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.