El Dorado County

Buyers & sellers feeling stuck in the housing market

September 8, 2022 By Ryan Lundquist 16 Comments

I love the original Back to the Future movie. Do you too? Well, I can’t help but think of today’s housing market compared to the film. Sellers have tended to be stuck in the past expecting the market to be hotter than it actually is right now. And some buyers are stuck in the future, anticipating lower prices ahead, and therefore expecting to score a deal below what the market will allow.

Back to the future meme with Michael J Fox (it says sellers stuck in the past) and Doc (it says buyer stuck in the future)

Tension is real: The tension between buyers and sellers is real, but the remedy is simple. Pay attention to stats and let the numbers form your perception. It’s key for buyers and sellers to be realistic about the market that actually exists. Staying connected to the present is the goal here instead of fixating on a hot past or a colder future. Ultimately, sellers need to listen to buyers, be open to the idea of offering credits, and recognize there’s a really good chance the property is going to sell below the list price. And buyers can take more time shopping, but also recognize it’s not January 2008 when properties on average sold a whopping 13% below their original list price in the region.

Thanks for being here. What are you seeing in your area?

UPCOMING (PUBLIC) SPEAKING GIGS:
9/08/22 SAFE CU “Stats & Mimosas” (sold out)
10/07/22 Market update with SAR (Sign up here – On Zoom)
10/13/22 Market update in Midtown (details TBD)

—–——– DEEP MARKET UPDATE (FOR THOSE INTERESTED) ———––

Here are some quick thoughts about the latest stats. There is so much to talk about. Scroll quickly or digest slowly.

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.

HOW I’M DESCRIBING THE MARKET RIGHT NOW

THE QUICK VERSION:

1) Buyers are gaining power.
2) Sellers are losing power.
3) The sharp change in recent months has begun to level.
4) Seasonal price declines have been more pronounced.
5) 25% of the market is missing right now.
6) Lots of stats are now softer than pre-pandemic normal levels.
7) Uncertainty remains present in light of rates above 6%.

THE LONGER VERSION:

1) Buyers are gaining power:

Last year buyers had to basically bend to the will of sellers, but now they are able to take more time shopping, they’re getting in below the list price in many cases, and credits from sellers are on the rise. About 40% of sales last month included concessions in Sacramento County, and that’s a sharp change from previous months. I expect this percentage to increase through the fall season.

A line graph to show the percentage of sales with concessions in Sacramento County over recent years.
2) Sellers are losing power.

Sellers used to have the luxury of reviewing eight offers from the weekend, but that ship has sailed. About half of all active listings have had a price reduction from the original list price. Even though sellers are starting to listen more to buyers, they are still behind the ball because of how many price reductions we’re continuing to see.

A table to show price drops by the county in the sacramento region

3) The sharp change in recent months has begun to level.

The market showed a sharp change with sales volume, but over the past month or so we’ve started to see the numbers go sideways a bit. This means instead of showing yet another month of massive change, the market has sort of stabilized. Granted, volume is still down 25% or so from last year, but the market has seemed to find a little more balance lately. Of course, this could change with mortgage rates shooting up again. All I’m saying is a number of stats have gone more horizontal lately, so the sharp change from May onward looks to be subsiding (well, besides prices). And the real culprit for change has been seeing fewer new listings hit the market since June. That’s given some breathing room for sellers and buyers to figure out the new market.

Inventory didn’t spike: By the way, inventory actually dropped last month too. Monthly supply saw a huge uptick in recent months, but that spike didn’t continue last month. Scroll below for an image.

4) Seasonal price declines have been more pronounced.

It’s normal for prices to drop at this time of year as the hot spring market fades away. But price declines have been much more pronounced this year. In other words, we’re seeing easily about twice as much price deceleration compared to normal. We still need time to understand the long-term trend, but for the time being prices have seen a more dramatic dip lately. The median price is down about 7% since May in the region, which is about $45,000. Keep in mind this doesn’t mean every property has gone down by that much, so please look to neighborhood comps to understand neighborhood dynamics.

NOTE: Prices this year crested in May, so it makes for an awkward comparison when we analyze May to August this year with previous years. Prices normally crest in June, so that’s why I’m making charts to show change from June onward too (as well as May).

5) 25% of the market is missing right now.

We’ve seen about a 25% dip in volume over the past few months, so on the negative side, one quarter of the market is missing. And on the positive side, about 75% of the market is still happening. Both things are true.

6) Lots of stats are now softer than pre-pandemic normal levels.

We saw a really sharp change toward normalcy in recent months, but some of the stats are now going above “normal” levels. For instance, on average it takes 29 days to get into contract in September, but this year it looks like the number will be 32 days. Or 34% of sales typically sell above the list price in a normal August, but that number was 25% last month.

Normal: When I say “normal,” I’m referring to the pre-pandemic average of 2016 to 2019. Sometimes people get bent out of shape about this word, but this is a solid stat to consider.

7) Uncertainty remains present in light of rates above 6%.

The market has sort of been leveling in quite a few ways lately, but mortgage rates are now above six percent again, so we have to watch the stats to understand the trend over time. But it’s really a simple thing. When rates go up, it takes demand out of the market. Bottom line.

YEAR OVER YEAR STATS:

Annual stats are important to digest, but don’t forget to look at month to month stats. And remember, closed sales in August really tell us what the market used to be like in July when the bulk of these properties got into contract. Also, not every location and price range have the same trend (big point).

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:

Here are lots of visuals. Probably more than you wanted. Enjoy if you wish though, and let me know what you like best.

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.

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.

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

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

Changing housing temperature

August 29, 2022 By Ryan Lundquist 26 Comments

The housing market went from steaming to stagnant a few months ago, and now it seems to be slowing down a bit. Now that some time has passed, we’re getting more stats, so let’s crunch some numbers to show what’s happening with sales volume. By the way, I have a free download if you want to make charts like this.

dark brown rustic aged barn wood planks background. There is a white rectangle in the middle of the image with black text that reads, "Changing housing temperature."

UPCOMING (PUBLIC) SPEAKING GIGS:
9/08/22 SAFE CU “Stats & Mimosas” (sold out)
9/15/22 Market update in Midtown (details TBD)
10/07/22 Market update with SAR (Sign up here – On Zoom)

FREE TEMPLATE DOWNLOAD:

If you like the tables below, click here to download an Excel template to make visuals like this for your area. Just plug in the information from your MLS and the template will do the math for you. I included a longer table and a shorter one. Maybe focus on local cities or ZIP codes, or surrounding counties. Make sure you have enough data to be meaningful. I hope this helps.

A NEW MEME:

Sellers, it’s a much different market today…

A meme with a car making a fast right turn. The left turn says "2021 and the right turn says "negotiate." Then above the car it says "2022." The idea is it's a much different market today where sellers have to negotiate.

SLUMPING SALES VOLUME IS THE BIG TREND:

It’s not a shocker that buyers started to back off the market when mortgage rates shot up earlier in the year. And now that we have a few months of sales under our belt, let’s take a look at actual numbers comparing May to August this year with last year. In short, most areas easily saw 20-30% fewer sales, though the trend isn’t the same everywhere. Keep in mind the numbers can be wonky when there aren’t many sales (so take some areas with a grain of salt).

NOTE: Thank you to those who asked for various areas on my social channels last week. I think I got to mostly everything. I can try to get to a few others in the comments, so don’t be afraid to ask.

SACRAMENTO COUNTY:

A table to show sales volume in Sacramento County between May and August 2021 and the same time period this year (listed by cities and CDPs).

A table with Sacramento County volume changes from May to June 2022 (neighborhoods and a few ZIP codes)

PLACER COUNTY:

A table to show Placer County volume this year compared to last year (May to August)

EL DORADO COUNTY:

A table to show El Dorado County volume last year compared to this year (May to August)

YOLO COUNTY:

A table to show Yolo County sales volume between May to August (last year compared to this year)

WE NEED TIME TO SEE THE TREND:

As time goes by it’ll become more apparent how various price ranges and locations are faring in today’s market. But for now, I hope these stats will at least give a small window into demand, and maybe clues about some different price points. Or maybe they’ll prod us to investigate some areas more.

IS THE MARKET STARTING TO LEVEL OFF?

Since June we’ve seen fewer new listings in the Sacramento area, and that seems to be giving a bit of space for buyers and sellers to adjust to change. It’s as if some stats are starting to go slightly more horizontal lately instead of showing the really sharp change we saw from May to June. In other words, a sharp drop isn’t going to show up in the numbers every single month. For instance, the number of pending contracts has been somewhat flat for the past month or so instead of seeing the same steep May to June decline. Granted, we’re still WAY down from last year, but the May to June rate of change didn’t persist in August. Also, price reductions have been somewhat flat over the past few weeks. I mean, half of actives have had a price drop, so clearly, we have an overpriced market. All I’m saying is it looks like we’re starting to see price reduction growth slowing down or leveling off. Ultimately, we need time to see the trend, so let’s keep watching. Keep in mind that not all stats are leveling off. I’m just saying some of them appear to have flattened. And lastly, if rates shoot up in coming weeks, all bets are off because that could change the dynamic…

Let’s keep watching.

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? Are you seeing any differences in the market depending on price point or location? I’d love to hear your take.

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

The inventory myth & dipping prices

August 15, 2022 By Ryan Lundquist 13 Comments

Let’s talk about two things today. The myth of six months of inventory being normal and dipping prices. I’d love to hear your take in the comments.

A torn piece of paper in front of a wood background. The paper gives the title of today's blog post, which is, "The inventory myth & dipping prices."

UPCOMING (PUBLIC) SPEAKING GIGS:
8/25/22 State of Housing Brunch & Learn (sign up (for real estate community))
9/08/22 SAFE CU “Stats & Mimosas” (sign up (for real estate community))
9/15/22 Market update in Midtown (details TBD)

IS SIX MONTHS OF SUPPLY NORMAL?

Here’s how the conversation goes lately. “Bro, don’t worry about having two months of supply right now because we’re so far from a normal market of five to six months of inventory.” Have you heard that? I’ve seen it a gazillion times on Facebook and Instagram. But here’s the deal. There is NO such thing as a normal six-month supply level that applies in every local market.

LOCATION REALLY MATTERS:

This is one of my favorite visuals from John Burns Real Estate Consulting, and I got it from Rick Palacios Jr.. Check out the red bars, which signify the months of supply needed to see price declines in various areas. Do you see how prices would decline in Orlando with about a six-month supply of homes? And Las Vegas would drop closer to three months, right? But check out Charlotte because it can apparently handle one year or more of supply. In Sacramento, the market is said to have healthy price appreciation under 1.5 months, mixed results between 1.6 to 3.2 months, and price depreciation above 3.3 months.

A bar graph from John Burns Real Estate Consulting to show housing supply in various markets across the country (and where prices would rise, flatten, and decline)

MY TAKE ON THE GRAPH:

I can’t speak for every market here, so I’d love to hear if this lines up with your area. All I know is this visual is more or less in sync with local trends. In short, any time we’ve been too much above three months of supply over the past two decades in Sacramento County (or more or less in the region), we’ve been in a declining market. The trend got really soft also in 2014 and 2018 as we hovered between 2.5 to 3.0 months. Right now, we have 2.14 months of supply in Sacramento County and 2.38 months in the region, and this level is basically in “normal” territory for recent history. For those that say five to six months is the norm in Sacramento, can you imagine doubling inventory? Do you think prices would still be stable? I don’t think so.

UPDATED COMMENTARY ON 9/28/2022:

I wanted to clarify something. The visual above is on point statistically, and I agree with it based on the history of trends. But keep in mind we don’t need to get up to three months of supply to see prices decline. In other words, don’t be rigid or dogmatic about these visuals. We’ve already been seeing a major change in the market despite still having lower supply. Even the image itself says “mixed results” when above 1.6 months. My advice? Believe that.

An important asterisk: Some local counties are okay above three months, so please don’t be dogmatic here. For instance, El Dorado County historically hovers between 3.0 to 3.5 months with no problems.

A line graph to show housing supply in the Sacramento region since 2014 (lower now, but ticking up)

WHY THIS MATTERS (THIS IS NOT A RANT):

I realize my post sounds super petty, but it’s not a rant, and I’m not trying to micromanage what anyone says. Think about it this way. If the real estate community develops a narrative and professional advice based on housing supply being normal at six months, could that lead to some bad local advice or flawed perspective? Yep, I think so.

QUICK CLOSING NUGGETS:

Let’s remember inventory isn’t the same in every ZIP code and price range. Some locations and price points are going to run higher or lower as a normal trend. For instance, El Dorado County and Placer County both tend to have a higher housing supply than Sacramento County. Or the million-dollar market historically has more than five to seven months of inventory easily, but that level of supply for the entire market would be disastrous.

I hope this was helpful. Thanks for being here.

Any thoughts?

—–——– DEEP MARKET UPDATE (PRICES AND VOLUME) ———––

Here are some quick thoughts about home prices and stats for July / August so far. There is so much to talk about.

Scroll quickly or digest slowly.

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.

Let’s look at price trends, but volume first…

DROPPING PENDING VOLUME & SALES VOLUME:

There are many metrics to watch, but dropping pending volume and dropping sales volume is huge right now because it speaks to a massive shift in demand in recent months. In the Sacramento region we saw about 24% fewer pending contracts last month based on Trendgraphix data (and about 30% fewer closed sales). For perspective, there have been about 2,250 fewer closed sales from April through early August in the Sacramento region. This is basically like an entire month of sales not happening this year.

Sharp change won’t show up every month: Keep in mind the sharp drop we’ve seen in recent months won’t continue at the same pace every month. Case-in-point. Pending volume was down about 30% in June and 24% in July (per Trendgraphix). We’ll see where it goes in August once the month is over. I’m just saying we saw a sharp change between May and June, and that sort of intense change isn’t going to be present every single month.

Fewer new listings: We’ve actually been seeing fewer new listings hitting the market over the past couple of months, and it’s possible that dynamic can slow the pace of sharp change too. I’ve observed slightly more multiple offers in recent weeks among pendings, but I’m not writing home over that yet. In short, it’s to be determined what the black line does, so let’s keep watching.

PRICE REDUCTIONS:

About half of all active listings have had a price reduction in the Sacramento region. Here are stats as of two days ago.

WHAT ARE PRICES DOING?

First off, I’m less interested in prices because it’s the last place the trend shows up (I wrote about that here). With that said, prices are dipping right now. This is what normally happens for the season, so it’s not unexpected to see price declines at this time of year. Yet, today we are seeing slightly more pronounced seasonal declines as shown in the images below. Keep in mind the temperature isn’t exactly the same in every single price range and neighborhood either (so save your hate mail). I’m talking about the market as a whole.

Ch-ch-ch-change: We’re living in the midst of change, and we are still toward the beginning of a market that shifted away from the most aggressive two-year stint we’ve seen. It’s like we were on an extended luxury honeymoon and now we’re back home trying to figure out what life looks like. In short, let’s keep watching prices by the week and month to understand what is happening seasonally as well as the bigger picture (up or down market cycle). But like I alluded to above, we have to be careful about focusing too much on prices. In my mind, the bigger issue in today’s market is the homes that aren’t selling rather than the price of homes that are selling. Know what I’m saying?

PRICE GROWTH IS SLOWING:

Instead of being up 15-20% from last year, we’re starting to see stats closer to 6% or so (though each county is different). In a normal year we should see a slight dip for the next couple of months and then a bit of a flat median price trend. Let’s keep watching to see what happens. But there is a little bump sometimes in the fall too as buyers tend to have one last rush on the market before the holidays, so be on the lookout.

PRICES BETWEEN JUNE & JULY:

Here’s some context to help show what normally happens between June and July each year to the median price. Look, the market isn’t always exactly the same between these two months, which is why we want to take a wide view to interpret change today. Basically, the percentage difference today is technically about the same as last year, so be careful about sensationalism based on these stats. However, over the past few months we’ve seen change that is more pronounced (see a few images below).

Some sellers are trying to use Jedi mind tricks instead of proper pricing.

New visuals: I’m still figuring out if I like these next two new visuals, but I’m experimenting to show what price growth looks like throughout the year. These images help show what the median price does from month to month. For instance, the most recent portion of the black line below shows the median price change at -2.3% in July. This percentage represents the change between June and July this year, and it’s clear this is on the lower side of normal (or like I said above, a more pronounced price decline).

Price rhythm: What normally happens to prices during the year? Well, the red line below goes up during the beginning of the year, dips, and then rebounds slightly toward the end of the year. I’ll be adding to this visual as the year unfolds so we can get a sense of price changes today. If you have better ideas for visualizing the market too, I’m open ears.

A line graph to show the percentage price change each month in the Sacramento region

YEAR OVER YEAR STATS:

Annual stats are important to digest, but don’t forget to look at month to month stats. And remember, closed sales in July really tell us what the market used to be like in June when the bulk of these properties got into contract. Also, not every location and price range have the same trend (big point).

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:

Here are lots of visuals. Probably more than you wanted. Enjoy if you wish though, and let me know what you like best.

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.

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.

Questions: What do you think about six months of supply being normal? What are you seeing out there in the market? I’d love to hear your take.

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

Is the housing market getting back to normal?

July 11, 2022 By Ryan Lundquist 18 Comments

“The housing market is getting back to normal.” I hear that quite a bit, but is it true? Well, yes and no. Let me explain.

UPCOMING (PUBLIC) SPEAKING GIGS:
7/15/2022 Lunch & Learn Market Update (sign up (for real estate agents))
7/20/2022 Beer & Stats at Out of Bounds (sign up (for real estate agents))
7/26/2022 Navigating the Shift (sign up here (for real estate community))

THE VERDICT: NORMAL OR NOT?

NORMAL:

Lots of metrics are technically getting closer to normal pre-pandemic levels. We’re seeing price growth at 6-7% instead of 15-20%, monthly supply has ticked up, properties aren’t getting bid up like they used to, and it’s starting to take longer to sell. Technically, many housing metrics are flirting with normalcy. However, there are also some abnormal things happening.

NORMAL (EXAMPLE 1):

Bidding wars have calmed down. What I mean is the number of properties selling below the original list price is starting to approach normal levels. The black dotted line shows July sales so far, and we are pretty close to normal.

NORMAL (EXAMPLE 2):

Finally, properties are starting to take longer to sell. We aren’t back to normal levels quite yet (red line), but we’re getting much closer. This black will be a whole lot higher in coming months.

NOT NORMAL:

A sharp rise in inventory
Sales volume last month was down about 25% from June 2021
Pending contract volume was down over 25% from June 2021
Price reductions have seen a sharp increase

NOT NORMAL (EXAMPLE 1):

Sales volume in Sacramento County had another really low month. It was one of the lowest months in the past twenty years.

NOT NORMAL (EXAMPLE 2):

The number of pending contracts is down in most counties by about 25% or slightly more. The number of pendings at this time of year is clearly below a normal trend (see black line). The future hasn’t happened, so we’ll see what this line does, but we’re poised to see pendings continue to dip in volume unless something happens to interrupt the trend.

CLOSING THOUGHTS:

In short, many metrics are hovering around normal or almost normal levels for the time being, so I can understand when people say the housing market is normalizing or trying to find balance. It’s like we were on a honeymoon for two years, and now it’s real life instead of an endless mai tai vacation vibe.

But here’s the bigger truth. We are in the midst of change due to dropping buyer demand and increasing supply. Simply put, a sharp change in mortgage rates is driving a wider gap between supply and demand, which is changing the housing temperature by the week.

We need time and objectivity to see the long-term trend, but for now it’s apparent we’ve seen a blatant shift from a really aggressive trend to more buyers struggling to afford higher prices. There are certainly still deals happening as 75% of pending volume was present last month and 40% of pendings in July have had multiple offers. But understanding the housing market isn’t just about the deals happening. It’s also about the ones that aren’t happening. Let’s keep an eye on both.

My advice? Be careful not to impose a doom or rosy narrative on the numbers. Also, I recommend paying attention to lots of metrics – not just the ones that fit a certain narrative. The key here is to continue to identify what is normal and what is not normal.

What are you seeing in the trenches? I’d love to hear.

—–——– MORE VISUALS FOR THOSE INTERESTED ———––

I’m maxed out, so I don’t have much time to give commentary to the market, but here are some quick thoughts and stats to unpack June 2022.

A QUICK RISE IN SUPPLY:

We’ve seen a sharp uptick in supply over the past few months. It’s not that so many more sellers have listed their homes. The real culprit is fewer pending contracts, which has caused the pile of available listings to grow exponentially. Monthly supply at 1.74 isn’t historically high, but it’s high enough to help change the feel of the market. Some people say things like, “Bro, five months of supply is normal, so it’s a joke to make a big deal out of less than two months.” I get it, but five months is NOT normal for Sacramento. In short, we are basically at the lower end of a normal range of housing supply right now. With that said, there is still some shock happening where people are freaking out to see so many listings and that it’s taking more than a weekend to sell.

One more thing. We typically start to see fewer listings hit the market around this time of year, so it’s possible the sharp supply uptick could subside slightly due to normal seasonal slowing. But let’s see if we get more FOMO sellers listing their homes (FOMO = Fear of Missing Out). I haven’t noticed a big uptick with these sellers, but it’s on my radar. And most importantly, let’s consider the number of pendings, which has made the most difference thus far.

PRICE REDUCTIONS:

I’m working hard to figure out ways to show price reductions. I hope to roll out some new stuff soon. I actually had big plans today, but that didn’t pan out. For now, here are a few images.

NOTE: There was an error in my bar graph below. My bad. Basically, the stats weren’t sorting correctly, so the categories were off by one bar. In technical terms, this was histogram sin. But the good news is that it’s been corrected. Basically, this means there are fewer properties getting into contract when reducing the list price by less than $10K (but we knew that).

PRICES ARE SOFTENING:

No matter what the metric, prices are softening. This should be happening around the time of year, but the market crested at least one month early this year, so the timeline for softening feels out of the ordinary. Let’s keep watching this. And as I always say, prices are the last place a trend shows up. If we want to see what a market is doing, look to the listings and pendings first before they become closed sales…

YEAR OVER YEAR:

Annual stats are important to digest, but don’t forget to look at month to month stats. And remember, sales in June really tell us what the market used to be like in May when the bulk of these properties got into contract. Also, not every location and price range have the same trend (big point).