Do you feel that? It’s change. The housing market is still elevated, but there’s no mistaking a different temperature – especially over the past week.
STUFF ON MY MIND: This is designed to scroll quickly or digest slowly. The goal is to highlight stats and things I’m watching.
An elevated market with a shift in demand: We’re not back to normal levels for inventory, the number of multiple offers, and basically every metric. This means the market is still elevated. In other words, it still feels like the market is on steroids on some level. Yet, there’s no mistaking a rise in uncertainty as affordability has taken a beating lately.
Hot pockets: The housing market is like a hot pocket taken out of the microwave a tad too early. Some portions are blazing hot while others are only warm. What I mean is not all neighborhoods and price ranges have the same temperature. I first shared this analogy in 2016. And now it’s back.
Slower open houses last weekend: I talked to nearly fifty local real estate agents about traffic at their open houses this past weekend. Obviously, this isn’t a scientific study, but the word on the street is there has been a slowing in traffic. Of course, there were also some REALLY busy open houses, so save your hate mail. Keep in mind this doesn’t mean offers won’t come in. In fact, a few agents that told me of slow open houses do have 1-2 offers in hand. By the way, check out Showingtime data for California for 2022 (orange line) for a wider perspective on traffic. This is something to watch.
It’s play-by-play time: Stats can become stale fast these days, so it’s important to watch the numbers by the week, and then change our narrative as needed. I gave a big market update last week, but if I were presenting today, I would be talking about more slowing and dull open houses.
Number of offers chopped in half: I’ve been hearing from agents that the number of offers being chopped in half. So, instead of getting 8-10 offers, it’s more like 3 (sometimes way more). The percentage of multiple offers among sales in April so far is about 71.5%. This number should be closer to 50% in a normal year, so we still have an elevated market. But pending contracts over the past week show 62.7% had multiple offers, which tells us the temperature is changing.
Buyers are starting to pay less above list price: This visual show buyers are starting to make less aggressive offers. I suspect in another month we will see these lines at lower levels because demand has begun to shift. For context, it would be normal to see buyers pay about 2% below the list price at this time instead of 3-4% above. Thus, we have a way to go before we get back to normal levels. How soon can we get there? Well, that’s to be determined. One more thing. This visual below is based on sales, so it really tells us more about what the market was like one month ago when these properties got into contract. I have a visual like this that I’ll share in a few weeks that shows the past 4-5 years of data. Stay tuned.
Demand likely peaked for the season: It’s possible we’ve peaked in demand for 2022. I’ve been mentioning this in passing on my social channels for a few weeks, and as we get more stats, I think a seasonal peak is likely unless something happens to reverse the slowing trend. What I mean is inventory is increasing, price growth is slowing, and we’re seeing fewer multiple offers. Keep in mind, it’s not unusual to see multiple offers peak in either April or May, but this year was slightly earlier than usual.
Price reductions are increasing: Price drops are more noticeable. We’re not at alarming levels, but this past week we had about 250 price reductions in the region. Three things: 1) You can overprice at any level; 2) There are more price reductions at the top half of the price spectrum; 3) We should be seeing more price reductions around this time of year, so the key is to watch the market for any abnormal level of reductions. In other words, let’s know the seasonal trend, and interpret price reductions in that context.
More price reduction stats: Redfin also shows price drops have increased. The black line is 2022 for the Sacramento region, and we’re inching above 2019 levels. Altos Research shows similar data. In short, price reductions have increased beyond levels of the past couple of years, but they’re not freakishly high either. This is something to watch by the week.
Sellers & buyers are exchanging power: Sellers have lost some power, and buyers have gained some power. This is not a dull market, but sellers would be wise to price reasonably, negotiate with buyers, adjust prices as needed, and lower expectations about the number of offers and price you can command. If the market surprises you with something higher, great. But aim for the market – not the unicorn. Most of all, recognize you are now listed in the midst of a temperature change, which means it’s critical to listen to your agent and buyer feedback. And buyers, you’ve gained some power, but there are still many situations with multiple offers. This is especially true for lower price points and good product. Yet, we are starting to see overpriced listings, so go after those ones.
More inventory is hitting (but 1,000+ fewer listings): We are seeing more listings hit the market. We are still far below a normal level, but if buyers start to back off, that’s going to make it feel like even more inventory. Read that last part again. Right now, we have about 2,000+ listings available in the region on any given day, but in a normal year we could easily have about one thousand more listings (seriously). Two things: 1) Supply is still anemic; 2) Supply is finally starting to open up more.
Price growth looks to be slowing: So far, sales price stats are looking lackluster for April, but the month isn’t over yet. I wanted to give a heads-up that for now price growth looks to have slowed down after a few truly exuberant months. It’s possible that the monthly median price will actually be lower in April compared to March for the region, but like I said, we need another week of sales to know for sure (so don’t write home over this).
Dude, we just went $100K over asking: We’re still seeing some examples of going way above list, but those properties don’t typify the market. They are there though.
Watch pending contracts closely: Let’s keep a close eye on weekly pendings. Redfin has a great tool to look at metros and counties. Here’s a look at the Sacramento region, and the black line shows pendings dipped last week. I’m not ready to call this a trend because it’s really just one week, but this is important to watch as a gauge for demand. There are many buyers who are simply shocked right now and we’re going to need some time to see how they react.
Lower volume ahead is plausible (we’ll see): Here’s a look at weekly sales volume in the Sacramento region. The black line is 2022, and so far, it’s been a normal year, but that could change if we start to see fewer pending contracts. This is something to watch by the week, but in light of affordability becoming a glaring issue for many buyers, it’s plausible to see volume soften. NAR Chief Economist, Lawrence Yun, said recently that national volume could be down by about 10% this year compared to last year. That’s a national stat, but it’s something to watch locally too. One more thing. The California Association of Realtors states volume was down 7% in March 2022 compared to last year for the entire state, but volume in the Sacramento region was actually about the same as last year. Thus, on a real level, Sacramento has been doing better than the state so far. And again, there has not been a dip in volume yet, but this is absolutely on the radar to watch in light of affordability changing so drastically lately.
Calling it a meltdown or correction: All we know right now is we are in the midst of a temperature change, market stats are still elevated beyond normal, and we should also start to see slowing for the spring around this time of year. Is this a beginning of a seasonal slowing, or is it something bigger? We need time to know. I say this because I’m being objective. I don’t have any interest in wearing rose-colored or doom lenses.
We need time to see the trend: The bottom line is the future hasn’t happened yet, so in the meantime we need patience, objectivity, and weekly stats. We also need to be careful not to be swept away by every new sensational market narrative. Know what I’m saying?
Anyway, that’s what’s on my mind today.
Thanks for being here.
Questions: What are you seeing out there in the market? What are you hearing from buyers and sellers?