housing shortage

Do you smell that? It’s price growth. The market is rising, which is normal for January. But this year it feels extra aggressive. Let’s talk about it.

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UPCOMING PUBLIC SPEAKING GIGS:

• 2/9/2022 Yolo Assn of Realtors market update (details)
• 2/18/2022 WCR El Dorado market update (details)
• 2/25/2022 Placer Assn of Realtors market update (details)
• 3/15/2022 NARPM Luncheon (TBD)
• 3/22/2022 SAFE Credit Union market update (TBD)
• 4/28/2022 SAR Think Like an Appraiser (TBD)

A MARKET OF TEARS:

This conversation struck me yesterday and I think Erin’s tweet highlights just how lopsided the market feels. Anyone have a similar story?

How crazy is it that we’re in a market like this? I just talked with someone else yesterday about a buyer crying when she found out her offer was accepted. It shouldn’t be this difficult to buy shelter, right?

THE MARKET IS HERE, BUT THE STATS AREN’T

In a normal year home prices hit bottom in January (black bars), but it’s important to remember sales in January actually reflect homes that got into contract in December. So, if anything, January sales tell us what the market used to be like in December. In today’s market the best way to see the trend is to look at the pendings. After all, today’s pending contracts become tomorrow’s sales. Next month we are poised to see February show a price increase because that’s what normally happens (see graph).

WE DON’T HAVE TO WAIT FOR SALES…

The truth is we don’t have to wait for closed sales before saying the market is showing price increases. If we look carefully enough at things like pending contracts in the neighborhood, multiple offers, days on market, anemic supply, less credits being offered to buyers, feedback from the real estate community, the number of price reductions, etc… we can see upward price pressure and figure out how to quantify it.

This is why it’s critical for appraisers to give market conditions adjustments to the sales if the market is rising. In a deficient appraisal we tend to see a lack of adjustments given to account for a rising market. I don’t say this to pressure any colleagues into making adjustments or “hitting the number.” I’m just saying when I saw an appraisal yesterday where a comp from eleven months ago wasn’t adjusted up, that doesn’t smell reasonable (this was in Oak Park, which I talked about last week). I’m not saying every contract price should “meet value” so to speak either because some properties are getting into contract at a totally unreasonable level. Anyway, this could be a long post and maybe I’ll write more about this if enough people want it.

WEEKLY PRICE GROWTH

Here is a look at price growth by the week so far in January 2022 (black line). Right now we are looking very normal and I expect to see this line going up in coming weeks and months.

RUNNING DUE TO RATES:

It’s normal for the market to heat up in January, but this year it’s scalding hot as buyers seem to be running to the market to get in before rates rise. This type of “get in before it’s too late” dynamic cannot keep up forever, but for now it’s the reality. I’ll be watching mortgage applications, pending contracts, and sales volume closely to help gauge demand. Anyway, what effect are you seeing rising rates have on people you know? Running to the market to get in? Or are they pulling back?

SUPER SLIM INVENTORY:

UNITED STATES:

Having sparse inventory is complicating the market and helping create what feels like an auction where the highest bidder wins (though technically the highest offer isn’t actually always the strongest offer). According to Altos Research we’ve hit a new low with the number of listings in the US.

SACRAMENTO LISTINGS:

As of this morning, here is what’s on the market. And as you can see, this snapshot of listings is about half the normal level for February 1st. Doesn’t this image sort of look like the one above though where the market feels like it’s been chopped in half?

LAST YEAR VS THIS YEAR:

Here’s a look at the number of listings by price range on February 1st this year and last year. In short, we have about the same number of listings today, but the big difference is listings are dispersed at higher prices because prices rose so much last year. Keep in mind buyers at higher prices tend to be more mobile too because of the ability to more commonly work from home.

Here is what’s on the market by price range as of today. I have some visuals like this for Sac & Placer County too (just ask me for them).

A LITTLE BIT O’ HOPE:

We are seeing more new listings hit the market, which is what we would expect to see starting in January. That’s the good news. The bad news is buyers are hungry and there aren’t enough listings to satisfy demand at the moment. The image below shows new listings by the month in blue, and we should start to see this blue line rise in coming months for about half the year (this graph doesn’t include January yet, but January should start to point upward). Keep in mind listings don’t normally hit a stronger uptick until after March, so unless something interrupts this normal pattern, it’s time to put your game face on because strong competition awaits.

RANDOM THURSDAY GRAPH:

And here’s a random way to see the increase of listings. This visual shows new listings on Thursday each week in the Sacramento region. If you didn’t know, Thursday is typically the day with the highest number of new listings each week. Since the beginning of the year we’ve seen a modest uptick, which is normal. Keep in mind it tends to be a slower trickle of new listings until things start to pick up more in March.

Thanks for being here.

Questions: What are you seeing out there in the market right now? How do you gauge price growth at this time of year? Anything to add?

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