Normal? That’s not a word we’ve used much to describe the housing market lately, but we are finally starting to see some normalcy. Many parts of the country are showing what looks to be normal seasonal slowing and that is a sight for sore eyes. Anyway, let’s talk about this and then I have lots of local stats.
The normal that should be happening: The market right now should be slowing for the season. That’s what normally happens and it’s what we are seeing in so many areas of the country too.
Sorta kinda normal: When a market cools for the season we tend to see some of the signs in the image below to one degree or another. Even though we are beginning to see many of these things show up in the market, we really cannot say the market is fully normal yet because supply and demand are still too imbalanced. But any hint of normalcy lately is actually a really good thing. Imagine the chaos of seeing another year like last year where the market just kept going up through the fall. That is exactly what we don’t want to see.
Anyway, which signs are you seeing or not seeing in your area?
Now let’s talk about slowing.
I’ve had a number of emails lately critiquing my use of the word “slowing,” so I wanted to talk about this openly. I hope that’s cool. If this isn’t your thing, just scroll down. By the way, I’m always good with constructive critique too.
Bro, don’t say slowing: Over the past few months the market has slowed. Or wait, it cooled. No, the temperature changed. I mean, it’s normalizing. Uh, it’s actually stabilizing. Thankfully there isn’t just one way to describe things. I’ve been talking about a seasonal slowing for months because that’s the story the stats are telling. But the word “slowing” almost seems offensive to some, so let’s talk about that.
The market isn’t fragile: The housing market is big and I feel like it’s splitting hairs to argue about whether we should use the word slowing, normalizing, or cooling. Here’s the thing. Use whatever word you feel best represents the market, but it’s probably going to take a few key phrases to do the trick. No matter what, recognize the market is NOT fragile (“fra-gee-lay“) and it doesn’t need you or me to protect it with glowing words. Look, I can think positive thoughts all day long about cryptocurrency, but that doesn’t change the value of bitcoin. In terms of housing, the market is dynamic, multi-layered, complex, and there is no such thing as jinxing the trend by using less-than-glowing words.
Moving fast & slowing: If you aren’t down with the word slowing, that’s fine, but in my mind it’s a reasonable way to describe the market. But to say slowing alone isn’t perfect either as I keep saying because the market is doing two things. It’s moving really fast. And it’s slowing for the season.
Okay, I won’t talk about this again for a while.
My commitment: I will never spin data or sugarcoat things to sound better or worse than they are. My goal is to be neutral while presenting analysis based on the numbers. I’ll come up with helpful word pictures to describe the market too (and sometimes crazy comparisons).
—–——– STATS SHOWING SOME NORMALCY ———––
Skim or digest slowly.
THE SHORTER VERSION:
The market is still moving faster than it should be for the time of year and stats are still just about at all-time high levels, but the market is hands-down cooler than it was a few months ago. That’s the story stats are telling and it’s absolutely what I’m hearing from the trenches of escrows. “The market is not slow, but it’s slower than it was” sums it up perfectly.
Overall it’s starting to take a little longer to sell, there were fewer multiple offers last month, and prices dipped from their peak in June. But overall stats from July to August were pretty flat, so if someone said the market felt a bit horizontal, I wouldn’t bat an eye. Of course we do expect some renewed attention on the market as the kids get back to school, so stay tuned for that.
One quick thing. I’m watching cash purchases and while we still don’t have much cash in the market, there has been a noticeable uptick these past two quarters.
Some visuals eh…
NOT AS MANY MULTIPLE OFFERS:
For four months in a row in the region we’ve seen multiple offers subside. Last month 62% of sales had more than one offer and that’s one of the most competitive months ever, but there is no mistaking a cooling seasonal trend too.
IT’S LESS COMPETITIVE:
The market is still ultra-competitive, but this image is crystal clear that the temperature of the market has changed in recent months. Even though prices were flat from July to August, this visual shows clear slowing from a few months ago. This is exactly what we should be seeing at this time of year. But here’s the thing. We should easily have half or more of sales selling at or below the list price, so this market is NOT normal yet.
This visual below is striking because it shows definitive change. A few months back I started to point out this change and it was incredibly minor then. I know at times it’s easy to scrutinize mentioning small changes and some people even get bent out of shape, but sometimes small changes are the beginning of a trend. That is EXACTLY why we pay attention to the small stuff (while not getting sensational).
PRICES PEAKED IN JUNE:
These visuals help show prices look to have hit their seasonal peak in June. This is pretty normal and historically August is sometimes lower than July and sometimes about the same.
VOLUME IS SLIDING (NORMAL):
The number of sales peaked in June and now we’re seeing fewer sales happening. This is exactly what should be taking place. The red line represents 2021 and it’s very consistent with the green line (which is the market average).
INVENTORY IS UP SLIGHTLY:
Monthly housing supply is still sparse, but it’s up from a few months back. It actually declined slightly from July to August in most local counties. Ultimately supply is still SO LOW. But isn’t it amazing how with even this slight uptick lately we feel a difference in the market?
IT’S TAKING LONGER TO SELL:
It took a few days longer to sell last month in Sacramento County, which is what we should be seeing at this time of year. Properties are still selling about as fast as they ever have, but clearly we’ve seen a softer trend over the past few months compared to the intensity of spring.
HOW PRICES ARE DISTRIBUTED (NEW IMAGE):
This visual shows how prices are distributed throughout the market. In other words, about 10% of homes last month sold between $300-400K (just to give a clue on how to read this one). This is a new visual. Do you dig it?
SMALLER HOMES ARE SELLING (HUGE POINT TO WATCH):
It’s normal around this time of year to start to see the types of homes selling change. We tend to see the largest homes in the market sell during the height of spring and then smaller homes for the rest of the year. There was actually a huge spike of larger homes selling during the first year of the pandemic, so it’s going to be interesting and important to watch how this trend unfolds. Keep in mind some of the massive price increases over the past year has to do with a focus on larger homes.
LAST YEAR VS THIS YEAR:
Year over year comparisons get a little weird these days because the market was so atypical last year, but in my opinion this is still worth digesting since we want to be good students of the market. I suggest taking these percentages with a grain of salt and recognize these percentages DO NOT actually mean every house is worth that much more either.
JULY TO AUGUST FEELS A BIT HORIZONTAL:
The market was somewhat flat month to month. Nothing too sensational. Keep in mind some of the smaller counties have fewer stats, so the numbers bounce around each month. This is why I would suggest giving strong weight to Sacramento County and the region as a whole to decipher the bigger trend in the market.
ONE LAST VISUAL:
Price per square foot as a metric has yet to soften. I think it’s going to take a little longer for that because smaller homes have been selling these past few months and since smaller homes tend to have a higher price per sq ft, it only means this metric is going to be a bit more inflated.
Anyway, this is getting too long…
Do you see what I mean about the market trying to get back to normal? What a different vibe from last year.
Thanks for being here.
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Questions: What are you seeing out there in the market? What do you think about my take on the market not being fragile?