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Fastest market ever & price deceleration

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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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Is it just me or is the market slowing?

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The market is slowing. We’ve been hearing that all over the place lately and it’s been a common clickable headline. But it’s not just hype because there’s some truth to it. Today I want to show this reality with a few visuals, mention three takeaways, and unpack a huge Sacramento market update for those interested. I hope this is helpful – whether you’re local or not.

Tighter Prices: Is the market slowing? How would you show that? Take a look at the rate of price changes in the images below and let me know what you see.

OCTOBER:

PAST 90 DAYS:

ENTIRE YEAR:

TAKEAWAYS:

1) Slowing: Prices are still up, but they’re not up by as much this year. What I mean is in years past we’d regularly see 7-10% price increases when running stats, but over the past few months we’re starting to see 4-6% increases instead. This helps show the market as a whole is slowing.

2) Dull fall & critical thinking: Stats have begun to change more significantly these past few months since a slower feel hit the market. A few months back sales volume dipped, but now after multiple months of lower volume this is becoming a trend (at least for the fall). As we watch this unfold and see that prices are much tighter together as I showed in the charts above, let’s consider two things: 1) Price stats today are more subdued in light of a much duller fall season (duh); and 2) Last year’s fall season ended up being a little more flat than usual, so higher prices from then could be helping this year’s numbers appear a little more depressed. I know, it sounds like I’m trying to soften the idea of the market slowing, but that’s not it at all. I’m thinking critically through the numbers and explaining in part why they are the way they are. Ultimately I find myself interpreting these numbers cautiously, and I think we need to get beyond this fall to see the bigger picture of what the numbers show us and where the trend is going to go.

3) Wide & narrow view: I chose to share stats in three ways on purpose to show something important. Did you notice a difference in the price change depending on how wide or narrow the dates were – whether 30 days, 90 days, or 12 months? Basically the more data we considered, the tighter the price gap was. This is a good reminder to look at the market in different ways to try to discern the trend. It’s also a good reminder to be careful of pulling older data because sometimes that can mask a trend that is happening right now.

The future: Naturally when hearing about momentum slowing in a market it’s easy to start predicting the future as we see price gaps tighten. Many say the market is going to crash, others say it will correct by 10%, and some say it will level off and progress into a state of balance. All three of these ideas have one thing in common. They’re guesses.

I hope that was helpful.

—–——– Big local monthly market update (long on purpose) —–——–

Last year the fall season felt more flat than not, but this year is a different story. We are definitely having more of a dull seasonal lull that reminds us how the market felt in 2014 when the fall season was definitively soft. Here are some of the things I’m watching right now. I’d love to hear what you are seeing. Please comment below or send me an email.

Graphs for your newsletter and social media: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy my post verbatim).

Adjusting to rates: Buyers have seemed to back off the market a bit lately, and we’re seeing the effect of that with lower sales volume. What’s up with this? The culprit could be increasing interest rates and a growing lack of affordability.

Balancing of power: Buyers have gained more power in recent months, though I don’t think sellers got the memo since they are still struggling with overpricing and pretending it’s an aggressive market from 2013 instead of a slower market in 2018. This doesn’t mean buyers have total control though. Keep in mind 41% of all sales last month had multiple offers, which tells us it’s not the type of market where buyers can lowball sellers and get whatever price they want.

Pricing lower this fall: Since the summer the median price has softened by 4% in Sacramento County, 5% in the region, and 7% in Placer County. This doesn’t mean every neighborhood lost 4-7% in value. These are county stats and they don’t translate into every area or price range. Keep in mind it’s normal to see a 5% or so reduction in the median price during a given fall season, but this year it wouldn’t be surprising to see a more pronounced price difference between spring and fall (we’ll see how it pans out).

The story of sales volume: In September volume was down a whopping 16% in the region, and that raised lots of eyebrows to make people wonder if the market was starting to tank. This past month sales volume was not as weak, but it was still down nearly 9% in the region and about 4% in Sacramento County. Over time we need to keep watching this trend to better understand if it’s a sign of a definitive change in the market or if it’s the byproduct of a dull fall season (or both). One thing to remember is despite a few months of gloomy sales volume recently, volume is only down 2% in 2018 in the Sacramento region.

Listings did peak: I’ve been talking about listings looking like they were peaking for the past couple months, and the stats now definitely show listings have crested for the season. This is normal for the time of year as sellers tend to pull back from the market and wait until spring to list. This is why the fall sometimes feels like a market of leftovers since many sellers are waiting until the next year.

Concessions and credits: Buyers have more options today, so they’re tending to ask sellers more often for credits, repairs, and concessions. It would be wise for sellers to listen to buyers and be aware they may need to give something to get the deal done.

I could write more, but let’s get visual instead.

BIG QUESTIONS:

1) How did the market change from last year?

2) How did the market change from September to October?

3) Where are we in relation to peak prices in 2005?

4) What’s happening with sales volume?

SACRAMENTO COUNTY VOLUME:

Key Stats:

  • October volume down 4%
  • 2018 volume down 1% (January to October)
  • Annual volume is down 1.9% (past 12 months)
  • Volume has been strong this year, but it’s definitely been down over the past 4-5 months.

SACRAMENTO REGION VOLUME:

Key Stats:

  • October volume down 8.8%
  • 2018 volume down 2.1% (January to October)
  • Annual volume is down 2.5% (past 12 months)
  • Volume has been strong this year overall, but it’s been down over the past 4-5 months.

PLACER COUNTY VOLUME:

Key Stats:

  • October volume down 20.6%
  • 2018 volume down 4.9% (January to October)
  • Annual volume is down 5.4% (past 12 months)

SACRAMENTO COUNTY (more graphs here):

SACRAMENTO REGION (more graphs here):

PLACER COUNTY (more graphs here):

I hope that was helpful.

DOWNLOAD 60 graphs HERE: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: What do you see happening in the market right now? What are you hearing from buyers and sellers? I’d love to hear your take.

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How to use a CMA to gauge the temperature of the real estate market

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Temperature changes all the time. It’s a reality whether we’re talking about a cup of coffee, the weather, or even the real estate market. Today I want to show you one of the ways I use a CMA to take the temperature of a neighborhood real estate market. This helps me communicate well with clients, and I hope it will do the same for you.

Image purchased by sacramento appraisal blog from 123rf dot com - neighborhood market

NOTE: “CMA” stands for “Comparative Market Analysis”, and it’s a tool real estate agents (and others) use to communicate about the market to clients.

Three steps to gauge the market with a CMA:

1) Draw Neighborhood Boundaries:

rosemont neighborhood

All your data is going to come from the boundaries you choose, whether you draw them with a polygon tool in MLS or pick an MLS area (you choose since you are the market expert). I don’t recommend using a radius search because you’ll probably pick up sales from other neighborhoods that could skew the accuracy of what you are trying to present to a client.

2) Run a CMA in your MLS system:

Now run a CMA in MLS so you have access to current listings, pendings, and sales over the past 90 days. The final product may look something like this. I truncated the images below, but you can see the total count of listings and sales in yellow.

Active Listings:

listings in rosemontPendings:

pendings example

Sales over Past 90 Days:

sales example

Compare listings, pendings, and sales: As you can see, actives have been on the market for 103 cumulative days, it took pendings 61 days to get into contract, and recent sales took 49 days to sell. In other words, buyers have been pulling the trigger in about 50-60 days, but at the same time a whole host of homes in the neighborhood are not selling.

BIG POINT: If listings have been on the market for longer than sales, something has changed in the market. Maybe it’s the real estate season, or sellers are trying to “test the market” at higher prices. It could also be that inventory has increased, buyers have become more picky, or maybe current listings consist of different types of homes that take longer to sell. This is key to communicate with clients since clearly some properties are selling and others are definitely not.

3) Figure out Monthly Inventory:

You can quickly figure out monthly housing inventory in the neighborhood. There were 61 sales over the past 90 days, which means the market absorbed about 20 sales per month (61 divided by 3 months = 20.33). Note there are currently 47 active listings. If you want to figure out monthly inventory, all you need to do is divide the number of current listings by the number of sales over the past month. In other words, 47 listings divided by 20.33 sales equals 2.31 months of housing supply.

how to calculate monthly housing inventory

WHAT TO SAY TO CLIENTS: Here is an example of what you might be able to tell clients about this neighborhood:

Right now there are about 2.5 months worth of houses for sale in the neighborhood. This isn’t very many listings, BUT when houses aren’t priced right, they are sitting instead of selling. Most homes are taking 50-60 days to sell, but overpriced homes are literally on the market for over 100 days. These homes will probably sell for even less than they would have had they been priced right from the beginning. 

General Tips:

  1. Don’t make sweeping interpretations because of one CMA.
  2. Be sure you have enough data since few sales can lead to skewed results.
  3. Remember that trends for a larger county or even an entire neighborhood may not reflect trends for the property you’re trying to value. This is why it might also be worthwhile to run a CMA for competitively-sized properties instead of the entire neighborhood.

Keynote Speaker on Friday: By the way, I will be the keynote speaker on February 6 at the Masters Club Roundtables event at the Sacramento Association of Realtors. My 30-minute talk begins at 9am and is called “How to tell the story of the market to your clients”. I’ll focus on unpacking what the market did last year, where it is right now, and how to talk with clients about trends. Swing by if you can.

SAR roundtables

Questions: How do you use a CMA? How else do you gauge the temperature of the market?

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Parenting and watching real estate unfold in Placer County

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Being a parent is a bit like being a private investigator. When problems come up, I often get different stories from my kids or neighborhood kids about who said or did what. It’s then my job to listen (hopefully), gather evidence, and then sift through bits of information to maybe uncover the truth. Can you relate? The same thing happens in real estate because you get different stories depending on who you talk to. One person might say, “the market is on fire and values are increasing”, while another says “the ‘bubble’ is about to burst”. This is why it’s important to pay careful attention to trends so we can be informed and offer accurate information to clients. Today let’s take a look at the latest stats for Placer County, and also touch on what is happening in Sacramento’s regional market. I hope this is helpful.

Two ways to read this post:

  1. Scan the highlighted text and graphs quickly.
  2. Grab a cup of coffee and spend a few minutes digesting what is here.

placer county real estate trends june 2014

PLACER COUNTY:

1) Prices have been flat in Placer County:

Placer County median price and inventory - by home appraiser blog

median price in placer county and sacramento county by sacramento appraisal blog

There was a small seasonal uptick in the Spring in Placer County, but prices have been more or less flat lately, which is in part a byproduct of increasing inventory. The median price in Placer County is $380,000. Prices are more or less flat in Sacramento County too, though the median price is about $100,000 less compared with Placer County. Remember that sales stats show a flat market, but these sales got into contract 30-60 days ago. I bring this up because there is even more inventory in the current market, which is really softening values beyond what mere sales stats might tell us.

2) Housing inventory is increasing:

Placer County housing inventory - by home appraiser blog

months of housing inventory in placer county by sacramento appraisal blog

Monthly inventory increased from 2.52 months to 2.76 months between May and June. It’s normal around this time to see an increase of inventory, but this is still important to keep in mind when pricing properties in certain price segments. Less competition tends to cool values. When considering all price segments, the higher the price, the more inventory there is.

3) Houses are taking an average of 37 days to sell:

days on market in placer county by sacramento appraisal blog

On average it is taking 37 days to sell a home in Placer County as opposed to 35 days in Sacramento County (minor difference). Generally speaking, the higher the price, the longer it is taking to sell (which is normal). There were only 7 sales above $1M, so take the “10 days” stat with a grain of salt since properties above $1M generally take much longer to sell. Overall it took less days for homes to sell last month compared to previous months, and if the market unfolds like it did last year, expect to see a longer listing period over these next few months.

4) Volume is down by 11.5% from last June:

Placer County sales volume - by sacramento appraisal blog

Sales volume has been down in the entire Sacramento region. Why? In large part it’s a reaction to investors stepping away from the market one year ago. There were 11.5% less sales in June 2014 compared with June 2013. The same trend is showing up in Sacramento County also. The market is simply trying to figure out how to normalize or adjust now that investors have taken their foot off the gas pedal.

5) Listings increased by 6% from last month to this month (normal):

number of listings in PLACER county - june 2014 - by home appraiser blog

Listings increased by 6% from last month to this month. At the beginning of June there were 1303 active listings on the market, and at the beginning of July there were 1387 listings. This isn’t earth-shattering news, but the number of listings is something important to watch because the market tends to soften as there are more listings (assuming the number of sales does not increase).

6) “Layers” to watch over the next two quarters:

interest rates inventory median price in placer county by sacramento appraisal blog

What is driving value in Placer County? Low interest rates and low inventory are two of the bigger “layers of the market” right now. In light of less cash investors playing the market (especially in Sacramento County), local real estate is more sensitive to interest rates and upticks in inventory. Rates are still flirting with the low-to-mid 4s, and that is helping buyers afford higher prices for the time being. Yet it will be interesting to see how the market is able to cope with higher inventory and presumably higher rates in the third and fourth quarter of the year.

THE SACRAMENTO REGION:

7) Inventory is increasing in the Sacramento Region:

months of housing inventory in region by sacramento appraisal blog

number of listings in Placer Yolo El Dorado Sacramento - by home appraiser blog

Real estate trends are sort of like neighborhoods at times. What happens on one parcel can tend to impact a property next door (even though we’d like to think we live on “parcel islands“). That’s why knowing what is happening in Sacramento, Placer, Yolo, and El Dorado County can help us see where the market as a whole is going. Overall inventory increased from 2.23 months in May 2014 to 2.43 months in June 2014.

8) It’s taking 37 days on average to sell a house in the Sacramento Region:

days on market in placer sac el dorado yolo county by sacramento appraisal blog

Properties are not sitting on the market for very long since 37 days is still fairly quick. However, if they are not priced correctly, they are DEFINITELY sitting. Buyers have been gaining more power in the market, so they can afford to be a bit more picky. My advice to sellers? Remember, the market is no longer as aggressive as it was in 2012 and 2013, so it’s important to price your properties correctly if you want to sell.

9) There are 8% more listings this month in the Sacramento area:

number of listings in Placer Sacramento Yolo El Dorado county - June 2014 - by home appraiser blog

The number of listings jumped by about 8% from last month to this month, while the number of sales stayed about the same. The number of pending sales is actually lower than last month, which shows the market definitely experienced a slow down.

A little wood project: By the way, from time to time I like to share things I build since I enjoy working with wood. This is a porch footstool I built a few weeks ago out of scrap wood. It’s really meant for an adirondack chair, but it’ll still work I think. It’s kind of funky and it can double as a launch ramp for the kids.

porch footstool

Sharing Trends with your Clients? If you want to share graphs online or in your newsletter, please see my sharing policy. Thank you for sharing.

Questions: How else would you describe the market? I’d love to hear your take.

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