Sacramento real estate trends

Rates are low, but buyers aren’t going nuts

July 11, 2019 By Ryan Lundquist 19 Comments

Rates and inventory are really low, so on paper it seems like the market should be booming. But it’s not. The truth is sales numbers are down despite rates doing the limbo below four percent again. It’s like the market looks hot on paper, but it’s also a bit lackluster in some ways.

Affordability: A big issue today is buyers are struggling with affordability. After seven years of price increases, we’re seeing the market become too expensive for many prospective buyers since wage growth has not kept pace with price growth. Some buyers feel uncertain about the future also, which is causing hesitancy about whether to purchase.

Hot couple analogy: The market is like a super hot couple that looks great on paper. They’re rich, attractive, successful, and they get a ton of “likes” on Instagram. Everything looks perfect, but then out of nowhere they break up because it turns out their relationship wasn’t as good as everyone thought. In a similar way, the real estate market looks stellar on paper. Rates are low, inventory is sparse, and it’s actually really competitive out there. But we’re also seeing weaker sales volume which shows us buyers aren’t as enthusiastic as we’d assume them to be.

Any thoughts?

—–——– Big local monthly market update (long on purpose) —–——–

Now for those interested, let’s talk about Sacramento trends. If I had to pick a few phrases to describe the market it would be competitive if priced right, modest price growth, slumping volume, and fairly normal stats for the spring.

DOWNLOAD 70+ visuals: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

THE SHORT VERSION:

Prices are up, volume is down
It kinda feels normal right now
Price growth has been modest
46% of sales had multiple offers last month
Sales volume is down for the 14th month in a row
Low rates have helped change the feel of the market this year
Inventory is thin, but slightly higher than last year
The post is long on purpose. Skim or pour a cup of coffee

THE LONGER VERSION:

Here are some of the bigger topics right now:

Normal: The market felt really dull last year, but it’s been a somewhat normal year so far in 2019. There are certainly concerns about affordability, but from a stats perspective it’s been a pretty standard first half of the year. Pendings continue to be strong also, so buyers still clearly have a strong appetite for the market.

14 months in a row of slumping volume: Despite mortgage rates being low we’re seeing somewhat sluggish sales volume. In fact, sales volume was down 11.6% in the region last month and it’s down 8.6% so far in 2019. Moreover, we’ve had fourteen months in a row with lower sales volume compared to the previous year. In my mind it’s still best to say we’re having a slower year instead of a volume meltdown because levels aren’t alarmingly low by any stretch. Let’s watch this carefully.

Dude, rates will never get below 4% again: It’s been a little surprising to see how low rates have gone again, right? The narrative for a while was, “Dude, they’ll never go below 4% again. We’ve bottomed out.” Yet here we are. My sense is if rates keep going down it’ll only increase competition and artificially inflate prices. That would be temporarily nice for buyers, but an unfortunate byproduct is low rates in a wider picture tend to create less incentive for sellers to move. Why sell if you’re sitting on a 3.5% mortgage rate?

Purplebricks & the tech invasion: Last week it was announced that Purplebricks will be exiting the United States housing market after a 75% loss in shares. This company is going to the grave in the U.S., but the reality is we’re still in a market where tech companies are trying to disrupt the traditional real estate model. Next up? Zillow is said to be coming to Sacramento by the end of the year.

Joe Montana’s $49M overpriced listing: Former Quarterback Joe Montana listed his property for $49M and it didn’t sell because it was profoundly overpriced. In fact, the price has now been reduced to $28M. Many sellers are like Joe in trying to attract mythical unicorn buyers who will mysteriously overpay for some reason. My advice? Be aware that today’s buyers are incredibly picky about paying the right price.

The dream of selling at the top: I met a guy who wants to sell because he says the market might top out soon. His concern is a friend sold two years ago thinking the market was at its peak, but it wasn’t. The truth is it’s not so easy to time a market perfectly. We talk about how simple it is to do this, but most people pull it off from dumb luck more than anything. The reality is the bulk of buyers don’t buy based on price metrics, but rather lifestyle and affordability.

This is a fascinating chart, right? It shows a few price cycles over the past twenty years in Sacramento County. I don’t share this to say prices are about to change directions, but at some point that’s probably what we ought to expect because that’s what markets do. They go up and down. For now price momentum has been slowing and we’ll continue to watch this closely to see how it plays out. Let’s remember the collapse we saw in 2005 was not a normal trend that’s now the formula for the next price cycle. That was a market built on fraud and rampant speculation.

The coming recession: There are lots of predictions about a coming recession, and at some point one will happen. But predicting recession specifics is a bit like predicting housing market specifics. At the end of the day we might have ideas, but we don’t know the future if we’re honest. Moreover, the last “great” recession isn’t now the template or formula for all future recessions.

Eyeballs vs offers: Over two years ago I wrote about a $250M listing in Bel-Air. At the time it was the highest-priced property in the United States, and it was called “record breaking”. But today it’s still on the market and priced at $150M. Despite going viral and having global attention this listing did not sell. This reminds us it’s nice to have eyeballs on a listing, but the only thing that matters is offers. Sellers, if you aren’t getting offers, it may be time to adjust your pricing until the market bites.

Preparing for a slower season: At this time of year we typically see the market begin to slow down. The sales stats don’t show it yet, but when July stats come out we usually see it starts to take slightly longer to sell in July compared to June. This is a clue into a slowing market, and eventually we see more slowness in actual prices (but it often takes a few months to see the slow trend show up in actual sales stats). This is a good reminder to pay close attention to pendings today because that’s where we see what the current market is doing. What is similar and actually getting into contract? That is THE question.

I could write more, but let’s get visual instead.

FOUR BIG ISSUES TO WATCH:

1) SLOWER GROWTH: The market has moved forward this year, but it’s been at a slower pace. In other words, the market has felt competitive this year, but price momentum has continued to slow. Remember, “slower” and “slow” are not dirty words in real estate. They are market realities.

2) A QUICK RECAP: All year prices have shown a modest uptick. What I mean is prices are up from last year, but not by much. Keep in mind the lowest prices are likely the “hottest” market in town too.

3) VOLUME SLUMP: The number of sales has slumped in the region for 14 months (and 13 months in Sacramento County). Overall volume is noticeably lower this year, but it’s still not outside of normal low ranges though either (see 2014 and 2015).

SACRAMENTO REGION:

Key Stats:

June volume down 11.6%
Volume is down 9.9% over the past 12 months

SACRAMENTO COUNTY:

Key Stats:

June volume down 13.4%
Volume is down 9.3% over the past 12 months

PLACER COUNTY:

Key Stats:

June volume is down 10%
Volume is down 9.2% over the past 12 months

EL DORADO COUNTY:

Key Stats:

June volume down 6.3%
Volume is down 12.4% over the past 12 months

4) PRICES TICKED UP IN JUNE: The market generally showed price increases last month, though they were pretty subtle.

NOTE: Take El Dorado County data with a grain of salt. Stats change significantly month by month.

Thanks for respecting my content: Please don’t copy my post verbatim or alter the images in any way. I will always show respect for your original work and give you full credit, so I ask for that same courtesy. Here are 5 ways to share my content.

Please enjoy more images now.

SACRAMENTO REGION (more graphs here):

SACRAMENTO COUNTY (more graphs here):

PLACER COUNTY (more graphs here):

EL DORADO COUNTY (more graphs here):

DOWNLOAD 70+ visuals: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: What are you seeing out there? What do you think prices are doing? What are you hearing from buyers and sellers lately?

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Slow is not a dirty word in real estate

June 13, 2019 By Ryan Lundquist 11 Comments

Slow is not a four-letter word. Well, technically it is. But in real estate it’s not a “four-letter” dirty word. Let’s talk about this, and then for those interested I have a huge market update below.

The situation: It’s easy to feel good about real estate when the stats are glowing because there’s always something positive to share. But when a market begins to slow it can feel uncomfortable for some because all of the sudden slower stats don’t line up with the rosy narrative that’s been used to describe the market.

The reality of slowing: The market has been slowing. What I mean is right now we’re seeing more subdued price growth in many portions of the country. In other words, prices just aren’t increasing like they were in the past. This doesn’t mean the market is dull or that it’s not really competitive, but it does mean competition is more intense than actual price growth in many cases.

Main point: I wanted to mention this because it’s important to recognize when markets change so we can back away from real estate cliches that may not fit current trends. Moreover, it’s crucial to find new language to describe the market as things either speed up or slow down. My advice? Pay attention to stats and let data inform your market narrative. Thus if you see the market slowing, it’s okay to say that. In fact, sometimes it’s the best thing sellers or buyers can hear.

Abusing price per sq ft: Last week I made a quick video to talk through the problem of abusing price per sq ft in real estate. Enjoy here if you wish.

As always, thanks for being here.

—–——– Big local monthly market update (long on purpose) —–——–

Spring is feeling fairly normal so far. In fact, May was actually a pretty strong month. What a difference from the doom we felt in 2018. Let’s talk about it.

THE SHORT VERSION:

Prices are up from the fall and it’s shaping up to be a strong spring
Prices aren’t up much from last year
There were more multiple offers this May compared to last May
Sales volume has slumped for 12 months
There are nearly 2,700 less sales this year
So far the spring has felt fairly normal
This post is long on purpose. Skim or pour a cup of coffee

DOWNLOAD 70+ visuals: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

THE LONGER VERSION:

Here are some of the bigger topics right now:

Normal: The stats for May were strong and showed what we’d expect to see for the month. Prices showed an uptick, inventory remained low, it took less time to sell, the sales to list price ratio increased, etc… In short, the market feels a bit normal right now. This doesn’t mean it’s perfectly healthy, but from a stats perspective it’s been fairly normal.

More multiple offers: We saw more multiple offers this May compared to last year at the same time. I know, it’s barely up, but all year the number of multiple offers has been lagging, so this shows us a strong spring has sprung.

Blackstone: I mentioned last week that Blackstone (Invitation Homes) is starting to sell some homes in Sacramento. For now it looks like they’re offloading some non-performing inventory, so that’s how I plan to describe it unless new information comes to light. Keep in mind lots of headlines talk about Blackstone selling, but these headlines refer to stocks instead of homes. If you didn’t know, in recent weeks Blackstone sold $1B of their stock in Invitation Homes. This is big news of course because it means Blackstone is clearly making a move to exit the market. But this doesn’t mean Invitation Homes is going to exit the actual housing market by dumping all 80,000+ homes they own in the United States. I’m doubtful this is their plan since Invitation Homes is such a well-oiled mega-rental machine. But we’ll keep talking about this as needed.

Slower growth: Prices are up from last year, but they’re not up by much. The market feels really competitive, but we’re just not seeing insane price growth. Most metrics are up anywhere from 2-3% from last year. This reminds us it’s possible to have a really competitive market without insane price growth.

Highest sale ever in Sacramento County: There is now a $5M sale that just closed in the Sierra Oaks Vista neighborhood. It was a private sale and it’s the highest residential sale ever in Sacramento County. The ultra contemporary home was previously listed a couple times and here’s a video from Nick Sadek’s listing. I mention this because we are starting to see outlier sales like this pop up. This is a reflection of where prices are at, but it’s also a reflection of growing demand for the luxury market.

Michelin star: The big news locally is Sacramento got its first Michelin star for a restaurant called The Kitchen. Yesterday someone asked me if this star will affect property value in surrounding neighborhoods. I can comment later on that, but for now I have a Twitter poll going. Please vote.

Picky about getting into contract (and staying): I haven’t run stats on failure rate yet, but I hear from lots of real estate agents about buyers falling out of contract more often these days. I’ll have to run the numbers at some point, but I wanted to say it doesn’t surprise me to hear this. The reality is today’s buyers are incredibly picky about what they purchase. They’re choosy about condition, location, and price, so they take their time to get into contract. Moreover, since they don’t want to get stuck in a bad situation, if something doesn’t go right during an escrow, they’ll bail. Thus they’re picky about getting into contract AND staying in contract. Sellers, did you hear that? Buyers aren’t desperate.

A year of slumping volume: Sales volume in the region was strong for May and has rebounded substantially from a dreadful fall season, though technically volume has been down 12 months in a row in Sacramento County (and 13 months in the region). All things considered we’ve had 9% fewer sales, which means there have been 2,700 fewer homes sold this year. Keep in mind this is not the sign of a market meltdown, but it’s definitely safe to call this a slower year in terms of volume. This is something we have to keep watching. I suspect if rates go up, we could see volume slump again too.

Rates are doing the limbo: Rates keep doing the limbo by finding lower levels, and that tends to put a steroid in the market to create more competition. This is a big factor to watch since our market feels heavily influenced by the direction of rates right now. As a side note, if rates get really low it could lead to stronger price growth.

Getting back to the top: The median price in the region is now higher than the previous peak in 2005. It took us fourteen years to get back, which is the entire lifespan of my 8th grader. Anyway, in coming time we’ll surely have more “bubble” conversations because of this. But let’s be real. Many buyers are already wondering and having these conversations. Keep in mind the market in 2005 was much different than today and there is no such thing as a formula where the market “pops” when reaching 2005 levels. Technically, current values aren’t actually anywhere near 2005 when we consider inflation. But in my experience very few buyers actually think about inflation like this unless they’re statistics nerds. In case it helps, here’s a post I wrote about buyers worried about another housing bubble.

I could write more, but let’s get visual instead.

FOUR BIG ISSUES TO WATCH:

1) SLOWING MOMENTUM: Despite the spring market clearly heating up, stats show the market is slowing down when we look at the rate of change by year. So while we might describe the market as “hot”, we can also describe it as slowing.

2) LAST YEAR VS THIS YEAR: Check out the price metrics below. Can you see why I’m saying prices seem flat lately? This may not be true in every single price range or neighborhood of course, but this shows us price momentum is slowing. With that being said, it’s still okay to say the market is “hot”. It is. But I’d say competition is hotter than price appreciation.

3) SALES VOLUME SLUMP for 12 months: It’s important to look at sales volume in a few ways to get the bigger picture. Here it is by month and year.

SACRAMENTO REGION:

Key Stats:

May volume down 4.6%
Volume is down 9.2% over the past 12 months

SACRAMENTO COUNTY:

Key Stats:

May volume down 6.1%
Volume is down 8.3% over the past 12 months

PLACER COUNTY:

Key Stats:

May volume is up 2.7%
Volume is down 8.4% over the past 12 months

EL DORADO COUNTY:

Key Stats:

May volume down 4.9%
Volume is down 12.6% over the past 12 months

4) SPRING GETTING HOT: The market is heating up for 2019. We’re seeing price changes, low inventory, and increased sales volume.

NOTE: Take El Dorado County data with a grain of salt. Stats change significantly month by month.

Quick note on how NOT to use my content: Please don’t copy my post verbatim or alter the images in any way. I will always show respect for your original work and give you full credit, so I ask for that same courtesy. Here are 5 ways to share my content.

Now here are a bunch of images. Please enjoy.

SACRAMENTO REGION (more graphs here):

SACRAMENTO COUNTY (more graphs here):

PLACER COUNTY (more graphs here):

EL DORADO COUNTY (more graphs here):

DOWNLOAD 70+ visuals: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: What are you seeing out there? What do you think prices are doing? What are you hearing from buyers and sellers lately?

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

Ch-ch-ch-change in neighborhoods

May 22, 2019 By Ryan Lundquist 8 Comments

Neighborhoods change. Sometimes they end up growing in a positive direction and other times they go downhill in a big way. Today I want to share a quick example of what I mean.

Million Dollar Sales: Here are two images to show million dollar sales in East Sacramento. Prices were definitely rising during both of these time periods, so they’re helpful for comparison. Prices declined during 2007 through 2011, so I didn’t include those years. What do you notice?

Two Observations:

1) More: Today we have more than three times the number of million dollar sales compared with the past cycle. This makes sense because prices in East Sac have generally surpassed where they were prior to the “bubble” bursting. Thus some of the growth is simply because of where prices are at today.

2) Expansion: The million dollar market used to be concentrated almost exclusively in the Fab 40s and McKinley Park area, but it’s definitely expanded into other places. Over time we’ve seen lots of old homes torn down and rehabbed, and demand for the market has also increased. There is even a newer development called Sutter Park that is already fetching million dollar pending contracts in a location that has previously not seen that price point.

THE BIG TAKEAWAY: As neighborhoods change, so can value. In other words, just because value was one way in the past doesn’t mean it will be the same today. This is why over time we tend to see pockets of value emerge where buyers are willing to pay much than they used to. On the other hand it’s possible to see neighborhood decay where demand wanes and buyers tend to look elsewhere. I’ve written about the four stages of neighborhood life before, so I won’t rehash that much, but it’s so important to stay in tune with how markets are changing. Is the neighborhood growing? Is it stable? Is it in a stage of decay? Are we seeing rebirth? These are all good questions to ask.

Luxury Market Speaking Gig: I’m giving a presentation tomorrow at a luxury market event. I’ll likely share these two images as one of my talking points. Come by the event if you wish (I think you have to register).

What’s the market going to do? I was asked on Norm Shriever’s podcast recently about what the market is going to do in Sacramento over the next few years. In my mind these are some of the bigger points in this conversation.

Questions: What stands out to you about the images above? What sort of change have you seen in markets where buyers are willing to pay more or less? I’d love to hear any stories or examples.

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More owners, less sales, & confidence

January 28, 2019 By Ryan Lundquist 15 Comments

I have a few things on my mind. Let’s talk about more home owners, slumping volume, confidence, and outliers. Anything to add?

Increasing home ownership rate: There’s so much dreary news these days because of slumping sales volume. So here’s some good news first. We’re seeing an uptick in the home ownership rate (especially with buyers under 35). Check out the right side of the graph. It doesn’t look like much, but it’s welcome news. Image source: Len Kiefer.

Slumping volume & the Superbowl: Last week CNBC published a story stating national sales volume was down 6.4% in December. This is something we saw in many markets across the country, though the Sacramento region was down a whopping 25%. Right now we’re watching closely to understand how this will play out in the new year. The market is starting to wake up, but it still has a subdued feeling as early January is usually slow. In Sacramento many agents report the market starts to heat up after the Superbowl. Being that the big game is this Sunday, let’s watch stats closely in coming weeks.

Confidence: I like what NAR Chief Economist Lawrence Yun had to say about sales volume in this CNBC article: “The latest decline is harder to explain. Perhaps it is the decline in consumer confidence that’s been occurring in the latter half of 2018.” As Yun mentions and we’ve been talking about, interest rates going up really slowed down the market last year. But is it more than just rate changes? Could it be consumers losing confidence in the market? That’s something we have to explore and watch over time. How do you think we’d gauge that? I’d love to hear your take in the comments.

The Governor’s outlier purchase: I mentioned California Governor Gavin Newsom just bought a house in Fair Oaks for $3.7M. Well, here’s what that purchase looks like on a graph. It’s an outlier in price, but it’s also an outlier because of the huge lot size and square footage. It’s the fifth highest sale ever in the county and definitely the highest ever in Fair Oaks.

That $238M sale & Sacramento’s Top 10: You probably heard about that $238M sale in New York. Crazy, right? Did you know $238M would allow you to buy 25% of all listings right now in Sacramento County? That’s nearly 500 homes. Speaking of high sales, here’s the region’s Top 10.

I’m expecting really dull January stats: I imagine we’ll see dull sales stats in many markets in January, and that’ll be the case in Sacramento where it looks like sales volume could easily be down 15-20%+ again. I’ll know more in two weeks for sure when I pull my stats. In short, it’s a big deal if we don’t start to see this trend turn around over the next few months. It would be a sign the market has changed. Let’s remember though that January stats don’t actually tell us about the market in January. In fact, January sales tell us what the market used to be like in November and December when these properties got into contract (and then closed in January).

Preview of 2019 trends right now: The big question right now is what the market is going to do in 2019. We’ll begin to see that in sales stats in March and beyond, but right now we’re getting a preview in the listings and pendings of today that’ll eventually become sales.

I hope this was interesting or helpful. Thanks so much for reading.

Upcoming speaking gigs: I’m speaking in so many places lately. It’s been insanely fun. Here’s some upcoming talks in case you’re around. I’m doing a blogging class soon too.

Making graphs: Last week I asked if anyone wanted to learn to make graphs. Here’s a tutorial for how to make neighborhood sales graphs. This was a game-changer for me to learn. I’ll do a tutorial soon for how to make the price per sq ft graph I showed last week (hopefully in the next couple weeks).

Questions: What are you seeing in the market so far this year? Normal January or not? And Rams or Patriots? I’d love to hear your take.

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Sacramento real estate trends

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