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Is the housing market starting to slow?

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Is this crazy housing market slowing? Let’s talk about that today. On one hand stats are basically at all-time highs, but when we look deeper we’re starting to see some subtle signs of slowing. What are you seeing out there?

QUICK SUMMARY: The market is still bananas, but we’re seeing some slight slowing. Stats could change in coming weeks and months, but for now the best available information suggests a slightly slower trend. And I’m not saying the market is dull, so save your hate mail. It’s more like housing was driving 135 mph and now it’s driving 127 mph. 

Some subtle examples of slowing:

1) It’s taking slightly longer to sell: It May it took only six days to sell (median) in the Sacramento region while pendings over the past four weeks took seven days to get into contract (median).

2) Fewer multiple offers: In May we saw the number of multiple offers slough by 6% as seen in the graph below. We are still basically at all-time high levels, but the percentage of multiple offers is slightly lower than it was.

3) Buyers paid slightly less above asking: In May buyers paid an average of $20,975 above asking price while in April they paid $22,247. This is a very minor difference that I’m honestly hesitant to talk about because we’ll have to revise May stats in a few weeks once more sales get added into MLS. So it’s possible this stat in May could change. Though right now the best available market stats show buyers paid slightly less above contract price in May compared to April.

4) Lower sales to original list price ratio: In May buyers paid an average of 103.3% above the original list price compared to 103.8% in April. Okay, this is even closer than the example in number three, so again, I’m reluctant to post this – especially since we’ll need to refresh this number when more May sales are counted. But for now it’s something to watch. Keep in mind the number in April at nearly 104% was literally the highest amount ever above the original list price, so 103.3% is telling of an incredibly competitive market.

5) Word on the street: I’m hearing from real estate agents that they’re seeing slightly fewer offers and having slightly fewer showings. This is mostly anecdotal and of course subjective to whatever sliver of the market an agent is working, but it’s something to consider.

CLOSING ADVICE:

a) Know the seasonal market: Each year around this time in a normal year we start to see the real estate market slow and this image shows some of the things we can watch. Remember, prices could keep going up in coming time, but prices reflect pending contracts from the past, so being on the cutting edge of the trend in a market has more to do with watching other stuff before the trend eventually catches up to prices. 

UPDATE: I just wanted to say I fully expect prices to increase in June and who knows how much longer. We are definitely still in an increasing market to say the least. I know it seems ludicrous to be talking about slowing in the midst of such insane competition. But this is exactly the conversation to have because let’s watch all the little things instead of getting overly distracted by the bling of sexy price stats. Know what I’m saying?

b) Don’t misread this post: The market is still 100% on steroids, so I’m hoping people don’t walk away thinking, “Ryan said the market was dull.” Nope. Also, the market is not crashing, so be cautious about painting what looks like normal seasonal slowing with a doom and gloom brush. Buyers, you’re still going to have to make aggressive offers. But sellers, stay in touch because even though you have an incredible amount of power, you did lose just a little recently.

c) The x-factor of mortgage rates: If mortgage rates dip below 3% again it could easily change the speed and trajectory of the market.

d) Be careful of rose-colored lenses: It’s easy in real estate to only speak in ultra positive terms about the housing market. But markets change temperature all the time and we have to be real about the trends because buyers and sellers need good advice for the market that actually exists. My advice? Let the stats form your perspective and narrative. Don’t get trapped into thinking you need to speak in hyper-positive language either to be successful in real estate.

e) Say something different if the temperature changes: If the market speeds up in coming months and we don’t end up seeing seasonal slowing, then that’s what we need to say. The best we can do at any given moment is interpret the stats in front of us and let that shape what we say. So for now it looks like we’re seeing some slowing. What does the future hold? We’ll see.

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

APRIL TO MAY: How has the market changed recently? Take a look at the April to May visuals below.

Prices in Placer tend to bounce around month to month because there aren’t that many sales. Take these with a grain of salt.

NOTE ON PRICE GROWTH: Last year the market was dull at the beginning of the pandemic and there was a slump in sales and even prices – which tends to inflate the numbers this year. My advice? Take the percentages with a grain of salt. I think it’s likely better to focus on price metrics generally being up about 20-23% or so rather than fixating on pandemic percentages at 25-30%.

Thanks for being here.

SHARING POLICY: You can share my stats and visuals above, but please attribute the source. Here are 6 ways to share my content (not copy verbatim).

Questions: Are you seeing any slowing at all? What is the market like in the trenches right now? I’d love to hear your take.

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When selling way above anything else (Q&A)

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There’s no way it will sell for that much…. But then it did. Today I have an interview with a local real estate agent about a property that recently commanded easily about $100,000 more than it looked like it could have on paper. I hope you enjoy this Q&A with Ted DeFazio and my takeaways below. I’d love to hear your take in the comments. Any thoughts?

Ryan: On paper it looked like this property on Clear Circle was going to sell for way less, right? What do you think happened to get the price so much higher?

Ted: I thought the listing price was optimistic from the start. I even fielded emails from other agents asking how I came up with the price and a couple “good luck, you’ll need it” text messages. I think it was the perfect storm of a turn-key property in a low-inventory market. Added to that, it was a mid century modern (which some thought was bastardized by the previous remodel), had a pool (Bay Area and LA people think they will melt without one), and a somewhat walkable location on the southern end of Carmichael. I know a few buyers who mapped out the distance to Whole Foods and the American River Parkway.

Ryan: I get how agents were texting you “good luck” because based on two previous sales it looks like this one easily closed $100-125K+ above where it theoretically would have been able to.

NOTE: The black dots are the subject property sales through the years compared to yellow dots which are properties of similar size. As you can see the most recent sale at $815,000 looks to have gone well above the historic trend. By the way, the subject was remodeled during each of these sales.

Ryan: Are you seeing buyers pay more for unique properties throughout the market? Or is this just in certain price ranges?

Ted: There is another one that comes to mind in Fair Oaks that recently sold in Curragh Downs. Same situation. Mid century vibes and a cul-de-sac lot backing to a greenbelt. I once again thought the listing price was optimistic but every offer was above asking. The seller purchased the home less than a year ago for over $200K less and didn’t really do much as far as remodeling goes. These were both in the $700-800K range. Another I can think of was recently sold on Garfield in Carmichael. I fielded emails and texts from agents asking where the price came from. I have two others in the $500-600K range which are both in contract at nearly 10% above asking.

Ryan: How do you know if something is an outlier able to break away from the price trend?

Ted: The Clear Circle house, Canonero Ct and Garfield Ave properties all shared the unique architectural design theme. I think that is what truly sets these homes apart giving them the potential to be outliers. Check out Bonny Knoll in Roseville. The seller knew it was an outlier and priced it accordingly. I think that’s the constant. As agents and appraisers, we often think we know better. I responded to an email questioning value by saying: I’m going to let it ride and see what happens.

Ryan: What are you seeing happen with modern and mid-century modern home appeal during the pandemic?

Ted: I think these types of properties command a higher price point than that of the traditional Mediterranean or typical ranch home down the street. The Bay Area and LA types tend to appreciate these design styles more than the average Sacramento resident. With the influx of these buyers, we are seeing premiums added to the more modern properties. So I think it has further added to the delta between typical and unique homes.

Ryan: What sort of advice would you give to buyers right now?

Ted: It’s hard out there. The offers stack up and the sellers get overwhelmed. The common theme I am seeing with the winning offer is the high offer price and a removal of the appraisal contingency. This puts buyers who aren’t flush with cash in a tough spot. I am hearing buyers are thinking that the market is overpriced. I often tell them that I stopped commenting on the market. I thought it was overpriced back in 2016. What do I know? Buying in this market is tough but being able to sell helps neutralize the offset.

Ryan: Any advice for sellers?

Ted: You are in the driver’s seat. If you have considered selling or making a move, there is no time like now. What an opportunity.

Ryan: Anything else to add?

Ted: I am seeing a divergent trend of agents either sharing what the other offers are or not. I find this market as difficult as I have ever seen to be in the buyer’s shoes. Add to it the listing agent not sharing what other offers are on the table makes it even harder to do our jobs. I ask my sellers if they are okay with me sharing the current offer terms with the other agents (as long as there isn’t a NDA) and they are usually okay because they understand that it will most likely get them more money in the end. The shot in the dark offer mentality / situation is aggravating and makes me not even want to submit an offer in certain cases. I have seen some seller instructions added to listings of some brokerages and wonder if they are truly acting in the best interest of the seller.

Ryan: Thanks Ted. I appreciate your time and insight. Everyone, please visit Ted’s website and let us know what you are seeing out there.

NOTE: Once in a while I do a Q&A with a local professional. This is never a paid spot and it’s not done to highlight one person either. It’s only when something has piqued my curiosity and contributes to discussion.

——————— some quick thoughts ———————

QUICK TAKEAWAYS from an appraiser’s perspective:

1) Your opinion vs the market: It doesn’t matter what any of us think about a property. As Ted said above, quite a few people looked at Clear Circle and thought the remodel destroyed the character of the home, but the resale market blatantly favored this property despite what purists thought. There were four offers when priced at $749,000. This is a good reminder in the valuation space to divorce ourselves from personal opinions and focus on one question. What does the market think?

2) The previous sale: Sometimes a previous sale can be really useful because it helps us understand how a property has fit into the market. But in other cases we need to completely throw out a previous sale because the market is simply different today (or maybe the prior sale sold too high or low). This is exactly why we have to be careful to give the current market and current comps the most weight while not getting too hung up on a previous sale (even though at times a previous sale can provide really helpful context). This is especially true today where the higher-end market has come alive throughout the country, so what buyers are willing to pay right now could simply be a detour from buyer behavior a few years ago.

3) The pandemic x-factor: Buyers hunting for homes these days are willing to pay extra for something architectural distinct. Additionally, buyers are paying premiums for homes with stellar views and backyard amenities. The idea is people know what it’s like to spend more time at home now, so they seem more sensitive to location as well as what’s actually in the backyard (including the view).

4) Paying way too much: There are situations today where buyers are obviously paying way above normal. Let me be clear. I’m not saying this sale above represented market value at $815,000. I’m also not saying it didn’t. I’ll let you be the judge. I’m just saying buyers in general throughout the market are paying premiums for special properties right now. But backing up there is no mistaking there are quite a few situations where buyers are obviously paying well beyond a reasonable value and the appraisal rightly should be coming in lower.

5) Sellers, don’t price to an outlier: Sellers, this market feels totally lopsided, but buyers can still sniff out an overpriced home. My advice? Be realistic about your house and DO NOT price according to an outlier example like the one in this post. Remember, not everything is getting 20 offers and bid up $100,000. In fact, only 2.8% of all sales last month had twenty offers or more. This is actually a higher than typical number, but it’s important to realize this figure is nowhere near half the market like some real estate narratives might suggest.

Thanks for being here.

Questions: What are you seeing out there relating to modern homes or other “special” properties? Any stories to share? I’d love to hear your take.

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How much are buyers paying above the asking price?

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“Buyers are crazy!!! How can they be paying these prices?” That’s what we tend to hear from people who are NOT trying to buy a house right now. It seems like onlookers really don’t understand what it takes to get an offer accepted these days. But for anyone actually in the game, the truth is blatant. If you want the house you’re probably going to have to pay above the list price.

Fresh stats: Today I have some brand new stats. I’ve never broken out numbers like this before and I’m excited to share. Even if you’re not local I hope this gives perspective or ideas for how to visualize your market. 

Quick thoughts: On average properties sold four percent above their original list price last month in the Sacramento region. Or in other words, buyers on average paid $23,787 more than the original list price. Keep in mind these stats represent the average and there are many properties that went above and below this amount. There are also quite a few homes that sold at the original list price. In short, this doesn’t mean literally every buyer paid $23,787 above asking. Also, there are few sales below $300K, so take that stat with a grain of salt.

Four reasons why prices have risen so quickly:

1) Supply & demand: Prices have been increasing rapidly due to supply and demand being so lopsided. It’s no secret we have a shortage of listings and excessive demand. This has created a market that feels like chaos where the median price in April in the Sacramento region is up 11% since January. Of course rates below 3% have also played a role in supercharging the market.

2) Appraisal gap: Buyers are paying above the appraised value or bridging the “appraisal gap” so to speak (the difference between the appraised value and the contract price). In some cases appraisal waivers are also helping properties close at higher levels. 

3) Priced too low: Let’s be real. Some listings are being priced way too low and this causes properties to get bid up. I’m not minimizing how aggressive the market is. I’m just saying there are cases where listings are painfully low. 

4) More at the top: We’ve been seeing more sales at higher prices in the local market as well as across the country. Therefore when looking at lofty price stats we have to realize some of the massive growth has to do with what is selling rather than pure price appreciation.

I hope this was helpful. Thanks for being here.

Questions: What stands out to you about the stats or points? If you are a buyer, what are you experiencing out there? What did I miss?

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Mortgage rates are too low (and they need to go up)

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There are certain things that are just true. Spandex bodysuits shouldn’t be worn by most people. Mullets probably shouldn’t come back in style. And mortgage rates right now are just too low.

The truth: Mortgage rates this low have helped create a chaotic housing market and they need to go up. I tweeted this yesterday and while there was some great discussion about housing trends, literally nobody disagreed about rates. 

Image above from Freddie Mac.

Downplaying demand: Throughout the pandemic the housing narrative has tended to focus on the supply side of things by saying, “The issue is we don’t have enough listings.” I get it because we definitively need more listings and we’re absolutely feeling the effect of years of lackluster new construction. But often it seems like we’re ignoring the demand side of things because we’re so fixated on supply. The reality is one of the big reasons the market feels as aggressive as it does is because rates have juiced demand since they’ve been hovering around three percent since July 2020. On one hand it’s great to see so many buyers entering the market, but rates this low have been like a steroid to help the market feel like an auction. Having 20% price appreciation year-over-year in Sacramento and California doesn’t seem sustainable for the long haul either. On a national level Altos Research states prices are up 17% from last year.

Up and down: Recently mortgage rates started to increase and we saw a few weeks in a row with fewer purchase applications in the United States. But then rates went down again and we saw purchase applications increase. This tells us what happens with rates DOES matter for the number of buyers and if we want the market to become tamer we simply need rates to increase. This won’t solve all our problems or the housing shortage, but it would at least be a step in the right direction. Check out the Mortgage Bankers Association for weekly updates on purchase and refinance applications.

Closing thoughts: Look, there are many reasons why the market is the way it is today and it’s not all about rates. I’m just saying at some point I think we have to admit it feels pretty unhealthy to have rates this low because it’s making things too chaotic.

Q&A Video: Here’s ten minutes of Q&A I did at the end of a presentation for SAFE Credit Union. Enjoy. Or not.

NOTE: This post was in no way meant to offend anyone who wears spandex bodysuits or has a mullet. Be yourself.

Thanks for being here.

Questions: What do you think of the points above? Anything else to add?

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