This market is just crazy. Today I have two quick things on my mind and then for anyone interested I have lots of visuals to highlight the Sacramento market.
1) This market feels like an auction: The market feels like an auction where buyers are making really aggressive bids with the hope of winning due to being the highest. Throughout the country we are seeing offers in many markets that are totally disconnected from a reasonable value. On that note someone asked if appraisals need to change so buyers have a better chance of getting deals done in this crazy environment. Nope. The appraiser’s role is to reflect the market, which very likely might not be the highest bidder. Don’t get me wrong, there are many things that need changing in the appraisal profession, but it’s not the appraiser’s job to fix an irrational dynamic in today’s market.
2) Do higher rates matter? I’ve heard the sentiment quite a bit that rising rates really don’t matter. The idea is the market is so hot and nothing can cool it. But I feel like the housing market could say, “Hold my beer.”
Here are a few considerations:
A) No difference yet: Higher rates haven’t slowed down buyers. If anything locally the market has become more aggressive. For reference, purchase mortgage applications increased from the previous week nationally.
B) Still too low: Rates around 3% are freakishly low and that’s just not high enough to alter the market. But what about 3.5%? Or 4.0%? Can you imagine a time when higher rates would matter?
C) Watch mortgage applications: The MBA reported a 43% dip in refinance application volume last week, so clearly borrowers have pumped the brakes a bit. The purchase market is up 2% from last year, but it looks like mortgage applications decelerated last week per Freddie Mac economist Len Kiefer.
D) Rosy narratives & sensitive to rate changes: Over the years the real estate market has become very sensitive to rate changes. I think of 2018 when rates shot up closer to 4.5% and buyers backed off the market. Do you remember the headlines about how dark real estate felt? I share this because recent history reminds us rate changes can make a difference in whether buyers engage or not. My advice? Don’t embrace a rosy narrative to think higher rates cannot change things. They can. Maybe not yet. But let’s not downplay how meaningful low rates have been in creating the market we have right now. Know what I’m saying?
NOTE: Props to a conversation with Ann O’Rourke last week that influenced the auction analogy above.
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BIG MARKET UPDATE
For those interested, here’s a big Sacramento market update:
THE SHORT VERSION:
Here is a highlight reel to talk through some of the bigger themes right now. In short, the stats are stunning and this is likely the most competitive market we’ve ever had. Demand is simply excessive while supply is anemic.
I’m thinking about doing these charts every month. Do you like them?
NOTE: I’m not going to do Yolo or El Dorado County charts because there aren’t enough sales. Stats would be ALL over the place year over year.
THE LONGER VERSION (organized by county):
1) Sacramento Region
2) Sacramento County
3) Placer County
4) El Dorado County
I welcome you to share some of these images on your social or in a newsletter. Please use this stuff. In case it helps, here are 5 ways to share my content (not copy verbatim). Thanks.
1) SACRAMENTO REGION:
2) SACRAMENTO COUNTY:
3) PLACER COUNTY:
4) EL DORADO COUNTY:
Other visuals: Not that you needed more, but check out my social media in coming days and weeks for extra visuals. I am posting daily stuff on Facebook, Twitter, and LinkedIn. Oh, and sometimes Instagram.
Thanks for being here.
Questions: What else would you add about my two quick topics above? What stands out to you about the market lately? I’d love to hear your take.