less cash

A few years back my doctor prescribed the drug prednisone. Have you ever taken it? I hope not. It’s a hardcore steroid that I needed at the time to address some stomach issues. While this drug worked like magic, it made me incredibly edgy, and I honestly had a hard time controlling what I said. It was as if the filter from my thoughts and mouth was partially removed. I know that sounds like an excuse, but it was reality. I’m normally a really nice guy, and I absolutely love people, but during those few weeks let’s just say there were some pretty ugly public interactions that definitely didn’t make the Facebook highlight reel.

In short, if you met me during one of those moments while jacked on prednisone, you might of thought I was a jerk. Yet that’s not who I am at all, which is clear when taking a wider view of my life. Now consider the housing market (you knew a transition was coming). If we only look at one tiny portion of the market, whether it’s median price, data from one zip code, or information from only one county, we might miss some of the big picture of what’s really happening. Two days ago we took a drive through the market in Sacramento County, but today I’d like to expand the trip to the entire region and Placer County. I’d love to hear your take of what is happening out there too. Comment below or send me an email.

Two ways to read this post:

1. Scan the talking points and graphs quickly.
2. Grab a cup of coffee and spend a few minutes digesting what is here.

Note to New Readers: Thank you sincerely for being here. I wanted to give a quick heads-up about how things work. I write 1-2 posts per week. After the 10th of the month I have two big market posts where I discuss local trends. Yes, they are long, but they are full of good stuff. You can scroll quickly by reading the numbered points or really dig in. The first big monthly post talks through Sacramento County, and the second one shares Placer County and regional trends. Otherwise posts are more topical and they tend to appeal to a wide audience.

SACRAMENTO REGIONAL MARKET (Sacramento, Placer,  Yolo, El Dorado)

1) The regional market saw a 1.6% decrease in median price last month:

The median price has been very flat throughout the Sacramento Region over these past six months, and last month it finally took a 1.6% dip. The median price has been hovering at $3100,000 in the regional market, but it’s now $305,000. This month the average sales also price declined by 2%, and the average price per sq ft decreased by less than 1%. It’s normal for prices to soften in the Fall market, but it’s also normal when inventory has increased and the market is generally slowing.

2) Sales volume is down by 8% this year compared to 2013: 

There have been about 1800 less sales so far this year compared to 2013, which means sales volume is about 8% lower this year. Why is volume lacking? Let’s look at the graph below.

3) There have been 34% less cash sales this year:

Cash investors took their foot off the gas pedal in our market during the second quarter of 2013, and we are still feeling the difference. There have been roughly 2000 less cash sales in MLS this year compared to last year (single family detached sales). Think about it this way: Less cash this year has resulted in higher inventory, less competition to get into contract, softening of prices, and a revelation of what demand is really like in the Sacramento area. The market is trying to normalize and figure out how to cope without the steroid of outside cash investors to boost values.

4) There are 2.65 months worth of houses for sale in the region:

Housing inventory saw a slight dip last month from 2.72 months to 2.65 months. Before you sound the alarm that inventory is now declining, let’s look closer at the stats. The key here is there are simply less listings right now, which tends to cause housing inventory figures to decline. Remember, monthly inventory is calculated by dividing the number of listings on the 1st of the month by the number of sales for the previous month. There was actually about the same number of sales in October compared to September, but there are about 3.5% less listings (at the beginning of the month), which makes a difference in the numbers.

5) It is taking an average of 49 days to sell a house in the region:

It took 36% longer to sell a house last month compared with one year prior in October 2013. In other words, it took 49 days on average to sell a house in October 2014 compared to 36 days in October 2013. This is definitely a sign that we are in a different market, right? For context though, remember it was taking 90 days to sell a home three years ago in the Fall of 2011. As the graph above shows, the higher the price, the longer it takes to sell in the Sacramento Region. This is a constant trend, and something to be very aware of when adopting a marketing strategy to sell. There are very few sales under $100,000, so take that stat with a grain of salt (don’t give it much weight).

The Fall Season Trumping Price Reductions: Over the past 3-4 weeks the market really changed as the Fall season became much more pronounced. Not only are there less listings right now compared with last month, but there are actually less price reductions too. For months the market has been very much overpriced, meaning many properties have not been selling because they were simply priced at unrealistically high levels. Evidence of this was seen when logging in to MLS and seeing about 400 price reductions every day for several months through mid-October (and about 400 sales during the same time period). However, over the past few weeks the number of price reductions and sales have inched down closer to 200. Does this mean sellers are no longer lagging behind the trend of a slower market? Are properties finally priced correctly? Not necessarily. It seems the reality of the slowness of the Fall market has begun to set in, and less new listings and market activity means there will naturally be less price reductions. Some listings are sort of only technically on the market too in that they will simply ride out the duration of their listing without having any more reductions until they are officially withdrawn. Ultimately there are simply fewer new listings hitting the market right now, which means there will be fewer price reductions. Don’t get me wrong though, sellers still need to be very cautious about pricing, and I recommend pricing according to the most competitive listings that are actually getting into contract (as opposed to pricing according to older sales that might not reflect where the market is at right now). When you think about it, a slower Fall season could actually help give sellers some space to get more in tune with the reality of softer prices in the market.

PLACER COUNTY REAL ESTATE TRENDS

1) The median price saw a decline and is now at $375,000:

The median price in Placer County declined from about $385,000 to $375,000 from September to October. It’s normal at this time of year to see prices soften during the Fall months, so I don’t recommend freaking out. There are simply less buyers looking in Fall, so prices tend to dip as a part of the normative real estate cycle. Of course the backdrop to this stat is that values in the regional market are definitely slowing down regardless of the Fall season.

2) Housing inventory saw a slight decline and is at 2.75 months:

Monthly housing inventory took a dip last month from 2.92 months to 2.75 months. Why did it go down? Because there were less listings that hit the market in October compared with September (fairly normal for this time of year), and at the same time there were more sales. Remember, housing inventory tells us how many months of properties are listed on the market. An inventory of 2.75 basically means there are 2.75 months worth of active listings available for buyers.

The interesting thing about inventory is that it’s not the same at every price level. There might be 2.75 months of housing supply right now in Placer County, but the market is more competitive toward the lower end of values, while there is more selection at higher price levels. This is a very normal trend in real estate, but it reminds us there can be different trends happening at different price ranges.

3) Sales volume is very normal in Placer County right now:

When considering October 2014, there were actually more sales compared to the prior two years. In the next 30 days though we can expect volume to see a dip if the market unfolds like it has these past two years. December through February are slower months, which is evidenced by the low points on the graph above.

4) It’s taking an average of 54 days to sell a house in Placer County:

It took one week longer to sell a house last month in Placer County compared with the previous month. Most price ranges did see an increase in cumulative days on market, which is normal, but sales above $750,000 were much higher than usual last month. Properties in this price range have normally been taking about 90 or so days to sell. This doesn’t mean the market changed very quickly in just one month though. It simply means the 17 sales that closed above $750,000 in October took much longer to sell for one reason or another.

When we start to get the bigger picture of how the regional market is moving, it can sharpen our understanding of the market and position us to be an incredible resource to clients. I hope this was helpful.

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Questions: How else would you describe the market? What are you seeing out there?

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