Ryan Lundquist

Advice for buyers & sellers in today’s housing market

August 8, 2022 By Ryan Lundquist 25 Comments

The housing market has shifted, and today I have some practical advice for buyers and sellers. This is coming from hundreds of conversations every month as well as stats I’m pulling. Some new memes too. Enjoy if you wish.

Weathered wooden background with the title, "Advice for buyers and sellers" in a white block in the middle of the image

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9/08/22 SAFE Credit Union Market Update (details TBD)

ADVICE FOR BUYERS:

Don’t lowball like it’s 2008: It’s not a name-your-price market, so you still have to make reasonable offers instead of way below market value. I find some buyers think it’s 2008, and that’s not the vibe right now. For instance, a property was priced well at $450,000 and a buyer offered $320,000 (final closed price was $455,000). If you get lucky at a low level, great. I’m just saying, being reasonable rather than lowballing is likely a better strategy.

Be patient: Instead of selling in hours or days, properties are spending weeks or longer on the market. This is a real advantage for buyers, so you can take more time to shop. Yet, if you find something perfect, be swift since properties that check all the boxes are going quickly with multiple bids.

Ask for credits (if you can): We’re tending to see more buyers asking for credits to help with closing costs or repairs, so talk with your agent about whether asking for credits is something the market will allow (big point). Remember, this isn’t going to work in every price range or situation.

Buy down the rate if possible: Talk to your loan officer about what it would take to buy down the mortgage rate. This means you can pay more to get a lower rate. Or better yet, if you’re in a situation where the seller is going to offer a credit, consider using that credit to buy down the rate. Getting your monthly payment lower can be a massive financial win.

Target overpriced listings: Overpriced homes represent opportunities for buyers, so go after them. Of course, some sellers are stubborn about accepting offers below their unrealistic list price.

Don’t overpay: On one hand it’s unwise to lowball as a strategy, but still try to get the price lower if possible. Local stats show even when properties get multiple offers today, they aren’t tending to get bid up to the crazy levels we saw last year. Generally speaking, you probably don’t need to offer as aggressively high as you might have two quarters ago. In Sacramento last month we saw buyers on average pay about 2% below the original list price (which is about $12,000 below). This is the average though, so it would be a colossal mistake to automatically offer $12,000 below whatever the asking price is (seriously). Remember, there are many examples of offers still going above the list price, so don’t impose an average on every escrow. All that said, try to get in below the list price if you can because that’s becoming more common. But recognize this is a case-by-case situation that depends heavily on what the property is actually worth and how close pricing was to market value.

Realize there is still competition: About 37% of homes last month in the Sacramento region sold above the original list price, so not everything is selling below like some are talking about. Remember, selling above or below the list price isn’t just about the market. It’s about how the property was priced.

Don’t string sellers along: An agent friend told me about a situation where the buyer was in contract for 40 days and then backed out. Look, it happens, and buyers should back out as needed, so I’m not saying to stay. Do what you need to do. All I’m saying is if you’re on the fence, find a way to be decisive so you can give the seller more space to find another buyer. In a market with quick change, idling buyers can cost the seller money.

ADVICE FOR SELLERS:

Don’t expect to call the shots: Sellers are no longer getting to dictate all the terms, so be careful about expecting buyers to bend to your will.

Be ready to negotiate: You’ve lost power and you need to be prepared to offer credits to buyers and negotiate as needed. Look, your net profit will be lower if you reduce the price or offer a credit, but focus on the bigger issue of how much money you’re making with historically high prices.

Plan for fewer offers: Don’t expect multiple bids, but if it happens, great. The truth is you might only get one offer. I’ve heard a number of sellers holding out for more offers, which is bold move today.

Realize demand has truly shifted: In the Sacramento region there were 30%+ fewer buyers last month compared to one year ago. This has caused supply to shoot up very quickly, which means buyers have more options. The good news is about 70% of the market is still active, but it’s no joke to see a sizeable chunk of buyers sitting on the sidelines.

Forget about hot headlines from the past: The market has changed. We’re not blazing like we were six months ago. My advice? Scrap hot headlines and get familiar with the housing temperature today. It doesn’t matter what cryptocurrency sold for in March. The only thing that matters is what it’s selling for today. It’s the same in real estate. What is competitive to your house and getting into contract right now? That’s the key for pricing.

Don’t get offended over requests for credits: Buyers are forking over big bucks to purchase a home right now due to higher prices and a spike in rates. This means some buyers are going to want help with closing costs or repairs. A seller recently got bent out of shape with a buyer asking for a credit, and to me that showed the seller was simply out of touch with today’s trends.

Prepare your house like it was a first date: If you can, take care of basic cosmetic repairs prior to listing. It’s like going on a date. You want to impress and put your best foot forward. Buyers today have more space to scrutinize details, so tightening up details gives buyers fewer reasons to say NO.

Help the escrow be fast: Buyers are pickier about staying in contract, so do all you can to help the escrow be smooth and quick. An escrow with fewer surprises and hurdles is a good thing right now. The last thing you want is for buyers to be stuck waiting while uncertainty is growing. On that note, it might not be a bad idea to take care of Section 1 damage prior to listing (or get a pest report so the buyer is informed prior to making an offer).

Don’t get stuck on the original list price: There is nothing holy about the list price, so don’t get stuck there. If the market isn’t biting, it’s time to reduce the price. In the Sacramento region we historically only see about 14% of properties sell at the original list price, so 86% of the time the price is literally going either higher or lower. And in today’s market, there is a better chance of going lower rather than higher.

Stop believing in unicorns: Look, everyone hopes for a mythical buyer to swoop in and pay more. In Sacramento, it’s a Bay Area buyer, and I suspect in many other states it’s a cash buyer from California. Keep in mind only about 15% of the local market has been cash, so it seems wise to price for 85% of transactions that are financed. Don’t price for the unicorn!!!

Be in tune with picky buyers: Buyers are pickier about condition, location, and price. Buyers can be this way for two reasons: 1) It’s more difficult to afford a house with today’s prices and higher rates; and 2) There is more supply, so there are more options.

Buying down the rate is NOT your silver bullet: I’m hearing lots of people talk about keeping the price high and giving a credit to the buyer to buy down the rate. I get the sentiment because a lower rate helps the buyer, but this is ultimately a seller-oriented narrative. It’s especially common to hear this from builders with new construction. The truth is some buyers are going to want a price reduction as well as a credit. As a seller, you’re going to have to see what the market allows you to do rather than dictating the terms.

I hope this was helpful.

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

Thanks for being here. I truly appreciate it.

Questions: What resonated with you the most? What did I miss?

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Is the housing market getting back to normal?

July 11, 2022 By Ryan Lundquist 18 Comments

“The housing market is getting back to normal.” I hear that quite a bit, but is it true? Well, yes and no. Let me explain.

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THE VERDICT: NORMAL OR NOT?

NORMAL:

Lots of metrics are technically getting closer to normal pre-pandemic levels. We’re seeing price growth at 6-7% instead of 15-20%, monthly supply has ticked up, properties aren’t getting bid up like they used to, and it’s starting to take longer to sell. Technically, many housing metrics are flirting with normalcy. However, there are also some abnormal things happening.

NORMAL (EXAMPLE 1):

Bidding wars have calmed down. What I mean is the number of properties selling below the original list price is starting to approach normal levels. The black dotted line shows July sales so far, and we are pretty close to normal.

NORMAL (EXAMPLE 2):

Finally, properties are starting to take longer to sell. We aren’t back to normal levels quite yet (red line), but we’re getting much closer. This black will be a whole lot higher in coming months.

NOT NORMAL:

A sharp rise in inventory
Sales volume last month was down about 25% from June 2021
Pending contract volume was down over 25% from June 2021
Price reductions have seen a sharp increase

NOT NORMAL (EXAMPLE 1):

Sales volume in Sacramento County had another really low month. It was one of the lowest months in the past twenty years.

NOT NORMAL (EXAMPLE 2):

The number of pending contracts is down in most counties by about 25% or slightly more. The number of pendings at this time of year is clearly below a normal trend (see black line). The future hasn’t happened, so we’ll see what this line does, but we’re poised to see pendings continue to dip in volume unless something happens to interrupt the trend.

CLOSING THOUGHTS:

In short, many metrics are hovering around normal or almost normal levels for the time being, so I can understand when people say the housing market is normalizing or trying to find balance. It’s like we were on a honeymoon for two years, and now it’s real life instead of an endless mai tai vacation vibe.

But here’s the bigger truth. We are in the midst of change due to dropping buyer demand and increasing supply. Simply put, a sharp change in mortgage rates is driving a wider gap between supply and demand, which is changing the housing temperature by the week.

We need time and objectivity to see the long-term trend, but for now it’s apparent we’ve seen a blatant shift from a really aggressive trend to more buyers struggling to afford higher prices. There are certainly still deals happening as 75% of pending volume was present last month and 40% of pendings in July have had multiple offers. But understanding the housing market isn’t just about the deals happening. It’s also about the ones that aren’t happening. Let’s keep an eye on both.

My advice? Be careful not to impose a doom or rosy narrative on the numbers. Also, I recommend paying attention to lots of metrics – not just the ones that fit a certain narrative. The key here is to continue to identify what is normal and what is not normal.

What are you seeing in the trenches? I’d love to hear.

—–——– MORE VISUALS FOR THOSE INTERESTED ———––

I’m maxed out, so I don’t have much time to give commentary to the market, but here are some quick thoughts and stats to unpack June 2022.

A QUICK RISE IN SUPPLY:

We’ve seen a sharp uptick in supply over the past few months. It’s not that so many more sellers have listed their homes. The real culprit is fewer pending contracts, which has caused the pile of available listings to grow exponentially. Monthly supply at 1.74 isn’t historically high, but it’s high enough to help change the feel of the market. Some people say things like, “Bro, five months of supply is normal, so it’s a joke to make a big deal out of less than two months.” I get it, but five months is NOT normal for Sacramento. In short, we are basically at the lower end of a normal range of housing supply right now. With that said, there is still some shock happening where people are freaking out to see so many listings and that it’s taking more than a weekend to sell.

One more thing. We typically start to see fewer listings hit the market around this time of year, so it’s possible the sharp supply uptick could subside slightly due to normal seasonal slowing. But let’s see if we get more FOMO sellers listing their homes (FOMO = Fear of Missing Out). I haven’t noticed a big uptick with these sellers, but it’s on my radar. And most importantly, let’s consider the number of pendings, which has made the most difference thus far.

PRICE REDUCTIONS:

I’m working hard to figure out ways to show price reductions. I hope to roll out some new stuff soon. I actually had big plans today, but that didn’t pan out. For now, here are a few images.

NOTE: There was an error in my bar graph below. My bad. Basically, the stats weren’t sorting correctly, so the categories were off by one bar. In technical terms, this was histogram sin. But the good news is that it’s been corrected. Basically, this means there are fewer properties getting into contract when reducing the list price by less than $10K (but we knew that).

PRICES ARE SOFTENING:

No matter what the metric, prices are softening. This should be happening around the time of year, but the market crested at least one month early this year, so the timeline for softening feels out of the ordinary. Let’s keep watching this. And as I always say, prices are the last place a trend shows up. If we want to see what a market is doing, look to the listings and pendings first before they become closed sales…

YEAR OVER YEAR:

Annual stats are important to digest, but don’t forget to look at month to month stats. And remember, sales in June really tell us what the market used to be like in May when the bulk of these properties got into contract. Also, not every location and price range have the same trend (big point).

MONTH TO MONTH:

Looking at sequential months is key too so we don’t just get stuck or hyper-focused on last year (the past).

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 out there in the market? 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.

A sharp change in the housing market

July 6, 2022 By Ryan Lundquist 24 Comments

A quick change in rates has led to a quick change in the housing market. We didn’t see much difference right away in the stats, but we are finally getting some good numbers now. Let me show you what I mean.

A blue background with today's blog title about sharp change. And there is also a wooden table on the lower 1/3 of the image.

BEER NEWS:

I just finished two years without alcohol. I gave up alcohol for health reasons, and it’s been a good experience. I’ll be adding another year now, so if anyone wants to join, let me know.

FIVE THINGS TO WATCH IN TODAY’S MARKET:

We’ve seen quick change in the stats lately. Check out how steep the line is between May and June in some of the visuals below. This is what I mean by “sharp” change. Let’s keep watching while staying objective.

1) PRICE GROWTH IS SLOWING

Price stats aren’t as sexy as they used to be. This visual doesn’t necessarily look sensational, but instead of being up 15-20% from last year, prices in most counties are now “only” up about 6-7% instead. In short, we are seeing price growth slow down. Right now, the growth actually looks somewhat normal at 6-7%, but let’s keep watching this line to get a sense of the direction of prices. In a normal year we should see prices soften for the next few months and then flatten out for the rest of the year.

This chart shows the median price from 2016 onward from January to December each year. This year the median price has started to crest about one month early.

2) BUYERS ARE FINALLY PAYING BELOW THE LIST PRICE

For seventeen months in a row buyers paid at or above the list price on average. This is profoundly atypical, but it’s been our normal for so long that I think we’ve gotten used to it. This visual shows buyers in June 2022 on average paid about one percent below the original list price (or $7,254 less on average). Look at how sharp the change was from the previous month. For now, the stat is actually very normal compared to 2018 and 2019, but let’s keep watching to see where the line goes in months ahead.

A line graph to show the dollar amount buyers are paying in relation to the original list price in the Sacramento region from 2018 onward. This line goes up and down depending on the time of year. Right now it's going down due to softening demand.

3) FEWER PENDING CONTRACTS ARE HAPPENING

One of the bigger ways we are seeing a shift in the market is with the number of pending contracts dipping for three months in a row. In most local counties in June, we were down a whopping 25% in volume from last year at the same time. On the positive side, this means 75% of pendings are still happening, but there is no ignoring the reality that we had over 1,600 fewer pending contracts over the past few months compared to last year. The black line below represents 2022, and this June was the lowest year in recent time. This isn’t a big surprise because mortgage rates doubling in a short period of time has given affordability a beatdown. This means fewer buyers are able or willing to play the game right now.

A line graph to show pending contracts from January to December each year from 2016. The line for 2022 is way below other years, which shows there has been a drop in pending contracts.

4) A SHARP INCREASE IN LISTINGS

Here’s the number of active listings on July 1st each year in the Sacramento region. I know this is only one day, but the monthly trend actually looks very similar. We’ve seen a quick rise in the number of available listings lately. We’re much higher than last year, but still lower than normal. We are missing about 800 listings from the normal trend. This rise in listings here isn’t so much about sellers choosing to list their homes. The real culprit has to do with fewer pendings, which means the pile of active listings has grown quickly.

A bar chart to show July listings in the Sacramento region from 2014 onward

5) LOTS OF PROPERTIES STILL SELL ABOVE THE LIST PRICE:

It’s easy to say everything is selling below the list price, but that’s fiction. In truth, almost 53% of sales last month sold above the list price, so it’s safe to say about half the market went above the original list price. Of course, this is a sharp change from last year when 76% of sales sold above the list price, so we’ve clearly moved beyond that honeymoon market. And I know, it would be helpful to have more years on this visual, but I don’t have that (yet).

A line graph to show the percentage of homes that sold above the list price in the Sacramento region from November 2020 through today. This line goes up and down depending on the season of the year.

6) OTHER VISUALS:

Okay, here are some other visuals in case that’s your thing. The stats are finally showing some bigger changes. I remember someone arguing with me in April that the market hadn’t shown much of a temperature change. The truth is the market did change, but we didn’t see change in the stats…. yet.

A line graph to show pending contracts from January to December each year from 2016. The line for 2022 is way below other years, which shows there has been a drop in pending contracts.

OKAY, ONE MORE:

May to June median price change: This last visual shows median price change from May to June from 2004 onward. This is a bit geeky, but it’s atypical to see the median price dip between May and June. I mean, it happens, but typically this takes place when the market is declining or in a year where there was dullness in the marketplace. For this year, keep in mind the 2022 real estate season crested early, so we are now comparing subdued stats today to heightened stats last year. I’m not sugarcoating at all here. It’s just key to know what we are comparing and how that makes a difference with the numbers.

On a related noted, for many in real estate prices are sacred, but I don’t take that view. Markets go up and down. That’s just what happens. Thus, my role here is to tell the story of the market without any bias. I’m not here to protect prices or promote doom. I want to sling the straight dope and help convey what is happening.

Anyway, I hope my explanation for May to June change makes sense. I’m happy to talk about that more in the comments. We need a few more months to understand price trends more definitively.

A bar chart to show May to June growth in the Sacramento region

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 the most above? What did I miss? Anything else to add?

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A spike in listings & sitting on the market

June 20, 2022 By Ryan Lundquist 21 Comments

The pile of listings is growing, and it’s taking longer to sell. That’s what so many housing markets across the country are experiencing right now. We’re on the cusp of seeing some real change in the stats over the next few months. Here are some things on my mind. Anything to add?

wooden house with a red arrow up. The captionn is the blog post title.

Why have we seen a spike in listings?

We have almost 3,400 active listings today in the Sacramento region. This is actually still lower than a normal level, but over the past two months there has been a dramatic uptick. What is causing this change? It’s not that sellers have rushed to list, but rather we’re seeing fewer buyers. Since April we’ve easily had over one thousand fewer pendings in the region. Instead of getting into contract, these properties have essentially stayed active. In short, we’ve seen a rise in listings due to a fall in demand.

It’s taking longer to sell (check out the actives):

I think this is a helpful way to show market change. Sales in June have gone quickly, it’s taking longer for pendings to get into contract in recent weeks, and active listings are really starting to sit. And when actives close eventually, that’ll really affect the stats. Do you like this visual?

A data table to show days on market trends for varioius areas of Sacramento. It basically shows sales in June, pendings since June, and current actives. Here's the trend. It's take longer to sell.

NOTE: Sales in June got into contract in May, so they really tell us more about what the market was like in May.

The stats are hot, but that’ll change more in July:

The market has been changing, but we haven’t seen too much change in actual sales stats yet. The truth is it takes time for temperature change to show up in the numbers. This dotted line projects days on market through July based on pendings so far in June. The black line (2022) is going to get a whole lot closer to the red line (pre-pandemic average). We are still not back to a normal days on market, but that can happen quickly. As I’ve said, we’ve waived goodbye to the most aggressive market ever. This is key to recognize since it’s simply going to take longer to sell today.

Duh, it should be taking longer:

Some of what we are seeing is seasonal because it should take longer to sell at this time of year, but we’ve also experienced a market shift since affordability has been given a severe beating in recent months. So, what we are seeing isn’t just seasonal. This is about a bigger change where buyers are struggling to afford and stay in the game.

I’m exhausted and out of quarantine:

I just got out of quarantine. Covid finally got me after all this time. My family actually had to cancel a New York vacation last week because of this, so that was a real bummer. I honestly so needed a vacation, but that’s water under the bridge now. Anyway, I’m grateful for health, and I’m also really tired, so I’ll be inching back to work and trying to pace myself.

Thanks for being here.

—–——– MORE VISUALS FOR THOSE INTERESTED ———––

GLOWING AND SLOWING:

There are two housing markets right now. Glowing sales stats from May. And slowing stats in June. This is important to recognize because we want to understand sales from the past while not ignoring listings and pendings today. The stats from May are still quite elevated in that properties sold a few percent above the list price on average. On one hand this reflects a market that is still statistically above the normal trend, but on the other hand let’s remember sales in May really tell us more about pending contracts in April (that closed in May). My advice? Recognize hot stats from previous months, but don’t ignore slower metrics right now with fewer offers, increasing days on market, dropping sales volume, more price reductions, etc….

SHARING POLICY: I welcome you to share some of these images on your social channels or in a newsletter. In case it helps, here are 6 ways to share my content (not copy verbatim). Thanks.

Some visuals…

YEAR OVER YEAR:

Annual stats are important to digest, but don’t forget to look at month to month stats. But remember, sales in May really tell us what the market used to be like in April when these properties got into contract. Also, not every location and price range have the same trend.