Market Trends
Why comparing the right numbers matters so much in real estate
You can make numbers say whatever you want in real estate. Sometimes this happens on purpose, but other times it’s an accident. That’s why it’s so important to know how to make the right comparisons. Below I will show you an example of how you can look at the numbers and end up saying two completely different things about the market. Both might be technically true, yet one of the statements really doesn’t reflect the real trend. In an era of big data in real estate, knowing how to communicate these things to clients is key. Enjoy.
THE WRONG COMPARISON: (Volume is down by 30%)
When we compare January with December, it’s easy to get an inaccurate picture of the market (but it happens all the time in media outlets). In the case above, we see a 30% decline, and this sounds very alarming. Yet volume from December to January almost always decreases by 20-25% easily in any given year in Sacramento, so 30% in not something to freak out about.
Truth: Comparing the previous month to the current month can sometimes give us the wrong picture about the market – especially in the midst of a strong seasonal trend. Volume is ALWAYS lower in January (see this quick graph as proof).
THE RIGHT COMPARISON: (Volume is down by 4.5%)
When we compare January 2015 with January 2014, we see sales volume was down by only 4.5% this year. That’s a far cry from sounding the alarm that “VOLUME IS DOWN BY 30%”. In this case the most accurate thing we can say about the market is that volume was 4.5% lower this January.
Truth: Comparing the current month to the same month last year tends to give us important insight because we are using the same context for comparison. I’m not saying to not compare back-to-back months, but only to get in the habit of looking at the same month last year too. This is especially important when dealing with January and February data since they are typically slower months in terms of closed escrows. Remember too that last month’s sales tell us what the market used to be like when these properties went into contract 30-60+ days ago, but current listings and pendings tell us about the market right now.
Questions: Any thoughts or insight? I’d love to hear your take.
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A normalish start in 2015 for Sacramento’s regional market (and Placer County)
How did the real estate year begin in Placer County? What about the entire regional market in Sacramento? Let’s take a good look today so we can better understand how things are moving and how to explain trends to clients.
Longer on purpose: If you’re new to subscribe (thank you), know that twice a month I break down the trends so we can better see the local market. Most of my other posts are general enough to apply anywhere in the United States. Is your market similar though? I’m curious.
Two ways to read this post:
- Scan the talking points and graphs quickly.
- Grab a cup of coffee and spend a few minutes digesting what is here.
Email me if you want 20 graphs: If you would like all the graphs in this post (and 7 more), send me an email (make sure to write “I want the market graphs” in the header). You can use some of these in your newsletter, on your blog, and in other social spaces. See my sharing policy for 5 ways to share.
PLACER COUNTY:
1) The median price saw a dip in January (which is normal):
The median price cooled in Placer County, but as you can see in the graph above, it often cools off toward the latter part of the year and the beginning of the year. The seasonal market is a reality, and it’s important to consider what the market typical does during different seasons of the year.
2) It took an average of 68 days to sell a house in January:
Last year it took 58 days to sell a house in January, and this year it took 68 days to sell a house (a 17% increase). When it takes longer to sell, it’s a sign that the market is overall slowing down. It’s actually a good thing for properties to take longer than just 30 days or so to sell because it evens the playing field and slows down rapid appreciation in value. Remember though that well-priced properties are still moving quickly (and even receiving multiple offers). At the same time, buyers are not quickly pulling the trigger on overpriced listings or properties with an inferior condition or adverse location (unless priced correctly).
3) Monthly sales volume was just about the same as last January:
Monthly sales volume in January was virtually identical to last January. Sales volume tends to hit a low point in January, and that’s exactly what happened again this year.
4) Monthly inventory increased in January (not a surprise):
Monthly housing inventory has been flirting with 2.5 to 3.0 months for the past year in Placer County. Last month inventory shot up to 3.16 months, which means there are 3.16 months worth of houses for sale on MLS. However, this is a weak figure since it is calculated by dividing the number of current listings as February 1 by the number of sales last month. Since there were very few sales last month, this actually means there really aren’t very many listings right now (not yet, but they are starting to come as the spring market unfolds). As you can see, the higher the price, the more inventory there is.
5) Layers of the market at work:
I like this graph because it’s a beginning to help show there are many different “layers in the market” so to speak. It’s never just about supply and demand. There is so much that goes into driving the market.
PLACER COUNTY SUMMARY: Stats for January showed just what was expected. The median price softened (which almost always happens in January), sales volume was just about the same as last January, it took longer to sell compared to the previous month, and inventory increased. The market is bound to feel more competitive to a certain extent because of lower interest rates, but sellers must remember to price according to this market instead of the very aggressive market in 2012 and 2013.
SACRAMENTO REGION:
1) Comparing Sacramento, Placer, and the Region:
It’s easy to get so focused on data from one county or neighborhood that we lose sight of the big picture. What are values doing in the overall regional market? When we take a wider look with far more data, we can sometimes get a better sense of the trends. Remember of course that not every neighborhood, price range, or property type is experiencing the same trend.
2) The regional median price took a dip last month (normal):
Sometimes people react with fear when they hear prices softened at the end of the year and beginning of the year, but that’s a very normal part of the real estate cycle. The market as a whole is still definitely slowing down, and we’ll watch that trend, but a slowness during this time of year was to be expected. Keep in mind there are almost 3000 pendings in the region right now, which represent more sales in coming months. It’s also normal to see a high volume of pendings right now because the spring sales spike in March happens because of all the listings that got into contract in January and February.
3) It took 65 days to sell a house in the Sacramento region:
On average in January it took 65 days to sell a house. Last January it took 53 days to sell a house, which means it took 22% longer this year to sell.
4) Monthly inventory is now at 2.9 months:
Right now housing inventory is at 2.9 months, which is slightly above where it was last year at the same time at 2.7 months. Since there is more data to consider for the regional market, it really helps show the way the market works: The higher the price, the more inventory there is.
5) Layers of the market at work:
Just as I shared for Placer County above, here is a graph with different “layers in the market” so to speak. There is so much that goes into driving the housing market.
SACRAMENTO REGIONAL MARKET SUMMARY: Stats for January were not a surprise at all. The median price softened, it took longer to sell this January, and housing inventory increased. This is usually what happens with January stats.
I hope this was helpful.
Share: Please feel free to share this link with clients, and see my sharing policy for 5 ways you can share my content so we’re on the same page about sharing.
Questions: What are you seeing out there? How does the market feel to you? Anything you’d add?
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The slowish real estate market in January
January is usually a slow real estate month. That’s nothing shocking. Yet it’s always interesting to see how the market begins to maybe get a sense for where it might go during the year. Today let’s take a look at 6 specific areas of the market in Sacramento, which will help us understand and explain the way things are moving.
Longer on purpose: If you’re new to subscribe (thank you), most of my posts are not this long. But twice a month I break down the trends so we can better see the market. Most of my other posts are general enough to apply anywhere in the United States. Is your market similar though? I’m curious.
Two ways to read this post:
- Scan the talking points and graphs quickly.
- Grab a cup of coffee and spend a few minutes digesting what is here.
Email me if you want the graphs: If you would like all the graphs in this post (and 15 more), send me an email (make sure to write “I want the market graphs” in the header). You can use some of these in your newsletter, on your blog, and in other social spaces. See my sharing policy for 5 ways to share.
1) The reality of the slower seasonal market right now:
It’s easy to freak out this time of year when values take a dip. It can feel the market is falling apart when we see price figures decline. Yet the market almost always softens at the end of the year and in the very beginning of the year. Knowing this can help you communicate well with clients and even plan for business. Remember that sales stats usually see a huge uptick in March, and this signifies the Spring market. Technically most of the sales in March actually get into contract in February though, which reminds us the Spring market hits its stride in February.
2) The median price softened by 3% last month:
The median sales price took a 3% dip in January to $256,000. It might sound extreme to see the market soften this much, but last year saw the same exact 3% dip as you can see in the image above.
3) It took an average of 60 days to sell a house in January:
On average it took 60 days to sell a house last month in Sacramento County. This is up from 48 days one year ago in January 2014, but down from about 90 days in January 2012.
It’s important to realize the market is not the same at every price range. In other words, some price ranges tend to take longer to sell than others. Generally speaking, the higher the price, the longer it takes to sell. Keep in mind there were only 9 sales at 750K-1M and two above 1M, so take those stats with a grain of salt.
4) Sales volume hit its lowest point in 8 years:
Sales volume was at its lowest point in 8 years last month. On one had that sounds alarming, but it’s really the story of the market these days. Last year saw slightly more sales at this time, so this year isn’t anything out of the ordinary for the current market. Volume is simply down right now as a whole, and we can look at this as the new norm for a while until the market can handle more inventory and more demand (when the economy improves).
It’s easy to get sensationalistic about having such a low volume of sales last month, but the graph above shows 15 years of January sales in Sacramento County. What do you notice? January almost always comes in last place for sales volume. In short, don’t freak out.
Lastly, remember to consider what usually happens in February. Sometimes February is right in sync with January, but other times there is slightly more volume. We’ll see what this year brings, but knowing how the market works makes you an asset to clients.
5) Housing inventory increased last month (technically):
Inventory increased last month to 2.61 months of housing supply. This is slightly higher than it was one year ago, and exponentially higher than 2013 when there was only one month’s worth of homes for sale. Remember that inventory is the relationship between the number of active listings as of the first of the month divided by sales from the previous month. This means if there are VERY few sales in a month, inventory will actually sound much higher than it actually is. In short, an inventory at 2.61 months sounds like it’s on the higher side, but being that sales volume was really low last month, this figure at 2.61 doesn’t really mean the same thing as it would in the summer when there are far more sales.
Housing inventory is never the same at every price range. This reminds us yet again there are many markets within a market. In this case, the higher the price, the more inventory there is.
6) Interest rates continue to decline:
Low interest rates are like fuel for the housing market since they create more demand by drawing buyers into the market. That is what happened in 2012 when rates went below 4% (for the first time ever), and it’s likely going to get some buyers off the fence right now.
Real estate is never just about supply and demand. There are so many “layers of the market” that are working to impact the direction of values. I hope this was helpful to create some context and conversation.
Share: Please feel free to share this link with clients, and see my sharing policy for 5 ways you can share my content so we’re on the same page about what it means to “share”.
Questions: What are you seeing out there? How does the market feel to you? Anything you’d add?
If you liked this post, subscribe by email (or RSS). Thanks for being here.
The market ripened early this year. Buyers have simply been ready before sellers. On one hand listings and sales have been at fairly normal levels for the first two months of the year, so we can say the market is normal in that regard. But buyer demand really took off last month as pendings in the regional market were up by almost 30% compared to last February. This is the part that is not normal, and why we can say the Spring market ripened early.
One Paragraph to Explain the Market: Well-priced listings are going quickly and experiencing multiple offers, but otherwise properties are sitting on the market if they are not priced correctly. Buyers have been anxious to get into contract, but at the same time they seem to be showing discretion by not readily pulling the trigger on homes with adverse locations or issues. This has led to a sense of many current listings feeling like leftovers since they’ve been well vetted like thrift store clothing. The good news is we are reaching the time of year where more listings should be hitting the market to help alleviate the pressure of a lack of good inventory. Lastly, it took a few less days to sell last month, inventory decreased, and the sales to original list price ratio increased (all normal in Spring).
NOTE: I am posting once a week now, and this means my big monthly post will have less text, but a few more graphs (Placer, Sacramento County, & Regional Market).
Two ways to read this post:
DOWNLOAD 45+ graphs HERE for free (zip file): Please download these 45+ graphs here as a zip file (or send me an email). Use them for study, for your newsletter, or even some on your blog. See my sharing policy for 5 ways to share.
SACRAMENTO COUNTY:
PLACER COUNTY:
SACRAMENTO REGION (Sac, Placer, Yolo, El Dorado):
Questions: What is driving buyers to get into contract? Is it low rates? Is it a sense of needing to get in a home before values rise too quickly? What do you think?
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