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Ryan Lundquist

The housing market is slowing (but not slow)

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The housing market is slowing and today I want to share seven quick ways I’m seeing that. But here’s the thing. This market is still driving at warp speed. In short, the market is slowing, but it’s not slow.

Podcast with Golden 1 Credit Union: If you need some background noise, here’s a podcast I recorded recently. I had fun with this one. Listen here.

This post is designed to skim or digest slowly.

7 WAYS THE MARKET IS SLOWING:

The housing market is still so competitive, but there are subtle ways I’m seeing slowing. This is so important for sellers to understand – not to mention real estate professionals who are talking with clients and the public. If you’re not local, what are you seeing in your area?

1) Taking longer to sell: Last month on average it took 12 days to sell a home and 6 median days. Since June pendings have taken two extra days to get into contract. This is still lightning fast, but it’s slower than it was.

2) More homes are selling below the list price: There are slightly more homes selling at or below the list price right now. Here’s a visual to show what buyers are paying compared to the asking price. As you can see most categories slowed slightly last month, but not every category.

3) Fewer multiple offers: For two months in a row we’ve seen fewer multiple offers in the Sacramento region. Keep in mind the percentage of offers is still about as high as it’s ever been.

4) More listings are hitting the market: We still don’t have enough listings to satisfy demand, but there are now literally multiple hundreds of extra listings on any given day in the Sacramento region compared to a few months ago.

5) Slightly higher monthly inventory: We are seeing a slight uptick in monthly housing inventory. Very slight. It’s wild to say this when we basically still have half-a-month of homes for sale, but supply is up just a little in most counties from a few months ago. Of course now we are seeing mortgage rates at their lowest point in months, so we’ll see what happens to supply in coming time.

6) We hit the big home peak: The dark blue line represents the average home size in Sacramento and it goes up and down like clockwork each year. Do you see how size typically hits a seasonal peak during May or June (besides last year)? Anyway, the average size slumped in June, which is what we’d expect to see in a normal year. This goes to show we’re seeing some normal seasonality. 

7) Word on the street: I’m hearing from lots of real estate agents, loan officers, and appraisers that they’ve seen a slightly slower vibe. I haven’t heard anyone say the market is slow, but there is lots of chatter about slowing. At the same time I’m hearing things like, “My listing had 23 offers” or “We got outbid again,” which speaks to how competitive it is right now.

8) Other: What is number eight?

Any thoughts?

3 WAYS THE MARKET IS NOT SLOWING:

1) Record prices: The market still has upward price pressure in lots of areas and each month we’re seeing old price records shattered (nominal prices not adjusted for inflation). See stats below for specific price metrics.

2) Buyers paying big money over asking: On average properties sold $25,865 above their original list price last month. This is a wild stat considering it represents over 2,800 sales. This figure is higher than any of the previous three months too, which shows the market is still bananas. By the way, the average amount clearly does not perfectly represent every individual escrow.

3) Record sales price to list price ratio: Last month properties on average sold 4.1% above their original list price. This might seem low, but it’s actually higher than it’s ever been. This is a good reminder that not every stat is showing slowness. In other words, when a market slows we don’t always see it in every single metric. Of course it’s good to keep in mind sales in June really represent pending contracts from May more than anything.

Okay, two last thoughts.

NOT CRASHING: The doom and gloom crowd loves to look at slowness and say the market is starting to crash, but that’s what they say every year when stats sag. Look, I’m not saying the market is perfect. I’m just saying stats right now don’t support a crash and burn narrative.

IT LOOKS SEASONAL EH: In a normal year we’d expect for the housing market to crest around this time and begin a seasonal descent for the rest of the year. So it’s no surprise to see the market slowing right now.

——————– BIG MARKET UPDATE ——————–

For those interested, here’s a big Sacramento market update:

THE SHORT VERSION:

Here is a highlight reel to talk through some of the bigger themes right now. In short, the stats are sensational and we are in the midst of an incredibly competitive market. But we’re also seeing some slowing. Both things are true at the same time.

THE LONG VERSION:

Stats are on steroids and we are still seeing one the wildest markets we’ve had. It’s just some metrics are showing some symptoms of what looks like seasonal slowing. Here are some of the bigger themes.

FORECLOSURES HAVE NOT INCREASED:

Some folks are talking about an increase of foreclosures, but that hasn’t been happening. What I mean is these properties are definitely not showing up on MLS. I keep hearing of a coming foreclosure wave also due to forbearance rates, but those keep going down.

MAY TO JUNE PRICE STATS INCREASED (NOT A SHOCKER):

How has the market changed recently? Take a look at May to June prices. In short, every metric in all surrounding counties showed an increase last month.

LAST YEAR VS THIS YEAR:

Last year the market was dull at the beginning of the pandemic, so this year versus last year gets a little weird for a comparison. My advice? Take these percentages with a grain of salt because they’re inflated due to sagging numbers last year. And remember these percentages DO NOT actually mean every house is worth that much more either.

MORE PRICE VISUALS:

A few more visuals to show the insanity of price growth lately. Look how far disconnected 2021 prices are from previous years.

SALES VOLUME HAS BEEN STRONG:

For thirteen months in a row we’ve seen higher monthly sales volume compared to the previous year. This June was up from the previous two years and overall at a fairly normal level. Frankly it’s impressive to see this many sales in light of having such low supply. It just goes to show buyers have been getting it done. Keep in mind last year did have lower volume due to two lower months at the beginning of the pandemic, so that’s one reason why the percentages are up so much this year. But we’ve also seen increased migration this year too, particularly in El Dorado and Placer County.

Anyway, this is getting really long.

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.

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.

Questions: What are you seeing out there in the market? What are you hearing buyers and sellers say? I’d love to hear your take.

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Vacations & normalcy in the housing market

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Are you taking a vacation this year? It seems like half my Instagram feed is in Hawaii right now. I’m not doing anything that big, but I did get back yesterday from a few days in Santa Cruz and it was just what I needed. Here’s a video of me longboarding…

Big market update: On June 24th 10-11am I’m doing a big market update with SAR to talk through the latest trends. I cannot wait. Sign up here.

Anyway, let’s talk about normalcy. 

THE BIG POINT: It’s a good thing for people to find a normal rhythm in life with taking vacations and the kids getting fully back to school. Not only does it feel good to have a more regular rhythm after a pandemic year, but this is a step in the right direction for the housing market also to hopefully feel a bit more normal eventually. The real hope is for sellers to be more comfortable listing their homes, but that could take a while (especially since some would-be sellers are now wondering if there is even something available for them to purchase). Look, the market is still moving at warp speed and we are not close to a normal market. I’m just saying having more normality in life is exactly what we want to see because it’s a step in the right direction.

NORMALCY & SALES VOLUME:

1) A normal year looks like this: In a normal year we typically see the highest number of sales in June, though May and June trade places for top month status each year. This year I wonder if May will be our regional peak, but we’ll see. By the way, here is a free tutorial for how to make this type of graph. 

2) It’s been a *normal year of volume so far: It’s been a pretty normal year so far in terms of the number of sales happening. Check out the red line (2021) compared to the green line (an average of seven years). Of course the black line represents 2020 and that was a wild year in so many ways. 

* To be fair if we had more listings we’d actually be seeing bigger numbers, so there is an asterisk with saying volume is normal. 

Quick note on slowing: At times it’s a struggle for some to talk about the housing market slowing down each year, but the market isn’t the same every month and the green life is definitive proof. And keep in mind volume slowing doesn’t automatically mean prices stop rising.

3) Volume is elevated in two counties: Since the pandemic volume has been up in El Dorado and Placer County. What’s going on? Well, buyers seem to be attracted to larger homes, newer homes, highly-rated schools, and a location a bit further from Downtown (but not too far for a commute).

4) Bonus colorful visuals: Here are some colorful visuals to show what’s been happening between January and May. As you can see sales volume this year looks mostly normal for the entire region and Sacramento County while it’s ahead in Placer and El Dorado. As I alluded to above, it’s remarkable to see a “normal” level with such anemic housing supply.

Thanks for being here.

SHARING POLICY: You can share my stats and visuals above, but please attribute the source. Here are 6 ways to share my content (not copy verbatim).

Questions: Are you taking any trips this summer? I’d love to hear. What is the market like in the trenches right now?

If you liked this post, subscribe by email (or RSS). Thanks for being here.

Mortgage rates are too low (and they need to go up)

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There are certain things that are just true. Spandex bodysuits shouldn’t be worn by most people. Mullets probably shouldn’t come back in style. And mortgage rates right now are just too low.

The truth: Mortgage rates this low have helped create a chaotic housing market and they need to go up. I tweeted this yesterday and while there was some great discussion about housing trends, literally nobody disagreed about rates. 

Image above from Freddie Mac.

Downplaying demand: Throughout the pandemic the housing narrative has tended to focus on the supply side of things by saying, “The issue is we don’t have enough listings.” I get it because we definitively need more listings and we’re absolutely feeling the effect of years of lackluster new construction. But often it seems like we’re ignoring the demand side of things because we’re so fixated on supply. The reality is one of the big reasons the market feels as aggressive as it does is because rates have juiced demand since they’ve been hovering around three percent since July 2020. On one hand it’s great to see so many buyers entering the market, but rates this low have been like a steroid to help the market feel like an auction. Having 20% price appreciation year-over-year in Sacramento and California doesn’t seem sustainable for the long haul either. On a national level Altos Research states prices are up 17% from last year.

Up and down: Recently mortgage rates started to increase and we saw a few weeks in a row with fewer purchase applications in the United States. But then rates went down again and we saw purchase applications increase. This tells us what happens with rates DOES matter for the number of buyers and if we want the market to become tamer we simply need rates to increase. This won’t solve all our problems or the housing shortage, but it would at least be a step in the right direction. Check out the Mortgage Bankers Association for weekly updates on purchase and refinance applications.

Closing thoughts: Look, there are many reasons why the market is the way it is today and it’s not all about rates. I’m just saying at some point I think we have to admit it feels pretty unhealthy to have rates this low because it’s making things too chaotic.

Q&A Video: Here’s ten minutes of Q&A I did at the end of a presentation for SAFE Credit Union. Enjoy. Or not.

NOTE: This post was in no way meant to offend anyone who wears spandex bodysuits or has a mullet. Be yourself.

Thanks for being here.

Questions: What do you think of the points above? Anything else to add?

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Why your home isn’t worth 16% more today

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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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