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Fastest market ever & price deceleration

May 23, 2022 By Ryan Lundquist 13 Comments

The housing market has been changing these past couple of months. As I’ve been saying, it isn’t cold, but the temperature is surely different. Anyway, let’s talk about two things to watch in months ahead – price deceleration and days on market. Any thoughts?

A photo of a road with two lanes. One lane says "fast" and the other says "slow." There is also the title of today's post, stating, "Two things to watch in today's housing market."

This post feels a bit nerdy or heady, but this stuff is so important. I hope you pick up a few nuggets – even if you aren’t local.

1) PRICE DECELERATION:

When this year began, lots of people predicted and hoped for price deceleration. The idea is price growth would slow, so instead of being 20% higher compared to last year, the percentage would start to be lower over time.

It’s possible we’re starting to see deceleration in the stats, but we still need a few months to be sure. See image.
We’ve been growing at a freakish pace, and we need to see slower growth for the sake of health.
This doesn’t mean prices are declining, though some sellers have priced lower than recent sales to generate interest (or multiple offers).
Last year was really aggressive and this year the market crested a month early. In short, let’s be aware of what we are comparing.
Not every local county is showing deceleration like the regional image. This is why I’m saying we need a few more months of stats. This is simply a preview of some trends on my desk. Frankly, it could take a bit to see price deceleration in the stats, but let’s be on the lookout.

A lline graph to help show price deceleration starting to happen.

2) DAYS ON MARKET:

I have some brand new visuals to help us watch how long it is taking to sell so we can gauge a change in temperature. Do you like these?

We’ve had the fastest market ever over the past two years.
It’s starting to take slightly longer to sell.
We are still quite far from a normal trend (the red line).
Pendings are moving quickly, but let’s not forget to look at what isn’t selling too (properties with price reductions).
I expect to see the black line (2022) tick up in coming months.
For the sake of market health, we want to get closer to the red line where it’s taking 30 or so days on average to sell.

A line graph to show multiple years of days on market in Sacramento County. This shows the past two years have been the fastest-moving years ever compared to all other previous years

A look at the average and 2022 days on market. A l ine graph to show these two years.

A line graph to show that we've had the most aggressive market ever over the past two years

TOP GUN REAL ESTATE MEMES:

Lately I’ve been making more real estate memes. It’s just how my brain works. Anyway, Top Gun 2 is coming out in a few days, so I give you the following. The second meme alludes to buyer “love letters.”

A meme showing Tom Cruise shake Val Kilmer's hand (Top Gun actors). The title says "Sellers finally negotiating a bit more with buyers."

Another Top Gun meme. Tom Cruise is singing to Kelly McGillis with other people in the background in a bar. The title says, "Buyers trying to impress sellers without violating fair housing laws of course."

MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.

Thanks for being here.

Questions: What are you seeing out there in the market? What do you think of the new visuals?

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An open letter to sellers about today’s housing market

May 16, 2022 By Ryan Lundquist 29 Comments

Dear Sellers,

How are things? I hope all is well. It’s been such a crazy market, but things are starting to change. So, let’s chat. This is coming from a good place, and it’s based on observations and what I’m hearing from real estate professionals.

A picture of an envelope with a piece of paper sticking out that reads, "An open letter to sellers."

THINGS TO KEEP IN MIND ABOUT TODAY’S MARKET:

1) You’ve lost power: The market is still competitive, but it’s not what it was in February. The truth is buyers have gained more power lately. Most agents I talk to say they are easily getting about half as many offers compared to a few months ago. So, instead of getting eight offers, you might only get a few. And if you’re priced too high, you’ll probably get zero offers.

2) Buyers are growing more sensitive: Mortgage rates skyrocketing means affordability has taken a beating. Seriously, buyers are easily paying $500 or more each month to get a mortgage this year compared to last year at the same time. This means buyers are becoming more sensitive to price, condition, and location. In other words, if they are paying top dollar, they are growing pickier about what they buy.

A meme with Adam Sandler and Bob Barker fighting (from the movie Happy Gilmore). It says, "The price is wrong...." which is from the movie.

3) Don’t aim for unicorns: Be careful of the idea of a unicorn buyer who is going to swoop in, ignore the comps, and pay top dollar in cash for your home. If that happens, great. Keep in mind only about 15% of sales this year have been all cash in the region. This means 85% of buyers are getting a loan.

4) But Zillow says: Don’t get hung up on what Zillow says your house is worth. The only thing that matters is what real buyers are willing to pay. Nobody gets stuck on a low Zestimate, so why get hung up on a high one?

5) Avoid strongarm moves: “Remove the appraisal contingency, pay me an extra $25,000, and give me your firstborn child.” These things still happen in some price ranges (okay, not the child thing), but the market is starting to see just a little bit more sanity lately. I’ve heard quite a few stories of buyers bailing after the seller countered with a strongarm move that might’ve worked a few months back. In short, buyers are picky about getting into contract AND staying in contract.

6) Sales are old and crusty: Sales tell us what the market used to be like probably 30 to 60 days ago when the properties got into contract. In other words, sales are like historic artifacts that tell us what the market used to be like. In contrast, we see the current temperature of the market with what is happening with listings and pendings. This means it’s key to know the sales, AND gauge any temperature change since.

A meme to show the most interesting man in the world saying, "I don't always overprice, but when I do, I expect a Bay Area unicorn buyer."

7) Be ready to negotiate if needed: I am hearing more stories of buyers asking for credits for repairs, concessions, and price reductions. Sometimes sellers feel they’re losing when this happens, but in some situations it’s simply the ticket to selling for top dollar. In short, listen to what buyers are asking for, and help the deal feel good for them too. This isn’t just about you. Don’t be afraid of FHA and VA buyers either.

8) It’s not time to push the price: Look, sellers aren’t entitled to always netting more than recent sales. My advice? Price reasonably and see what the market gives you. There are some situations where you might need to price lower than recent sales too to generate interest. Forget about record-breaking sales or your overpriced neighbor. What is getting into contract right now? That’s the ONLY thing that matters.

9) Tighten up the details: Buyers have become more sensitive about condition, so it can help to address minor cosmetic repairs before you hit the market (if you can). I’ve talked to a number of buyers who feel discouraged about the condition of homes right now for the price, so a good way to stand out is to be sure your property is tight. Buyers notice details, and solving minor issues only helps give them fewer reasons to say NO.

10) Watch for symptoms of softening: Talk to your agent about the temperature and be in tune with signs of softening. As you see stuff like this, let it influence your strategy for pricing and negotiating.

Symptom of a slower market bubble visual

11) Don’t expect to go $100,000 over: A seller got two offers and said, “Let’s hold out for something higher.” I’m not saying to be hasty about accepting offers, but don’t embrace unrealistic expectations. Headlines from the past talked about bidding wars, but right now headlines are starting to say stuff like, “The temperature has changed,” or “It’s still competitive, but it’s not what it was.” On that note, don’t be afraid to reduce the price if needed. You are not giving up value if value wasn’t ever there in the first place.

12) Other: What other advice would you give? Please comment below.

I hope this was helpful.

Sincerely,

Ryan Lundquist
Certified Appraiser / Housing Market Analyst
Sacramento Appraisal Blog

p.s. Thanks for picking up the dog dookie before the appraiser shows up

The housing market has shifted

May 11, 2022 By Ryan Lundquist 22 Comments

The housing market has shifted over the past month. That’s what the stats are showing, and it’s what we’re hearing from the trenches. Today I want to highlight what’s been happening in Sacramento, and unpack what I mean by “shift” too since this word can be sensationalized. If you’re not local, what are you seeing in your area? I’d love to hear your take.

small wooden windows on the white wall. Blue window frame. The caption reads, "The housing market has shifted."

WEBINAR I’M DOING NEXT WEEK: On Thursday May 19th at 10am I’ll be doing a deep market update for SAR to talk about the latest trends. We’ll have an hour to talk through lots of stuff. SIGN UP HERE.

Skim quickly or digest slowly.

A photo of Uncle Rico from the movie Napolean Dynamite. The caption reads sellers aren't stuck in 1982, but they're stuck in early 2022

Listen to Uncle Rico: The housing market temperature has changed from early 2022, so it’s a different market today. My advice? Don’t get stuck in the past. And sorry if you don’t get the meme (Uncle Rico was stuck in ’82).

How I’m describing the market: Overall, the market still feels elevated in that we are seeing a higher-than-normal amount of competition. And frankly, sellers are still in the driver’s seat. Yet, there is no mistaking a blatant temperature change or shift about a month ago. It seems an inflection point occurred where we really noticed the effect of higher mortgage rates on buyers. Some buyers have backed off due to declining affordability, and others have become much more sensitive to price. In other words, buyers are hyper aware of lofty monthly mortgage payments, so they have higher expectations about what they’re buying. It would be an error to call this market cold, but there is no mistaking a cooler temperature from the scalding temperature of January through March.

Fewer pending contracts (big news): We’ve seen a dip in pending contracts over the past few weeks, which speaks to shifting demand. The number of pendings was down 12% this April compared to last year. Where will this black line go in coming time? That’s the big question. Will buyers adapt to a new environment of higher rates or will we continue to see fewer buyers playing the market? Let’s keep watching. Visual made using data from Trendgraphix.

A line graph to show multiple years of pendings from January to December each year (and a dip this year)

Lower volume in April (but not super low):

The number of sales in April was clearly lower than last year, but still on the lower end of normal when considering many years. Granted, with pending volume down in April, this will likely mean May sales volume will be down. As I said last week, I think it’s key to focus on what is happening with volume.

The word on the street:

The stories of today become the stats of tomorrow. A few days ago, I asked Instagram how many offers properties are getting. Not too long ago this poll would’ve showed far fewer homes getting “1-2” and especially “0”. I know, this isn’t scientific, but this lines up with other stats right now.

A poll on Instagram stories to ask how many offers people are getting on properties

Fewer Multiple Offers

In April we saw fewer multiple offers compared to March. It’s atypical to see the peak of multiple offers in March (only happened during the pandemic in 2020). This supports the idea that the market seems to have shifted early for the spring. Keep in mind this visual is based on sales. When looking at pending contracts since May, 55% have had multiple offers. Granted, 55% is still slightly higher than normal, but there is a huge difference with 72% of sales getting multiple offers two months ago and 55% lately.

A line graph to show multilpe offers since 2016

Price reductions are starting to increase:

We’re starting to see price reductions tick up according to Altos Research. The number of reductions is much higher than last year, but closer to levels seen in May 2019. In short, we are not at dangerous levels, so it’s important to remember what normal feels like and not sensationalize the number of reductions at the moment. It’s important to note that every single price range is experiencing reductions, which tells us you can overprice in any neighborhood. Let’s keep watching this by the week and change our narrative accordingly.

Added: I just ran some stats, and Opendoor represented 13% of all price reductions this week in the region. The iBuyer model doesn’t account for the growth in reductions overall, but I’m just saying, this is something to watch as we crunch stats and decipher trends.

A line graph to show price reductions in Sacramento County since 2019

More listings are hitting the market (not many though):

The number of listings has been increasing, but inventory is still sparse. On one hand, we are on the cusp of finally breaking out of a one-month supply of listings, but on any given day we still have at least one thousand fewer listings available compared to normal. I’ve heard some stories of sellers looking to list and “sell at the top”, but sellers have not rushed the market by any stretch. Keep in mind if we start to see fewer pendings, this will help inventory increase since there will essentially be more available listings that didn’t sell.

Price growth looks to have slowed, but…

The median price in the region dipped from March to April, which is uncommon for the time of year. I’m not ready to say prices have peaked for the year since we need a couple more months of stats. What I am saying is April sales have clearly started to show a reaction to higher mortgage rates, so it’s not a surprise to see the unhealthy growth between January and March begin to fade. Yet, I watch prices by the week (third image below), and the most recent two weeks have shown an uptick, so let’s wait to see how the entire month of May looks. Keep in mind most local counties saw a modest price uptick in April instead of a dip like the region saw (see stats below).

It does look like we are starting to see price deceleration. Instead of being up 20% from last year, prices are up closer to 15%. This is a good thing and what we want to see happen. We’ve needed the crazy pace to slow.

Buyers are starting to pay less above list price:

This visual shows a flattening trend for buyers paying above the list price. I suspect in another month we will see this line decline since demand has begun to shift. But here’s the thing. In a normal year, we should be seeing buyers on average pay about 1% BELOW the list price, but this past month buyers still paid about 3% ABOVE the list price. Granted, these figures represent sales, so this tells us more about what the market was like one month ago when these properties got into contract. But like I’ve been saying, the market is still not back to a normal level yet. This is exactly why it’s important to unpack what a shift in demand looks like. And if people aren’t willing to read more than just the title… Well, I can’t help that.

I better stop before this becomes a dissertation. Do you see what I mean by a market shift though? I hope this was helpful.

Thanks for being here.

—–——– BIG MARKET UPDATE FOR THOSE INTERESTED ———––

This image says "Caution" and it's yellow and black. Then it says "big monthly market update below." Skim or digest slowly.

QUICK SUMMARY:

After some very rapid (unhealthy) price growth in the beginning of the year, it looks like we are starting to see the return of more sanity to the housing market lately. Granted, we are in the midst of the beginning of a temperature change, so we’ll have to continue to watch to understand how it all unfolds. For now, it’s best to describe the market as being elevated, but softening. In short, when priced right, properties are poised to get multiple offers, but when priced too high, properties are going to sit and not sell.

A QUICK RECAP:

SHARING POLICY: I welcome you to share some of these images on your social channels or in a newsletter. In case it helps, here are 6 ways to share my content (not copy verbatim). Thanks.

Some visuals…

YEAR OVER YEAR:

Year over year stats are important to digest, but don’t forget to look at month to month stats to understand what the market is doing right now. Also, not every location and price range have the same trend.

MONTH TO MONTH:

Looking at sequential months is key too so we don’t just get stuck or hyper-focused on last year (the past).

OTHER VISUALS:

As if anyone really wanted more…

MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.

Thanks for being here.

Questions: What are you seeing out there in the market? What did I miss? I’d love to hear your take.

If you liked this post, subscribe by email (or RSS). Thanks for being here.

Don’t get stuck on home prices…

May 2, 2022 By Ryan Lundquist 7 Comments

What are prices doing? That’s always the question, and I get it. But there are bigger fish to fry to understand what the housing market is doing.

Market webinar: On Thursday May 19th at 10am I’ll be doing a deep market update webinar through SAR to talk about the latest trends. We’ll have an hour, so we can go over a ton of stuff. Sign up here.

A shift: Over the past few weeks there has been a shift in demand, which is why this conversation is so important. This isn’t about doom and gloom. I’m just saying we need to look at other things besides prices.

The last time: Let’s look at what happened when the market changed in 2005. There’s some helpful insight here, even though what happened last time isn’t the new template for every future correction.

WHY PRICES ARE THE LAST PLACE TO LOOK

Not that much different: The real estate bubble burst in Sacramento County in August 2005, but prices were only down 4-6% during that first year. When thinking of a pop, that doesn’t sound like much, right?

TWO THINGS TO WATCH INSTEAD:

The real story was volume: Prices saw a modest dip, but sales volume was imploding. There was a 43% change in the number of sales between August 2005 and August 2006. Some could’ve said, “Meh, prices are only down slightly,” but the glaring issue was nine hundred fewer sales in August 2006 compared to August 2005.

The real story was supply: Prices dipped slightly, but housing supply increased by 207% in the background. In other words, housing inventory went from 2.6 months to 8.0 months the next summer. And this helped set the stage for a massive collapse in 2007.

THE BIG POINT:

Prices were about the last place to look to understand the trend at the time. The real story was seen when looking at listings and volume.

What to watch: If you want to see what the housing market is doing, I suggest giving strong attention to the number of listings, the number of weekly pending contracts, and the number of sales. There are many other things to watch, but are buyers willing to continue to play the market? That’s the big question, and we’ll see the answer in volume before prices. Of course, if you want to sound suave on date night, watch other things like price reductions, the number of offers, days on market, etc… I’m talking through lots of these things every week. If you’re not local, check out the Redfin Data Center for weekly stats.

Whatever you do, don’t get stuck on prices alone.

Getting buyers to walk: As I said last week, price growth slowed in April compared to truly exuberant gains between January and March. Today we are seeing slow traffic in general at open houses, more price reductions, and buyers having an easier time getting offers accepted (not always). This really happened quickly too over the past few weeks. Overall, buyers are far more sensitive to price, condition, and location, which means sellers need to be open to negotiation. I’ve heard a few examples of buyers walking after sellers said, “Yo, Bestie, thanks for the offer. Now give me $25K more and remove the appraisal contingency.” That might have worked in January, but this is May. It’s a different market today. I’m also hearing more examples of, “We priced it right, but we aren’t getting any action yet.”

Embracing stats: The other day someone wasn’t happy because I wouldn’t call this dynamic the start of a market correction, but the truth is we need time and stats to understand the longer-term trend. This is not me sugarcoating. This is me being objective. Let’s keep watching the numbers (by the week) and letting the stats form our narrative.

MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.

Thanks for being here.

Questions: What stands out to you most in this post? What did I miss? I’d love to hear your take.

If you liked this post, subscribe by email (or RSS). Thanks for being here.

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