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Buckle up for next year’s housing market

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It’s real estate prediction season and I have a few thoughts about the beginning of next year. I’m cautious about predicting because my crystal ball is broken, but it’s a no-brainer to say we’re poised to start next year with heavy competition. 

This image shows three seat belts in a back seat and the caption is, "Buckle up for next year's housing market." The seats are white and the belts are gray.

Big 2022 market update: I’m doing a big market talk at SAR on January 18th from 9-10:30am. Hope to see you there. Sign up here.

Predictions: First off, nobody knows the future, so I take predictions with a grain of salt. If 2020 taught us anything it’s that it’s impossible to predict the future with certainty. With that said it seems most data sources are predicting anywhere from 2-7% home price growth for 2022. So far it seems like the theme is, “The wild stallion market of 2021 will become tamer.” And almost everyone has disclaimers to say what happens with rates and inventory could change the prediction. Calculated Risk has a table with specific predictions.

Zillow didn’t crash the market: By the way, a few weeks ago some people were saying Zillow failing as a flipper would cause the housing market to crash. Well, that didn’t happen. My advice? If you’re listening to anyone who keeps making predictions like this, find people who let data form the narrative instead. By the way, here’s a real estate prophet test I made a few years ago:

This is a flow chart for someone to test if they are a real estate prophet or not.

THE BIG POINT:

Buckle up for next year: No matter what happens throughout 2022 as a whole, we are poised to start January at a really competitive place where the market continues to feel lopsided. The truth is we’ve experienced some normal seasonal slowing this fall, but the market still feels like it’s on steroids as most stats are elevated beyond normal levels. The bottom line is we are going to start the year with anemic supply and strong demand as buyers continue to devour listings (even in the midst of affordability declining). This doesn’t mean the train can keep going forever, but I am saying buckle up at the beginning of 2022 because the market is poised to start ultra-competitive.

Fewer listings since the pandemic: Here is a quick look at the supply problem we’ve been having. New listings are in blue and pendings are in red (since 2018). Do you see what happened in 2020 where we started to have fewer listings hit the market? When the pandemic began sellers pulled back and we just haven’t returned to normal levels yet. Though pending contracts have been strong, which means buyers are devouring what is available.

This line graph shows the number of listings in the Sacramento region since 2017 as well as the number of pendings. Basically new listings are down over the past two years (though pending contracts are fairly normal).

Let’s talk about Omicron: Honestly it’s exhausting hearing about new variants of COVID-19. I am still making healthy choices, I’m boosted, and I’m doing all I can on my end to promote safety. But I’m also fatigued with the non-stop narrative. Anyway, when it comes to real estate this is something we must talk about because we need to get through this pandemic for any hope of normalcy. There is no mistaking we’ve seen fewer listings hit the market in Sacramento since the pandemic began, but this is also happening nationally (see below).

This line graph shows the number of listings in the United States over recent years and there has been a huge dip in 2020 and 2021

Staying in homes: Even when we get through this pandemic eventually part of me wonders if we’re going to have fewer listings due to so many homeowners locking in sub-3% rates as well as a huge focus on remodeling, installing pools, building the perfect backyard, and creating space to work from home. In other words, people have been positioning themselves for financial health and creating a more perfect home to meet their needs. It seems like that gives more incentive to stay put, so we’ll have to watch stats carefully in coming years.

Seriously man, you want more visuals? Here are a few more visuals to get a sense of how listings have changed through the years. The downfall of these images is they only represent a snapshot of the market. Basically each year on December 1st I pulled the number of listings. This is valuable, but the ideal image is the first one above where I show new listings throughout the month. However, even the monthly image shows a dramatic dip in listings these past two years. 

This bar graph shows the number of active listings in the Sacramento region each year from 2015 and it's basically normally to have about 3,500 or more listings, but these past two years we've had about half of that on December 1st.

Weird times: When comparing 2020 and 2021 we’re starting to see more similarity with the number of listings. When 2020 first began it was a drastically different comparison to 2019, but now we’re starting to have similar numbers between 2020 and 2021. In other words, from a stats perspective this is sort of a new pandemic “normal” so to speak. Weird times for sure.

Okay, that’s it for today. Thanks for being here.

Questions: What do you make of the predictions for 2022 so far? What are you seeing out there in the market? 

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Buyers have a bit more power in today’s housing market

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Are buyers finally gaining more power? Yes. The truth is the market is still ultra-competitive, but there is a slightly better chance buyers can get into contract these days and maybe not pay as much above the asking price (maybe).

Big (Free) market update: On September 23rd from 11am-12pm I’m giving a market update for CornerStone Title Company. This is for the real estate community only. Sign up here.

Teaching my favorite class: On September 28th from 9am-12pm I’m teaching my favorite class at SAR called How to Think Like an Appraiser. It’s three hours, which sounds painful, but I love this one because we have space to dig deep into comp selection and adjustments. Sign up here.

BRAND NEW VISUAL:

I’m excited about this visual because it focuses on a dollar amount. I could be wrong, but I don’t think anyone has published this in my area.

FOUR TAKEAWAYS:

1) Freakishly high: Over the past few years buyers on average were NOT paying above the original list price, but that changed this year. In fact, in June buyers paid $25,000+ over the original list price in the region. I know that almost seems low because we’ve been hearing stories about properties selling $200K over asking, but this is the average and it represents over 2,800 sales.

2) An average of $11,211: Last month buyers on average paid $11,211 above the original asking price in the Sacramento region.

3) Fall prediction: In a normal year buyers pay less during the fall and it looks like that’s what we’re heading toward since two months in a row we’ve seen a softening from the height of the seasonal market in June. Ultimately unless something unexpected happens to reverse the seasonal slowing we’re experiencing, we should continue to see buyers on average pay less above the asking price over the next few months. This doesn’t mean it’s not competitive though (see #4).

4) Still not normal: The good news for buyers is the market is slowing for the season, but the harsh news is the trend is still more aggressive than it should be for the time of year. So it’s like the car was going 130 mph and now it’s going 90 mph. It’s still speeding. For instance, buyers paid above the original list price in August even though that’s not common (see above). As I keep saying, the market is showing seasonal slowing, but that doesn’t mean the market is slow. In short, buyers ought to enjoy having just a little more power in today’s marketplace, but it’s important to realize the market is still tilted toward sellers.

MORE VISUALS:

I hope this was helpful. Thanks for being here.

Questions: What are you seeing out there with buyers and sellers? What advice would you give for pricing a property right now?

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Unrealistic sellers & my favorite housing analogy

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I have three things on my mind today. I’d love to share a helpful analogy for today’s housing market, let’s talk about unrealistic seller expectations, and then unpack some fresh stats.

Real Estate Week: Next week I’ll be taking part in a free video interview with The Sacramento Bee to talk about the insanity of today’s market. I’ll be talking shop on the first day on August 23 at 12pm. Sign up here.

THREE THINGS:

1) Speeding and slowing car analogy: The housing market is like a car speeding on the freeway that recently let up on the gas. It’s moving really fast, but it’s also slowing. Both things are true at the same time. I find some people fixate only on slowing or only on moving fast. My advice? Pay attention to both.

I like this word picture because it recognizes the speed of the market and recent seasonal cooling. In my mind fixating on only one of these things is a mistake that can cause misinterpretation of trends. Of course a narrow focus for some might also be due to an agenda.

2) Unrealistic seller expectations: Sellers are by far still in the driver’s seat in today’s market, but it’s a good time to weigh expectations as the temperature of the market has been changing. I’ve been hearing a few disappointed sellers say stuff like this: “We only got two offers and only went $12,000 over asking.” I get it because the expectation was to have thirteen offers and go 15% over the list price. But that’s just not always going to happen. My advice? Price reasonably according to similar listings that are getting into contract and adjust your expectations as the market temperature changes.  

3) Fresh neighborhood stats: This image shows how much buyers paid above the list price in various areas for sales between July and mid-August. In short, as I keep saying, the market is slowing, but that does NOT mean it’s slow. Those are two different things. Keep in mind these are averages, so they don’t perfectly represent each individual escrow. In other words, some properties sold for way more and some for way less.

NOTE: One thing to remember is these stats are based on sales, which tell us more about the past when these properties got into contract in June most likely. The current market is best seen in the listings and pendings.

Thanks for being here.

SHARING POLICY: I welcome you to share some of the images I post 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 of the analogy? What are you hearing from sellers and buyers? I’d love to hear your take.

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When selling way above anything else (Q&A)

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There’s no way it will sell for that much…. But then it did. Today I have an interview with a local real estate agent about a property that recently commanded easily about $100,000 more than it looked like it could have on paper. I hope you enjoy this Q&A with Ted DeFazio and my takeaways below. I’d love to hear your take in the comments. Any thoughts?

Ryan: On paper it looked like this property on Clear Circle was going to sell for way less, right? What do you think happened to get the price so much higher?

Ted: I thought the listing price was optimistic from the start. I even fielded emails from other agents asking how I came up with the price and a couple “good luck, you’ll need it” text messages. I think it was the perfect storm of a turn-key property in a low-inventory market. Added to that, it was a mid century modern (which some thought was bastardized by the previous remodel), had a pool (Bay Area and LA people think they will melt without one), and a somewhat walkable location on the southern end of Carmichael. I know a few buyers who mapped out the distance to Whole Foods and the American River Parkway.

Ryan: I get how agents were texting you “good luck” because based on two previous sales it looks like this one easily closed $100-125K+ above where it theoretically would have been able to.

NOTE: The black dots are the subject property sales through the years compared to yellow dots which are properties of similar size. As you can see the most recent sale at $815,000 looks to have gone well above the historic trend. By the way, the subject was remodeled during each of these sales.

Ryan: Are you seeing buyers pay more for unique properties throughout the market? Or is this just in certain price ranges?

Ted: There is another one that comes to mind in Fair Oaks that recently sold in Curragh Downs. Same situation. Mid century vibes and a cul-de-sac lot backing to a greenbelt. I once again thought the listing price was optimistic but every offer was above asking. The seller purchased the home less than a year ago for over $200K less and didn’t really do much as far as remodeling goes. These were both in the $700-800K range. Another I can think of was recently sold on Garfield in Carmichael. I fielded emails and texts from agents asking where the price came from. I have two others in the $500-600K range which are both in contract at nearly 10% above asking.

Ryan: How do you know if something is an outlier able to break away from the price trend?

Ted: The Clear Circle house, Canonero Ct and Garfield Ave properties all shared the unique architectural design theme. I think that is what truly sets these homes apart giving them the potential to be outliers. Check out Bonny Knoll in Roseville. The seller knew it was an outlier and priced it accordingly. I think that’s the constant. As agents and appraisers, we often think we know better. I responded to an email questioning value by saying: I’m going to let it ride and see what happens.

Ryan: What are you seeing happen with modern and mid-century modern home appeal during the pandemic?

Ted: I think these types of properties command a higher price point than that of the traditional Mediterranean or typical ranch home down the street. The Bay Area and LA types tend to appreciate these design styles more than the average Sacramento resident. With the influx of these buyers, we are seeing premiums added to the more modern properties. So I think it has further added to the delta between typical and unique homes.

Ryan: What sort of advice would you give to buyers right now?

Ted: It’s hard out there. The offers stack up and the sellers get overwhelmed. The common theme I am seeing with the winning offer is the high offer price and a removal of the appraisal contingency. This puts buyers who aren’t flush with cash in a tough spot. I am hearing buyers are thinking that the market is overpriced. I often tell them that I stopped commenting on the market. I thought it was overpriced back in 2016. What do I know? Buying in this market is tough but being able to sell helps neutralize the offset.

Ryan: Any advice for sellers?

Ted: You are in the driver’s seat. If you have considered selling or making a move, there is no time like now. What an opportunity.

Ryan: Anything else to add?

Ted: I am seeing a divergent trend of agents either sharing what the other offers are or not. I find this market as difficult as I have ever seen to be in the buyer’s shoes. Add to it the listing agent not sharing what other offers are on the table makes it even harder to do our jobs. I ask my sellers if they are okay with me sharing the current offer terms with the other agents (as long as there isn’t a NDA) and they are usually okay because they understand that it will most likely get them more money in the end. The shot in the dark offer mentality / situation is aggravating and makes me not even want to submit an offer in certain cases. I have seen some seller instructions added to listings of some brokerages and wonder if they are truly acting in the best interest of the seller.

Ryan: Thanks Ted. I appreciate your time and insight. Everyone, please visit Ted’s website and let us know what you are seeing out there.

NOTE: Once in a while I do a Q&A with a local professional. This is never a paid spot and it’s not done to highlight one person either. It’s only when something has piqued my curiosity and contributes to discussion.

——————— some quick thoughts ———————

QUICK TAKEAWAYS from an appraiser’s perspective:

1) Your opinion vs the market: It doesn’t matter what any of us think about a property. As Ted said above, quite a few people looked at Clear Circle and thought the remodel destroyed the character of the home, but the resale market blatantly favored this property despite what purists thought. There were four offers when priced at $749,000. This is a good reminder in the valuation space to divorce ourselves from personal opinions and focus on one question. What does the market think?

2) The previous sale: Sometimes a previous sale can be really useful because it helps us understand how a property has fit into the market. But in other cases we need to completely throw out a previous sale because the market is simply different today (or maybe the prior sale sold too high or low). This is exactly why we have to be careful to give the current market and current comps the most weight while not getting too hung up on a previous sale (even though at times a previous sale can provide really helpful context). This is especially true today where the higher-end market has come alive throughout the country, so what buyers are willing to pay right now could simply be a detour from buyer behavior a few years ago.

3) The pandemic x-factor: Buyers hunting for homes these days are willing to pay extra for something architectural distinct. Additionally, buyers are paying premiums for homes with stellar views and backyard amenities. The idea is people know what it’s like to spend more time at home now, so they seem more sensitive to location as well as what’s actually in the backyard (including the view).

4) Paying way too much: There are situations today where buyers are obviously paying way above normal. Let me be clear. I’m not saying this sale above represented market value at $815,000. I’m also not saying it didn’t. I’ll let you be the judge. I’m just saying buyers in general throughout the market are paying premiums for special properties right now. But backing up there is no mistaking there are quite a few situations where buyers are obviously paying well beyond a reasonable value and the appraisal rightly should be coming in lower.

5) Sellers, don’t price to an outlier: Sellers, this market feels totally lopsided, but buyers can still sniff out an overpriced home. My advice? Be realistic about your house and DO NOT price according to an outlier example like the one in this post. Remember, not everything is getting 20 offers and bid up $100,000. In fact, only 2.8% of all sales last month had twenty offers or more. This is actually a higher than typical number, but it’s important to realize this figure is nowhere near half the market like some real estate narratives might suggest.

Thanks for being here.

Questions: What are you seeing out there relating to modern homes or other “special” properties? Any stories to share? I’d love to hear your take.

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