, the positive news is we’re poised to see more volume in 2024 compared to 2023. Yet, we’re only up 345 sales from last year, so it is super close. Today’s buyers tend to be patient, picky, and they don’t reek of FOMO (Fear of Missing Out) like they did in 2021.

SELLERS, GIVE SOMETHING TO BUYERS IF NEEDED

WILL UNEMPLOYMENT HURT SOME BUYERS?

The unemployment rate has been rising, and if it keeps going up, we have to ask if it will affect the pool of future buyers. I find some real estate narratives about the future often only focus on the idea of a flood of buyers coming into the market, but let’s recognize some people are struggling. My advice? Don’t ignore unemployment rising, but be careful about sensationalism too.

WHY HAVE PRICES KEPT GOING UP?

Someone saw this image on X, and asked why prices have kept going up. It’s baffling at times to the public why prices haven’t really dropped much. Well, it’s because inventory is still low (despite growth this year). In short, sellers stepping back from the market has created a more competitive vibe. But price metrics have shown a very modest uptick this year too, so let’s keep the narrative in check. It’s not 2021 price growth. Keep in mind homes are slightly smaller this year too (for what it’s worth).

SELLERS AREN’T AS STUCK

Some good news. Sellers aren’t as stuck as they were last year. That’s true nationally as well as locally. It’s been great to see consistently more supply hit the market, but we’re still 34% below the pre-2020 normal for the number of new listings in the region. It’s true that inventory has skyrocketed in some places in Florida and Texas, but Sacramento has sort of a balanced vibe at the moment in the midst of growth this year. Keep in mind this “balance” only exists due to a low number of listings meeting a low number of buyers. It’s not that we actually have a normal number of buyers and sellers (it’s going to take time to get back there).

LISTINGS HAVE GROWN FASTER THAN SALES

This is one of the best ways to describe the market right now. The number of listings has grown faster than the number of sales. Locally, we’ve had about 2,600 extra new listings this year compared to last year, but only 345 extra sales. Look, the number of listings is still so much lower than normal, but there is no mistaking a wider gap between listings and sales right now, which means the market isn’t as tight.

NORMAL IS BORING

Can I get a drum roll? Okay, maybe not since this is going to sound boring. Market competition levels are somewhat normal right now. Check out the percentage of sales with multiple offers as well as sales selling above and below the list price. Days on market is also very close to normal. Of course, this doesn’t mean the market is normal. It’s a strange dynamic today where there is a sense of balance in some ways because we’ve had low supply and low demand. It’s just the number of listings and the number of sales are incredibly low compared to the norm. So, on paper the market feels somewhat balanced (but a cooler market than last year). But when we step back, there is a real problem with affordability, which is not healthy. We’ve had a volume crash. Not a price crash. That’s a good way to put it.

Okay, that’s what’s on my mind. Time to stop before this thing gets any longer. But some local stats for those interested…

LOCAL MARKET RECAP IMAGES

YEAR OVER YEAR

Some smaller counties don’t have much data, so I lumped them into 60-day chunks. One month just isn’t enough (too erratic). I have all these images on the STATS tab too (and more).

MONTH TO MONTH

I hope this was interesting or helpful.

Questions: What stands out to you about the stats? What are you seeing out there in the market right now? I’d love to hear your take.

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