Home prices have been massive lately, but there is an asterisk. It’s easy to look at glowing stats and say, “Dude, prices are up 16%, so my house is worth 16% more.” But lofty county or regional price stats don’t always show up the same in a neighborhood. Let’s talk about this.
TWO REASONS WHY PRICES ARE SO HIGH ON PAPER:
1) The top & bottom: There have been more sales at the top of the market and fewer sales at the bottom. In fact, when comparing the past four months this year with last year, we’ve seen 20% fewer sales under $400,000 and 75% more sales above $750,000. Here is a brand new visual to show the change in various price ranges. If you’re not in Sacramento, is this happening in your area too?
The effect: Having a big change in volume at the lowest prices and a hefty change at the top has simply boosted price metrics. Thus on paper price stats are really high compared to last year, but when pulling comps in a neighborhood we don’t always see anywhere close to this sort of explosive growth.
Here’s another way to look at the same data:
2) Larger homes: I’ve mentioned this before and I’m not trying to beat the dead horse, but during the pandemic buyers have been purchasing noticeably larger homes over the past four months. Do you see the spike? In short, having larger homes has boosted price stats, so when talking about growth it’s good to remember that part of the reason for higher prices is due to larger homes selling more often.
The takeaway: There is no mistaking the market has increased in value quite a bit this year. I’m not saying it hasn’t. I’m just saying if we’re not careful it’s easy to get infatuated with lofty regional price stats which can sometimes blur our vision for a neighborhood market. My advice? Know why the numbers are the way they are and focus on comps instead of county or zip code stats. Moreover, don’t expect the market to be the same temperature with every location, price range, or property type.
I hope that was interesting or helpful.
Questions: Have you seen some neighborhoods where prices have risen greatly and others where growth is more subdued? Did I miss anything? Any stories to share?
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This is where it gets interesting, so bear with me. Noticeably larger homes have shown up in sales stats from June to August this year, but a big part of that comes down to buyers focusing more heavily on Placer County & El Dorado County. In fact, over the past three months compared to last year Placer County sales volume is up 16.8% and El Dorado County volume is up 31.5%. Why does this matter? If you didn’t know, monthly sales in these two counties are routinely 400+ square feet larger in size than Sacramento County (mostly due to having newer homes through the years that were built larger). This data does NOT include brand new homes currently being sold from builders – only MLS sales. Anyway, when we consider why the home size in the region has jumped so much lately, a huge reason looks to be buyers flocking to these two counties in search of more space.
