home prices

Hot graph summer & Airbnb doom

June 28, 2023 By Ryan Lundquist 21 Comments

Let’s talk about housing doom. Particularly, I want to get into the viral idea about the demise of the Airbnb market. But first, I have a few visuals to kick off hot graph summer (sorry). I’d love to hear your take in the comments.

A meme I shared this week as I talked about the concept of a forever home. It’s a forever home until it’s not… This meme was born from conversation around the topic. Too real at the moment…

UPCOMING (PUBLIC) SPEAKING GIGS:
6/30/23 Halftime report with Ben Johnston 10am (Zoom)
7/20/23 SAR Market Update (in-person & livestream)
7/26/23 Fair Mortgage (details TBD)
8/18/23 Details TBD
10/23 SAR Think Like an Appraiser (TBD)

HOT GRAPH SUMMER

I’m excited to track stats this summer. The market has been a wild ride lately. Here are a few new visuals and thoughts in my brain right now. Or scroll down if you want some juicy Airbnb thoughts instead.

PRICES MEETING LATER IN THE YEAR FOR COFFEE

If we have a normal seasonal slowing ahead, it’s possible we could see the median price for 2023 meet up with 2022 and 2021 levels in the fall. Time will tell, so I’ll keep reporting on the black line. If this does occur, it will show 0% price change from the year before. I can hear it now, “Bro, the market is back. Prices are the same as last year.” However, this will NOT mean we are back to peak prices from May 2022 (gray line). It will simply mean prices in October 2023 are the same as October 2022. The market is in a weird place right now and anything can happen ahead, but a drop like the second half of 2022 seems unlikely unless something really alters the trend.

And a California visual in case that’s your thing. This one does not have preliminary data for June (dotted line).

HOW IS VOLUME REALLY DOING?

Here’s a new visual to help show what’s happening with volume in the Sacramento region. I know this is a hot mess, but I think it packs a punch. The orange line is sales volume in 2023, the black line is sales volume in 2022, and the green line is the pre-pandemic average (2016 to 2019). The percentages here show the difference between the past year and pre-pandemic monthly volume. This gives us a baseline for “normal” so to speak. The problem is comparing volume today to last year gets awkward since last year was starting to be lower. Ultimately, a visual like this gives us more context.

AIRBNB DOOM THOUGHTS

There’s a prominent narrative on social media about the Airbnb market imploding. In fact, this week there was a viral tweet from Nick Gerli about a massive drop in Airbnb income in various markets. This guy is pretty much the chief of the housing doom prophets. He has built a massive following. Today I want to talk about some of his thoughts. This isn’t about throwing shade or real estate gossip, but interacting with ideas that are becoming a part of the housing narrative. This is REALLY important to talk about.

THE DATA NEEDS TO BE QUESTIONED

One of the struggles with short-term rental data is it’s not easy to get unless you pay for the information. My sense is the Airbnb crash narrative sometimes relies on individual stories like, “My sister’s boyfriend’s uncle can’t find renters any longer, so the market is collapsing.” All I’m saying is it can be difficult to fact check the trend in light of a lack of publicly available information. However, here is some analysis from a different data source that some would call the definitive source for short-term rental data. As can be seen, there is a massive difference between the viral doom tweet and what AirDNA’s Chief Economist is saying. Anecdotally, the stories I’m hearing from Airbnb investors in Sacramento are lining up so far with the image below. There has been a hit to income for sure from last year, but it’s not 40%.

THE PREMISE IS OFF

The viral tweet goes on to talk about how scary it is for the United States housing market to have nearly one million Airbnb / VRBO rentals. The idea is it could be a big problem that there are nearly one million short-term rentals compared to only 570,000 homes for sale right now. Look, we need to pay attention to the short-term rental trend, and I expect for this submarket to take a hit if the economy sours. Bottom line. But it also feels a bit awkward to compare the number of short-term rental units with total active listings because the juxtaposition leads to sensationalism. Keep in mind if there was an Airbnb issue, these units would NOT all list at once. I recall Nick Gerli saying it could be a problem when Zillow failed as an iBuyer because those listings would flood the market. Yet, it wasn’t a problem and these listings didn’t hit at once either. Remember, many investors don’t just have one option. Economic pain or a change in short-term rental laws could lead to carnage, but some investors could still rent monthly instead of selling. Ironically, wouldn’t it be great to see some of these listings hit the market? We are starving for more.

By the way, if you really want to make a sensational graph, just tell people the housing market could crash if all investors listed their units. In California it’s said about 44% of all residents rent, which means we have a massive number of rentals. Imagine how a graph like that would look with the number of investor-owned properties compared to current active listings.

JUMPING FROM TOPIC TO TOPIC

A few months ago, I recall this same person talking about the problem of vacant houses in the United States, and how that could crash the market. Look, I don’t have an edge against this guy (really), but at some point, we have to question credibility if he keeps repackaging crash predictions like this. And on a serious note, nobody should be turning a blind eye to the struggle of affordability, inflated home prices, or potential red flags in the future. Ultimately, there is value in discussing topics, but it’s best done with objectivity rather than a paradigm that’s starved to invent new ways to say the sky is falling.

MARKETS GO UP AND DOWN

I’ve been writing for years about how normal it is for markets to go up and down. Housing markets are like my waist line. The numbers are constantly changing. Haha. In truth, prices don’t stay the same. On that note, a critique of a rosy real estate narrative is that things aren’t always super positive and glowing. That’s why I reject the rosy side of real estate too (I’m on team stats).

DOOM STARTER KIT LEXICON

If I were selling a doom lexicon starter kit, I’d include phrases like, “just wait,” “It’s coming,” and “It’s going to be delicious.” I can’t tell you how many times I’ve heard these things on Twitter especially. It’s like people are hungry for a crash, and that’s all they can see and talk about. Or maybe that’s just an image they’re projecting. I really don’t know.

GETTING RICH ON FEAR

The doom narrative has an obsession with fear, and the biggest voices are often earning serious money by sucking people into the narrative. Sometimes I wonder about mindset. Like, do they really believe what they’re saying? Is it just a social media persona to earn money? Or is it a big game?

ROOM FOR DIFFERENT OPINIONS

It’s okay if you think the market is going to implode. And it’s okay if you think prices are only going to rise. We should listen to data and let the stats form our narrative. I respect people on both sides of the aisle, though the truth is often found in the middle on so many issues. Yet, I don’t respect it when someone imposes a narrative on the stats. No thanks.

DOOM & MENTAL HEALTH

First, everyone is responsible for their own mental health, and we cannot blame other people for the way we think and feel. But I want to challenge those who perpetuate housing doom online because there are many people listening who might walk away thinking there is no hope in life, everything is going to collapse, all is lost, and there is only death and destruction ahead.

I talked with someone last year who was struggling with suicidal thoughts when the housing market saw a major shift. The sharp loss in value was a massive issue for this person. Look, this guy needed to talk to someone and work through some issues, and I tried to help. It certainly wasn’t the doom narrative’s fault here either, and I’m not implying that at all, so save your hate mail. However, listening to some doom voices on social media was taking a real toll on this guy’s mental health, so words and narratives do matter. If all people hear is, “We’re going crash hard,” it’s bound to have an effect.

Do you know what I rarely hear from anyone pushing out doom? Things like take care of yourself, step back if this is too much, or there are deals to be had in real estate in any market. Just in case you needed a reminder, it’s possible to have joy even in difficult economic times. It’s possible to be successful in real estate no matter what the market is doing. You are not your paycheck. You are not your Zestimate. Good markets don’t last forever, and neither do the bad ones.

In closing, take care of yourself. Cultivate peace in your life. When it comes to real estate data, listen to voices spewing objectivity rather than fear. And stop following real estate so closely if it’s too much for you (including my blog).

I hope this was helpful.

Questions: What do you think about the Airbnb market? What has been your experience with the doom or rosy perspective in real estate?

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Looking out for two housing market bottoms

February 14, 2023 By Ryan Lundquist 20 Comments

There is so much talk about the housing market bottoming out, and I want to give some perspective on what to watch for. I hope this helps.

UPCOMING (PUBLIC) SPEAKING GIGS:
3/06/23 Matt the Mortgage Guy YouTube Live 3pm PST
3/09/23 Matt Gouge Event TBD
3/10/23 PCAR Market Update Lunch & Learn
3/28/23 Downtown Regional MLS meeting
4/1/23 NAA Conference in Sacramento

WATCH FOR TWO DIFFERENT BOTTOMS:

The previous housing downturn had two different bottoms. There was a bottom for sales volume and a bottom for prices. Can you see that on the visual below? The concept of two bottoms comes from Bill McBride of Calculated Risk, though he talked about watching for a bottom in new home sales and a bottom for residential investment. For local markets, I recommend watching for a price and volume bottom (may not happen at the same time).

VOLUME GOT TO A BOTTOM FIRST

It took just over two years for volume to reach a bottom after the peak in 2005, but it took another fourteen months after the volume bottom for the price decline to slow way down in Sacramento County. Technically, prices declined for multiple years after volume hit its low point, but it was only modest after 2009, which is why I said “near price bottom.” Keep in mind there was a federal buyer tax credit introduced in 2009 that supercharged the housing market and basically helped slow the decline at the time.

VOLUME WILL IMPROVE AS AFFORDABILITY GETS BETTER:

According to the California Association of Realtors, 28% of households can afford a median-priced home in Sacramento County. In light of this, it’s not a shocker to still see subdued sales volume (missing about 40% of buyers). The truth is we will get more buyers back as affordability improves.

Here are a few other local counties. The trend is basically the same, which reminds us all ships tend to rise and fall with the tide.

HANG IN THERE REAL ESTATE FRIENDS

Some quick thoughts and encouragement for real estate friends. I’ve been having so many conversations lately behind the scenes with people who are having a hard time in this market. I just wanted to say you are not alone. And you can’t control the market, but you CAN control your mindset.

CLOSING THOUGHTS:

We are in the midst of the spring market heating up right now, but we need time beyond spring to understand the longer-term housing trend (thanks Captain Obvious). Everyone has ideas about the future, but let’s be cautious about interpreting spring seasonality as a bottom. Time will tell. Let’s keep watching by the week.

RECAP VISUALS:

The truth is year-over-year stats don’t tell the full story of the market right now. Someone might say, “No biggie, we’re down 5% from last year.” That’s technically true, but it fails to recognize that five percent from one year ago is NOT the same thing as five percent from the height of spring in 2022.

YEAR-OVER-YEAR

MONTH-TO-MONTH

I hope this was helpful.

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

Questions: Do you think the housing market has bottomed out? What are you seeing right now in the trenches of escrow? I’d love to hear your take.

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Chasing the ball down the road in real estate

September 14, 2022 By Ryan Lundquist 24 Comments

Sellers have been chasing the ball down the road. What I mean is prices have been going down lately, and sellers are trying to find the market through price reductions. I can’t speak for the entire country, but I’d like to talk about what’s happening locally. I’m not writing as a housing bull or bear either, but as a stats guy with the goal of objectivity. Anyway, some thoughts.

A meme to show a guerilla on a bike chasing a girl. The caption reads, "sellers chasing prices."

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

Expecting to pay less: Before getting to any stats, I wanted to mention that most people I talk to right now are aware that prices have been dipping. Well, besides some unrealistic sellers right now… Haha. Just yesterday I talked with two homeowners who spoke about prices softening as if it was common knowledge. Or someone called a few weeks ago wanting an appraisal very quickly for PMI removal to lock in a higher value before prices dipped. Have you seen offers from Opendoor in the mail lately? They are definitely lower. And let’s not forget actual market stats, which I’ll get to below.

Here is a visual from Len Kiefer to get at what I’m saying. There is an expectation of softer prices ahead. We’ll see what happens of course, but we want to pay attention to the psyche of buyers and sellers right now.

A visual from Len Kiefer to show price growth expectations subsiding

The median price is down 7% so far: The median price has gone down about 7% since May in the Sacramento region and Sacramento County. This is a much bigger change than usual for the time of year since the median price in August is usually down about 2% or so from the height of spring. This isn’t really a shocker though because we saw such a dramatic change with mortgage rates. In short, a sharp change in rates is causing a sharp change in the stats (including prices). But to be fair, this year is a bit awkward since prices crested one month early in May (usually prices peak in June). This means we have one extra month of declines to pad into the stats.

A line chart to show the median by the month from January to December in the Sacramento from 2016 onward.

Seasonal decline or new downward cycle: Is this only a seasonal decline, or is it something bigger? Look, the truth is we need time to see the trend and understand it. For now, we’ve clearly experienced a huge contraction where about 25% of buyers have stepped back from the market. Moreover, we’ve seen sharp price declines for the time of year, so at the least we are in the midst of heightened seasonal declines. Could it be more? Yes. But we need time to understand how the market is going to go. I realize this is frustrating for some people to hear, but let’s remember the future hasn’t happened yet. For now, we are living in the midst of change and uncertainty. Here is something I wrote six months ago to talk about price cycles in case it’s useful.

There is still competition: The market is completely different than it was earlier in the year, but there is still competition. In fact, 25% of sales sold above the original list price last month and 43% of sales in August had more than one offer. These stats are lower than normal actually, but I wanted to mention this because sometimes we hear about softening prices and think literally everything is tanking and selling at a severe discount. It’s a mistake to impose a doom narrative on the market. Remember, there are many stories in real estate, and the story isn’t the same for every seller, buyer, or escrow. In case it’s helpful, here is advice for buyers and sellers in today’s market.

Affordability: The market has taken a beating with affordability, so there are fewer buyers able to play the game right now. There is no such thing as rates doubling and prices remaining the same. The math just doesn’t work. Check out this Redfin visual to show mortgage payments being 37% higher than last year at the same time (or about $600 more PER MONTH).

A line graph to show the monthly mortgage payment

Here are some affordability images I put together for local counties. In Sacramento County, 27% of households can afford a median-priced home. These images are based on CAR stats.

Appraisers saying “stable” or “declining” in reports: Appraisal forms ask appraisers to select a box to describe what prices are doing. Are they declining, stable, or increasing? I suspect these days we’ll have a mixture of some appraisers saying “declining” and others selecting “stable.” Honestly, at this moment in time I care way more about whether market change is accounted for when looking at the comps than I do about a box. In other words, I can see some appraisers checking “stable” since we are living in the midst of change and not certain yet about whether this is an inflamed seasonal trend or the start of a downward trend. However, I have a massive problem if appraisers right now are not adjusting comps down since we’ve seen clear price declines over the past few months. Again, I’m not talking about every market, so save your hate mail. But many markets across the country have seen more inflamed seasonal declines, which means some older sales need a negative adjustment since value is lower right now.

Commentary from an appraisal: Here is a bit of commentary in one of my recent appraisal reports. This is only part of what I say because I’m a man who needs a few paragraphs. One box just isn’t enough.

“At the least we ought to describe the market as showing a downward seasonal shift, though it’s possible we can call this a downward cycle if the trend persists over time. For now, it is most reasonable to categorize the market as having growing uncertainty and blatantly inflamed downward seasonal price declines compared to a normal seasonal trend. At the least, properties are clearly selling for less than they did several months ago. The regional median price has ticked down about 7% since May, which is $45,000. This doesn’t mean every property is worth $45,000 less, but it’s been clear buyers have been resisting paying higher prices.”

One last note about home size: Keep in mind some of the price change lately has to do with smaller homes selling. I know the visual below is chaotic, but check out the dark blue line, which represents the average monthly square footage. Normally the size of homes peaks during May or June, and then we see smaller homes sell for the rest of the year. Can you see how when the dark line goes down, the lighter blue lines also go down (average sales price)? This is a good reminder that price change is also about what is being sold. And for the record, I’m not saying the median price is down by 7% due to size. I’m just saying some of the change lately has to do with smaller homes rather than only the market.

A bar chart to show the average sales price in the Sacramento region. There is also a line that shows the average home size each month. The line basically shows there is a rhythm to the market in that larger homes sell in the spring and smaller homes sell for the remainer of the year.

Okay, one last thing about size: During the beginning of the pandemic there was a blatant spike in home size due to a greater focus on larger homes at higher prices. This spike basically peaked one year ago as size has started to normalize. Now let’s keep watching to see what happens to size. Will we see smaller homes more often as first-time buyers flood the market? Will we see fewer sales at the highest prices? To be determined.

Closing thoughts: The market is always moving, and we are in the midst of change right now. Let’s keep watching the trend and being objective about the stats. It’s really easy today to get sucked into sensational narratives, so my advice is to stay grounded in the stats. And for my real estate friends, keep finding the players of the market. Who has incentive to buy, sell, and invest in today’s market? The key is to identify those people and support their goals.

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 happen with prices?

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Don’t get stuck on home prices…

May 2, 2022 By Ryan Lundquist 7 Comments

What are prices doing? That’s always the question, and I get it. But there are bigger fish to fry to understand what the housing market is doing.

Market webinar: On Thursday May 19th at 10am I’ll be doing a deep market update webinar through SAR to talk about the latest trends. We’ll have an hour, so we can go over a ton of stuff. Sign up here.

A shift: Over the past few weeks there has been a shift in demand, which is why this conversation is so important. This isn’t about doom and gloom. I’m just saying we need to look at other things besides prices.

The last time: Let’s look at what happened when the market changed in 2005. There’s some helpful insight here, even though what happened last time isn’t the new template for every future correction.

WHY PRICES ARE THE LAST PLACE TO LOOK

Not that much different: The real estate bubble burst in Sacramento County in August 2005, but prices were only down 4-6% during that first year. When thinking of a pop, that doesn’t sound like much, right?

TWO THINGS TO WATCH INSTEAD:

The real story was volume: Prices saw a modest dip, but sales volume was imploding. There was a 43% change in the number of sales between August 2005 and August 2006. Some could’ve said, “Meh, prices are only down slightly,” but the glaring issue was nine hundred fewer sales in August 2006 compared to August 2005.

The real story was supply: Prices dipped slightly, but housing supply increased by 207% in the background. In other words, housing inventory went from 2.6 months to 8.0 months the next summer. And this helped set the stage for a massive collapse in 2007.

THE BIG POINT:

Prices were about the last place to look to understand the trend at the time. The real story was seen when looking at listings and volume.

What to watch: If you want to see what the housing market is doing, I suggest giving strong attention to the number of listings, the number of weekly pending contracts, and the number of sales. There are many other things to watch, but are buyers willing to continue to play the market? That’s the big question, and we’ll see the answer in volume before prices. Of course, if you want to sound suave on date night, watch other things like price reductions, the number of offers, days on market, etc… I’m talking through lots of these things every week. If you’re not local, check out the Redfin Data Center for weekly stats.

Whatever you do, don’t get stuck on prices alone.

Getting buyers to walk: As I said last week, price growth slowed in April compared to truly exuberant gains between January and March. Today we are seeing slow traffic in general at open houses, more price reductions, and buyers having an easier time getting offers accepted (not always). This really happened quickly too over the past few weeks. Overall, buyers are far more sensitive to price, condition, and location, which means sellers need to be open to negotiation. I’ve heard a few examples of buyers walking after sellers said, “Yo, Bestie, thanks for the offer. Now give me $25K more and remove the appraisal contingency.” That might have worked in January, but this is May. It’s a different market today. I’m also hearing more examples of, “We priced it right, but we aren’t getting any action yet.”

Embracing stats: The other day someone wasn’t happy because I wouldn’t call this dynamic the start of a market correction, but the truth is we need time and stats to understand the longer-term trend. This is not me sugarcoating. This is me being objective. Let’s keep watching the numbers (by the week) and letting the stats form our narrative.

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 in this post? What did I miss? I’d love to hear your take.

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

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