Fed policy

Wait, so rates aren’t going down now?

April 11, 2024 By Ryan Lundquist 8 Comments

It’s been a pretty normal spring season so far, but if mortgage rates keep ticking up, that’s an x-factor in changing the feel of the market. Today, I have a big market update. This post is designed to skim by topic or digest slowly.

UPCOMING SPEAKING GIGS:
4/11/24 Lindsay Carlisle Event (private)
4/25/24 HomeSmart iCare Realty (details TBA)
4/26/24 Prime Real Estate (private)
5/9/24 Empire Home Loans (details TBA)
5/15/24 Investor Meetup (details TBA)
6/6/24 Golden 1 Credit Union (details TBA)
6/11/24 Elk Grove Regional MLS Meeting 8:30am
6/13/24 Sacramento Realtist Association (details TBA)

INFLATION IS HOTTER THAN EXPECTED

Over the past couple of years, there have been so many ideas about what the Fed is going to do with rates. The truth is so many predictions just haven’t panned out, and prophecies keep getting punted down the road. For now, it looks like higher for longer is the name of the game, and that really matters for the economy and housing market. Let’s keep watching this closely and talking about what could happen (while not promising the future). For anyone who works in real estate, plan for the worst and rejoice if something different happens. That’s probably not something you’ll hear at a seminar, but I think it’s solid advice.

HIGHER RATES MAKE A BIG DIFFERENCE

Rates ticked up this week, and we could see the effect of that in closed sales in May. But backing up, closed sales volume in March was lackluster in Sacramento because rates went up in February, some buyers backed off, and that led to a lower number of sales in March after those February pendings closed.

REALLY LOW MARCH

This was the lowest month of March volume since at least 2001. What the? Volume for the year is up from one year ago, but March was lower in almost every single county due to a lower number of pendings in February most likely. The theme for this year is “More in 2024,” and so far for the entire year, we’ve seen more sales, more pendings, and more new listings, but if rates tick up too much, that’s going to interfere with the theme.

NOTE: Someone said volume could be lower due to Leap Year at the end of February and then Good Friday to close out the last business day of March. That’s something to consider, and I guess time will help us see the trend. Yet, pending volume was legit lower in February per my stats and even Redfin stats, so we can’t discount that. Any thoughts?

Here’s one more way to look at volume. Do you see how the March line sagged? In a normal year we should have seen this line rise much more.

PENDINGS ARE WHERE WE SEE THE TREND

We see the trend first in the pendings, but it takes a month or so for pending contracts to turn into closed sales. Do you see how February pendings were lackluster? This week mortgage rates spiked again, and if that persists, we could see fewer properties getting into contract. Of course, only time will tell, but an average of 7.37% today can definitely soften demand.

NOTE: I’m careful to not get swayed by daily rate changes because it can be so manic from one day to the next. All I’m saying is we need to watch this because if we stay closer to 7.3%, that’s going to soften demand.

NEW LISTINGS ARE OUTPACING LAST YEAR

The number of new listings is thankfully higher than last year, but it’s still way down from normal. There has NOT been a flood of new listings like some people think. The number of active listings is still low too.

Here’s another way to look at new listings.

ALMOST NORMAL, BUT NOT QUITE

Here’s an image from a presentation I’m giving today. As you can see, we’re more competitive than normal, but we’re way closer to normal than a year like 2021 (thankfully).

BRO, SUPPLY IS STILL LOW

Supply is still thin – even with more new listings compared to last year. This is a big part of why it still feels competitive out there. We’ve basically seen low supply and low demand meet. That’s a perfect way to describe the trend.

COMPETING WITH FINANCED OFFERS & CASH

The bulk of properties out there are being financed. That’s what the stats show, but I think the narrative at times says it’s all cash. Keep in mind there is more cash at higher price points.

COMPETITIVE, BUT ALSO CLOSER TO NORMAL

Here’s a cool way to look at the market. This percentage tells us how close properties sold compared to their original price. Last month, properties basically sold about 0.7% below the original price on average. This is still more competitive than normal, but so much closer to historic norms though too.

PRICES HAVE GONE UP FOR THE SPRING SO FAR

It’s been a pretty normal spring season so far, and we’re basically seeing all the normal stuff we tend to see with days on market going down, prices going up, more new listings, etc… I’ll have my county images out over the next week, so please see the STATS tab for data for nine counties. For now, here’s a look at the entire region. Keep in mind a 5-7% price metric increase from one year ago doesn’t automatically mean comps today are going to be that much higher. My advice? Look to the comps to understand.

VOLUME COMPARED TO ONE YEAR AGO

Prices are a bit higher this year, so we’re seeing less sales at lower prices this year (and more at higher prices). This is interesting to see because I find some people say things like, “The top of the market is getting destroyed,” when the stats actually don’t support that narrative.

UNEMPLOYMENT HAS TICKED UP

Unemployment is not at alarming levels, but we want to watch the trend. Here’s a look at the unemployment rate in a number of local counties. And I know the second image is a hot mess, but I wanted to show how some smaller counties look on a graph (much more erratic).

FINANCING SINCE 2009

If you wanted to see what buyer financing and cash sales look like since 2009, you’re in luck. Hopefully your life is now complete.

MORE COMPETITIVE THAN DOOM PROPHETS ARE SAYING

Stats show it’s been more competitive than the pre-2020 normal, but not by too much though. It’s nothing like 2021 out there thankfully. Yet, it’s not a walk in the park. I think many people who perpetuate housing doom are actually quite disconnected with how competitive it is right now. In short, the good stuff goes quickly, and getting multiple offers is very common still. But getting 10 offers and going 10% over value is not the dynamic today. Granted, if you are priced 10% too low, you’re going to get bid up most likely. That’s what happens when pricing low.

Anyway, more out on my socials this week. This post is getting too long.

Thanks for being here.

Questions: What are you seeing in the market right now? What are buyers and sellers saying? I’d love to hear your take.

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Chuck Norris eats 8% rates for breakfast

September 27, 2023 By Ryan Lundquist 26 Comments

Travis Kelce, Taylor Swift, and mortgage rates. So much drama this week. Let’s talk about it. Today I have some thoughts about believing the Fed, Chuck Norris, and building a bigger network. This post is all over the place, but hopefully something resonates.

UPCOMING (PUBLIC) SPEAKING GIGS:
9/28/23 Yuba City Big Market Update (in Yuba City (register here))
10/4/23 KW Sac Metro Big Market Update (register here)
10/6/23 How to Think Like an Appraiser at SAR (register here)
10/27/23 AI Fall Conference (San Francisco) (register here)
11/30/23 Safe CU “Preparing for a Successful New Year”

BELIEVE THE FED ABOUT HIGHER FOR LONGER

This isn’t my meme, but I think it’s perfect when talking about the Fed Funds rate (I don’t remember where I saved it from). Look, nobody knows what will happen with rates exactly, but the Fed has been saying higher for longer, so I recommend believing the Fed. My advice? If you work in real estate, plan on low volume, low supply, and higher rates unless something changes the trajectory of the trend. I like the idea of being realistic by planning for the worst and rejoicing if something else happens. The MBA has an optimistic outlook that the 30-year fixed rate will be 6.3% in Q4 2023, and that’s the rosiest projection I’ve seen. Look, I don’t predict rates because almost nobody gets it right, but like body weight, it’s been much easier to go up instead of down, so I’m not quick to embrace this projection. Time will tell.

THE MARKET WILL FIGURE IT OUT

No matter what rates do in coming months, the truth is the market will figure it out. That’s what markets do. Sellers, if buyers continue to lose purchasing power though, it’s time to be quick to listen and adjust accordingly. Purchase applications have been at 1995 levels lately. If you don’t remember 1995, that’s when movies like Toy Story, Braveheart, Billy Madison, and Clueless were out. Sellers, there is a smaller pool of buyers out there, lower the price if you’re not getting offers, and be open to giving buyers concessions if needed. And remember, Chuck Norris eats 8% rates for breakfast, but ordinary buyers aren’t Chuck Norris.

Okay, a few other things on my mind.

IT’S EASY BEING AN EXPERT DURING GOOD TIMES

I’ve been thinking about expertise quite a bit lately. When a market is good, it’s easy to feel like an expert, but real expertise shows up most when things aren’t so good. Know what I’m saying?

STAYING AFLOAT

Scroll to the bottom for some thoughts on building a bigger network and staying afloat in today’s market.

MOVING FAST IF PRICED RIGHT

With so much talk about the housing market slowing, I think it’s important to recognize things have still been moving historically fast in Sacramento at least. It’s just not a 2021 speed. Keep in mind if rates start to spike, we could see a sharp change in days on market and lots of metrics. Remember, we see change first in active listings, mortgage applications, and the sentiment in the trenches of real estate. If we wait for closed sales before spotting a trend, we’re going to be way behind the market.

ALL SHIPS RISE AND FALL WITH THE TIDE

This week I’m speaking in Yuba City, which is a cool opportunity to pull some stats for an area I don’t normally cover. I love the idea of creating visuals that haven’t been seen before and hoping they resonate (fingers crossed). Anyway, Yuba and Sutter County are north of Sacramento, and the price trend is VERY similar (see black and green lines). Data from CAR.

HOLY BATMAN, LOOK AT SAN FRANCISCO

I made this visual a few days back, and it’s stunning to see how close the price trend in San Francisco used to be to California in the early 1990s, but then it pulled so far away. This just goes to show that some areas don’t have the same exact trend (even though all ships tend to rise and fall with the tide).

And some local counties with California.

Okay, other stuff on my mind.

GROW YOUR NETWORK TO STAY AFLOAT

In my talks lately I’m sharing stats of course, but I’m also talking about the importance of increasing the size of your network. This is something I work hard at personally, and every day I push out perspective on purpose in order to be a resource and build relationships with people. Anyway, in light of volume contracting so heavily this past year, it’s vital to cultivate a bigger network to sustain business since we’re in a market with less movement.

Some questions to brainstorm:

– How do you plan to increase the size of your network this year?
– Who do you need to get to know?
– Who are the gatekeepers to the types of work you want to do?
– Who do you need to get in front of this week?
– How do you need to diversify?
– What do people need from you right now?
– How are you going to build good relationships and show up for people in today’s market?

APPRAISER COLLEAGUES

I know it’s been tough on many appraisers lately, and there is no sugarcoating that. I only do private work, so if you ever have questions, please reach out. Earlier this year, I did a free webinar thingy on Zoom to talk about private work, and I’d be open to that again if there is demand. I just can’t pull that off this month, but November could work. I’m starting to get the itch to bring some colleagues together, so let me know if you’d be interested.

Thanks for being here. I hope this was helpful.

Questions: What do you think of Taylor and Travis? Or what about anything I talked about in the post? I’d love to hear your take.

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

Dear Sellers, the housing market misses you

August 2, 2023 By Ryan Lundquist 21 Comments

Sellers have been sitting, and it’s been a game-changer for the housing market in 2023. It’s also made valuations more difficult. Today I want to share some stats and talk about appraising in today’s market. Scroll by topic or digest slowly.

UPCOMING (PUBLIC) SPEAKING GIGS:
8/18/23 Details TBD
8/29/23 Elk Grove Regional MLS Meeting
10/4/23 KW Sac Metro Big Market Update (register here)
10/23 SAR Think Like an Appraiser (TBD)
10/26/23 Orangevale MLS Meeting

WHY ARE SELLERS MISSING?

The math is tough right now. It just doesn’t work for many households to afford a replacement home. So many would-be sellers have a low mortgage payment, and trading for a higher payment isn’t in the cards at the moment. Even my own mortgage would be at least $1,500 more PER MONTH at 7%. Also, many homeowners remodeled in recent years, so some people are staying put since they have the house they want.

7,000 FEWER NEW LISTINGS IN 2023

We’ve seen about seven thousand fewer new listings hit the market in 2023 in the Sacramento region compared to last year, and over ten thousand fewer from the pre-2020 normal. By the end of the year, we could pretty easily be missing about 10,000 new listings from last year. New listings are basically down 35% from last year, and about 44% from the pre-2020 normal. I saw a friend share this image yesterday, and he said, “If you wondered why it’s been hard to work in real estate lately…”

NOT MUCH HOPE FOR NEW LISTINGS

I’m an optimist in life, but there isn’t much hope to see the trend change for new listings for the rest of the year unless there is a change with affordability, economic pain, or some other mechanism we’re not thinking of. Right now, we are simply in a holding pattern. This is our new normal for now. Expect low volume and low listings. It won’t always be like this, but we are stuck for now.

WHO IS LISTING?

There have been over 13,000 single family detached units listed in the Sacramento region this year, so it’s false to say, “Bro, nobody is listing. Everyone is sitting out.” It’s difficult to parse the exact reasons why all of these sellers listed, and it’s not just one thing either. But there are many situations where heirs have inherited a home, the owner is leaving the state, or the couple is getting divorced. There are many other reasons too, but these categories have been dominant as I talk with the real estate community. These groups all have strong incentive to list despite affordability challenges. Lifestyle is simply colliding with the market, so it’s time to make real estate decisions.

This is from a presentation I gave last week. My advice? Consider all the reasons why people might buy and sell today.

MISSING SELLERS WAS A THING BEFORE 2023

My observation is ever since rates hit 3% in 2020, we started to see fewer new listings in Sacramento. The blue line represents quarterly new listings over the past decade, and when rates hit closer to three percent, we started seeing fewer new listings. And it’s been a new crazy low level in 2023.

NOT MUCH SELECTION FOR BUYERS

This graph only shows one day of the year, but I like it. This is a look at active listings on August 1st every year since 2015. The monthly trend actually looks really similar (email me if you want to see that). In short, there aren’t many options out there for buyers right now since the number of active listings is sparse. Yet, to be fair, there aren’t as many buyers either. Keep in mind active listing is not the same thing as new listings (two different stats).

This market is strange in that we’ve seen low supply meet low demand. It’s 2007 volume vibes, but it’s felt like 2020 in terms of competition. And I know, I’m probably at the end of being able to share Barbenheimer memes. Trends change quickly, right?

IT’S TOUGH TO VALUE PROPERTIES TODAY

One of the challenges today is valuing properties in the midst of seeing fewer listings and sales. This means there aren’t as many data points to understand value. As I talk with appraiser colleagues and real estate agents, I’m hearing this sentiment quite a bit. And I feel it myself. I’m finding I have to spend so much more time pulling comps. Not only am I studying the immediate neighborhood, but I’m spending more time in surrounding neighborhoods. It’s not that I would never look at other neighborhoods before, but there just isn’t much data today, so looking to nearby neighborhoods is helpful to understand the trend AND how nearby areas might sell for higher or lower amounts. What’s going on with pendings? What’s happening with actives? What can I discern from recent sales compared to older sales? What does it look like prices are doing? I haven’t altered the way I pull comps, but there just hasn’t been much to work with lately in some neighborhoods, so I’m noticing a real need to spend more time dissecting nearby neighborhoods and considering those properties as comparables sometimes.

WHY ARE APPRAISERS USING OLDER SALES?

I’ve heard critique about appraisers using older sales lately, but there aren’t many newer sales to use. In valuation we can either go out further in distance for comps or go back in time in the immediate neighborhood. For a balanced view of things, why not do both? No matter what, let’s not hastily pull newer sales from further away without understanding if the other location is selling for higher or lower. Anyway, I don’t mind going back in time and out further, but my preference in an appraisal report is to use older comps from the immediate neighborhood and adjust for how the market has changed since those properties got into contract. Of course, if a lender asks an appraiser for newer comps, then obviously going outside the neighborhood could be the only option.

WHEN DID IT GET INTO CONTRACT?

Do you see the circles below, and how prices are similar to today? The wild part about the market right now is there are some much older comps that don’t need any adjustments because the market might be at the same level today. Keep in mind all neighborhoods don’t follow a county or regional trend rigidly, so it would be dangerous to look at this image and impose the trend on every neighborhood and price range. I’m just using this as an example, but I am saying I see this dynamic in neighborhoods when pulling comps lately. One of the ways I see price change over time is to make graphs. I use the “scatter graph template” in particular for neighborhoods. There are many ways to do this, but seeing the market visually is really helpful for me.

ADVICE FOR REAL ESTATE PROFESSIONALS

My advice to real estate professionals right now is to buckle up, have realistic expectations about low volume, cut expenses, put people first, and focus heavily on those who have incentive to buy and sell due to lifestyle changes. Moving up, moving down, inheriting a property, having a change in family status, buying a first home, etc… We are poised to continue to see low volume until it becomes more affordable for buyers and sellers. The truth is affordability isn’t just something that buyers need. Sellers also need to be able to afford the resale market.

Thanks for being here.

Questions: What stands out to you about the stats? Has it been a bidding war or crickets for you lately? I’d love to hear your take.

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Chuck Norris eats 7% mortgage rates for breakfast

September 27, 2022 By Ryan Lundquist 13 Comments

Housing trends are changing by the week, and it’s time to start believing the Fed when they talk about resetting the housing market. Let’s chat about this today, and I’d love to hear your take in the comments.

UPCOMING (PUBLIC) SPEAKING GIGS:
10/07/22 Market update with SAR (9am-10:15am Sign up here)
10/13/22 Market update in Midtown (12-2pm Sign up here)
10/20/22 How to Think Like an Appraiser (9am-12pm) (Sign up here)

THREE THINGS ON MY MIND:

1) These rates don’t phase Chuck Norris (but we’re not Chuck Norris):

Sorry to state the obvious, but quick rate changes are poised to take more demand out of the market. This doesn’t bother Chuck Norris one bit because the man eats 7% mortgages rates for breakfast. But this is a massive deal for buyers in today’s market who are trying to afford a house.

A picture of Chuck Norris holding two uzis with the caption, "7% mortgage rates don't phase Chuck Norris."

The Redfin image shows the monthly mortgage payment on the national level is about 45% higher this year than last year. Yikes. It’s a good thing wages also rose by 45% (sarcasm). Seriously though, if buyers are paying about $750 more per month compared to last year, that’s a tough pill to swallow that’s going to lead to fewer buyers being able to play the game.

A line graph from Redfin to show the change in monthly mortgage payments this year compared to previous years

This visual from Mortgage News Daily shows another spike in mortgage rates over the past month. Keep in mind it’s going to take a number of months before we completely see the effect of higher rates in data for closed sales, but we should see it soon in things like price reductions, days on market, open house traffic, and stories from the trenches. Also, mortgage brokers may be able to offer a lower rate, so check in with your local professional.

A visual to show mortgage rates from January 2018 to September 2022. Rates basically went down to record lows and then shot way up

2) Believe the Fed about wanting a housing market correction:

Look, it’s time to start believing the Fed about wanting to see the housing market reset. I don’t say this as a housing bear (really), but Fed Chairman Jerome Powell was blatant last week about a correction. It’s as if the housing market is the sacrificial lamb on the altar of Fed strategy to curb inflation. My advice? Start believing the Fed about their intent to change the housing market. The Jerome Powell quote below is from Lance Lambert on Twitter (highlights are mine).

A paragraph from Jerome Powell on what he means by wanting to see a housing reset (quote from last week's Fed meeting)

3) The housing market will figure it out:

All that said, the market will figure this out. The truth is the housing market will adjust and adapt as needed because that’s what markets do. If rates continue to rise, we should expect to see fewer buyers able to participate, and the need for sharper price declines to meet buyers closer to what they can afford today. Bottom line. But remember, not everyone has the same story in housing. I find some expect for every single buyer to back off the market, but some buyers’ lifestyle and finances are going to collide with market conditions right now. In other words, there isn’t just one narrative that perfectly represents every single buyer and seller today. I don’t say this to gloss over blatant changes to affordability. I’m just saying the market isn’t the same for everyone.

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 today? Any thoughts about Fed policy? Also, do you think there is another inflection point for rates (like we saw when rates went above 5%)?

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

Fed policy

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