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slowing market

The myth of the collapsing market (and a big Sacramento market update)

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Positive real estate news is sexy. It gets clicks. It makes us feel good. And we love sharing it. But what happens when the market cools? Well, it’s not always easy to digest. In fact, lots of people freak out and think the market is starting to tank when it’s actually just doing its normal thing of slowing. Today let’s talk about the danger of embracing the collapsing market myth, and then take a deep look at the slowing Sacramento market. Any thoughts?

The myth of the collapsing market: The market tends to slow down around this time of year. Just as the weather changes, so does the real estate market. The kids go back to school, sales volume usually starts to slide, inventory goes up, and prices soften. Yet despite this happening nearly every single year, we hear things like, “The market is beginning to take a big turn” or “The ‘bubble’ has finally popped.” Case-in-point, I watched a video a few weeks back from a national show that said new construction home prices in Texas were beginning to take a turn, and that the Texas market was six months ahead of everyone else. Maybe this show is correct, but my problem is the host made a huge sweeping market statement based on a VERY minor dip in prices from June to July. I suppose I could do the same in Sacramento since the median price dipped 1% last month. The truth is we’ll see many more articles like this in coming months because we tend to confuse a seasonal softening with a big market turn. It’s like we forget the market is cyclical at this time of year.

My advice? Cut through the hype and know the seasonal market wherever you are located in the United States. What does the market normally do at this time of year? What normally happens to prices, sales volume, and inventory? Understanding what a slowing season tends to look like can help us give advice to friends and clients, and we can avoid saying the market is tanking just because prices dipped last month. Of course at some point the market really could collapse, but unless we are seeing symptoms beyond a normal seasonal slowing, it’s probably okay to be cautious of a doom & gloom housing message.

I hope that was helpful or interesting. Any thoughts?

–——-——- Big monthly market update (it’s long on purpose) ———–——-

The stats have been glowing for months in Sacramento County, but last month we finally saw a dip in prices. In short, the glowing stats are now showing a slowing. But that’s not really a surprise because we all felt this slowing in the market for the past 30-60 days. It’s just we didn’t see it show up in the sales stats until now. After all, it takes a month or two to see slower pendings close escrow. Anyway, the median price dipped by about 1%, inventory increased, and most importantly it took 3 days longer to sell last month than the previous month. I know, there are still multiple offers and there is still upward pressure in some areas and price ranges. I get that. Remember, the market is slowing, but that does not mean it is dull or slow. Ultimately when looking at price metrics, the market is up anywhere from 7-9% from last year, and sales volume is about the same as last year too, which shows the market is trying to normalize. Housing inventory in the region is about 10% lower than it was last year at the same time, which reminds us that the market is still more aggressive compared to last year. Lastly, if the market was collapsing, I’d suspect we would be seeing a big change in the psyche of buyers, a big change in inventory, and a big change in sales volume. Not that the market has to tank the same way all the time, but if values were turning we’d likely expect to see something much more out-of-the-ordinary beyond all the normal seasonal stuff we’re seeing right now.

DOWNLOAD 66 graphs HERE: Please download all graphs in this post and more here as a zip file (includes a stat sheet too). See my sharing policy for 5 ways to share (please don’t copy verbatim).

SACRAMENTO COUNTY (more graphs & stats here):

SACRAMENTO COUNTY STATS:

  1. The median price is currently $348,000 and dipped 1% last month.
  2. The median price is 7.6% higher than the same time last year.
  3. Sales volume in August was 4.7% lower this year than 2016. There were 1668 single family detached sales last month.
  4. It took an average of 24 days to sell a home last month (one year ago it was taking 2 days longer).
  5. The median days on market last month was 12 days, which means properties are selling quickly.
  6. It took 3 more days to sell in August compared to July (median days).
  7. FHA sales were 22.6% of all sales last month in the county.
  8. Only 0.8% of sales last month were bank-owned & 1.5% were short sales.
  9. The avg price per sq ft was about $223, which is slightly higher than last month (8.7% higher than last year).
  10. The avg sales price decreased about 1.5% last month and is currently $378,885. This is 6.8% higher than last year.
  11. Cash sales were 12.5% of all sales last month.

SACRAMENTO REGION (more graphs & stats here):

SACRAMENTO REGION STATS:

  1. The median price is $389,900 and declined slightly last month.
  2. The median price is 9% higher than the same time last year.
  3. Sales volume in August was 0.2% higher this year than 2016. There were 2771 single family detached sales last month.
  4. It took an average of 28 days to sell a home last month (one year ago it was taking 3 days longer).
  5. The median days on market last month was 13 days, which means properties are selling really quickly.
  6. The median days on market increased by 2 days last month, which helps shows a slowing in the market.  
  7. FHA sales were 18.1% of all sales last month.
  8. Only 0.8% of sales last month were bank-owned & 1.48% were short sales.
  9. The avg price per sq ft was about $227, which is the same as last month (7.9% higher than last year).
  10. The avg sales price declined slightly last month and is currently $430,101. This is 8.6% higher than last year.
  11. Cash sales were 14% of all sales last month.

PLACER COUNTY (more graphs & stats here):

 

PLACER COUNTY STATS:

  1. The median price is currently $462,000 and increased about 2% last month (but still down from a couple months ago).
  2. The median price is 7.4% higher than the same time last year.
  3. Sales volume in August was 14% higher this year than 2016. There were 637 single family detached sales.
  4. It took an average of 30 days to sell a home last month (one year ago it was taking 10 days longer).
  5. The median days on market last month was 15 days, which means properties are selling really quickly.
  6. The median days on market increased by 3 days last month, which helps shows a slowing in the market. 
  7. FHA sales were 12.5% of all sales.
  8. There were only 2 bank-owned sales last month and only 9 short sales.
  9. The avg price per sq ft was $229, which is slightly higher than last month (7.4% higher than last year).
  10. The avg sales price increased about 0.5% last month and is currently $508.686. This is 7.7% higher than last year.
  11. Cash sales were 14.4% of all sales last month.

DOWNLOAD 66 graphs HERE: Please download all graphs in this post and more here as a zip file (includes a stat sheet too). See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: What are you seeing out there? What signs of slowing have you noticed? Did I miss anything? I’d love to hear your take.

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Six temptations to avoid when the market slows down

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At this time of year the weather begins to change, the kids are finally back in school, AND pumpkin spice lattes come back on the menu at Starbucks. Oh, and it’s normal for the real estate market to slow down.

sacramento real estate market- image purchased from 123rf and used with permission by sacramento appraisal blog

The Truth: Real estate is usually very seasonal, meaning the market heats up in the spring and begins to slow down later in the year. This is normal, and we know this intellectually, yet it’s still easy to freak out when properties start taking longer to sell or demand changes. This is why I hope this post will be relevant.

NOTE: There is a difference between a market being slow and showing signs of a seasonal slowing. 

Six temptations to avoid when the market slows down

  1. Freaking out: Just as we expect the weather to change during the fall, let’s expect real estate to change too. The public likes hearing positive news (“values are increasing”), so reporting a market slowing seems negative or anti-climatic, but it’s actually normal almost every single year (see this post and look at the fall graphs compared to the spring). On the positive side, a slower seasonal market might provide space for a vacation, relaxation, and most significantly an opportunity for the real estate community to communicate seasonal dynamics to clients. Of course when a market slows it’s not always easy to be self-employed since paychecks also slow. Yet when we start realizing the market slows during the end of the year, it helps us adjust our expectations and make plans for life and business. There has to be more to the last quarter of the year than being stressed until the market picks up again in the spring.  🙂
  2. Projecting the aggressive spring on summer: It’s easy to look back in time to a more aggressive market and want to price according to sales from the hot spring. But when the market has changed, be careful to look at values for what they are right now instead of projecting hotter seasonal trends of the recent past onto a fading summer or cool fall. This is just the same as not dressing for summer if it is winter (I do wear flip flops year round though). We have to do what makes sense for the current time.
  3. Putting too much weight on sales: Sales tell us what the market used to be like when the sales went into contract several months ago, but listings and pendings tell us what the current market is like right now. When values begin to soften during the fall, this makes it all the more important to look at listings / pendings instead of only sales. If the listings are priced at a similar level to recent sales, but not selling, this tells us the market has changed, and we might need to adjust our expectations (and prices). The same is true with the stock market. We wouldn’t use stock prices from three months ago as our gauge for today’s prices, but instead look at what stocks are actually selling for right now.
  4. Targeting that one magical buyer: We all want to attract the highest price ever, so it’s easy to hold out for that one cash buyer from outside the market who is going to pay more than anyone has ever paid. Yet we have to consider what the rest of the local market is willing to pay (this is what the appraiser is going to be considering too). If you lined up 100 buyers who are interested in the neighborhood, what is the most probable price most buyers would be willing to pay? That’s a good picture of what market value looks like.
  5. Refusing to reduce the list price: It can sting to reduce the list price, but if the price isn’t right, it’s time to change that, right? If you had something for sale on Craigslist and it wasn’t selling, would you keep the price the same? No, you’d change it if you really wanted to sell. How do you know if the price is wrong? If there aren’t any offers, you’re not “in the market”, but only “on the market” (Jay Papasan). An honest question: If the market is telling you to reduce the price, but you aren’t willing to do so, do you really want to sell?
  6. Not listening to your real estate agent: If you are an owner and your real estate agent keeps encouraging you to do something to the property or change the list price, but you’re not listening, ask yourself why you are not listening.

I hope this was helpful.

Social Media Podcast: By the way, a few weeks back I did a podcast with The Appraiser Coach on using social media. Here it is in case you want to give it a listen in the background. It’s geared toward appraisers, but there are probably relevant nuggets in there for anyone in the real estate community. Listen here or below.

Questions: What’s temptation #7? Did I miss anything? I’d love to hear your take.

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