The housing market sizzle has faded and we’ve entered a different season. We’ve basically said goodbye to the most aggressive housing market ever, and we’re in a new market now. Granted, the housing trend still feels elevated from normal, so it’s an error to call this market cold. Yet there is no mistaking a different temperature today compared to a few months ago.
10 THINGS ON MY MIND ABOUT TODAY’S MARKET
1) The pandemic rush looks to be subsiding:
There was a large spike in the size of homes being purchased over the past couple of years. We’ve seen more luxury properties sell (larger homes) and buyers at higher price points (larger homes) have been taking advantage of being able to work from home. Well, that looks to be moderating as we get back to a normal size. We still need a few months of data, so I’m a bit tentative in my announcement here. But for now, it looks like we’re starting to see more normalcy in size, which suggests the mad rush to the market has subsided.
2) The trend feels uneven:
Some properties are getting lots of offers and others aren’t, and some price ranges are more competitive. Most of all, we’re seeing buyers become more sensitive to price, location, and condition since affordability has taken such a beating lately. My sense is properties at lower price points are experiencing more competition (not a shocker), but homes at any price level that check all the boxes are tending to be ultra-competitive too. Sellers, it’s time to listen.
BREAKING NEWS: The housing supply streak is over. For 22 months in a row in the Sacramento region we’ve had less than one month of housing supply. We finally ticked up over one month.
3) Price drops are growing:
We’re starting to see more price reductions. We aren’t at an alarming level of reductions, but they are really growing. In fact, 33.1% of all active listings in the Sacramento region have had a price reduction, which means about 950 listings have a reduction right now. The following visual shows a breakdown of the dollar amount of reductions. For instance, 11.24% of properties with a price drop have reduced the price between $5,000 to $10,000. By the way, here’s a quick link from Altos to show a few years of price drops in Sacramento County.
4) Watch the forest and the trees:
5) Fewer offers being made:
We are still seeing a higher percentage of multiple offers compared to a normal market, but there are fewer offers happening from a few months back. Most agents tell me the number of offers has basically been chopped in half and then some from early 2022. This makes sense since purchase mortgage applications have dropped), which reminds us fewer buyers are shopping (big point). Here’s a poll I did on Instagram. This isn’t scientific, but the results would’ve looked much different a few months ago.
6) Becoming a unicorn buyer by accident:
I’ve heard a few examples where a buyer paid way over the asking price to secure a property, but there ended up being only one offer. One example I know about involved a buyer paying about $70,000 over asking price (and being the only offer). Thanks John for the convo about this last week.
7) Flattening pendings for May (but still down):
I put out this visual last month, and it shows a notable dip in the number of pending contracts in the region since April. Frankly, pendings have dipped in volume for over six weeks now, and preliminary stats for May show pending volume dipped by 14% from last year. Why is this happening? Because buyers are struggling to afford the market. There is no sugarcoating this reality. However, after a sharp dip in April, it looks like pendings flattened out in May (see black line). When some people saw the drop from March to April, the assumption was it would keep dropping at that pace. Well, that didn’t happen. What will this black line do in the future? I would expect for pendings to continue to be down from normal unless something interrupts the trend to create more affordability. Let’s keep watching.
Here is a look at Redfin research below too. Do you see the black line (2022)? There was a sharp decline for a couple of weeks, and over the past month the line flattened. One thing that has helped this line flatten (for now) is mortgage rates have been hovering around 5.5% instead of skyrocketing. The market feels very sensitive to rate changes, so I would expect to see rate changes affect the number of pendings from week-to-week (thanks Captain Obvious).
8) Increase of adjustable-rate mortgages:
We’ve seen more adjustable-rate mortgages happening lately. Is that good or bad? I’d love to hear your take. Basically, about 11% of recent loans nationally have adjustable rates. This is up from recent years, but way down from over 30% in 2005. Check out Mortgage News Daily to see how much lower adjustable rates are compared to fixed.
9) Quick change leads to quick change:
Mortgage rates changed quickly in recent months, and we are starting to see more change show up in the stats. I’d say the market hit an inflection point over a month ago where open house traffic dropped and the temperature was noticeably different. I suspect over the next few months we will see even more slowness hit the numbers. Basically, we should expect to see the sizzling market become even more tame since we’re seeing fewer pending contracts and an uptick of inventory. That is, unless something happens to interrupt the trend (mortgage rates unexpectedly dipping, for instance).
10) Sellers are having to negotiate with buyers:
Sellers have been in charge for so long, and generally they still have more power than buyers. But there’s no mistaking the market temperature has changed, so sellers have had to start listening and negotiating. While there are still some lopsided examples of paying over asking price, we’ve begun to see more credits given to buyers, more price reductions, and more negotiation for repairs. Finally.
A couple new memes I made this week. Anyone else watching Season 4 of Stranger Things? My family binged it, but I fell asleep, so I basically caught episode one and episode seven. Haha.
Mental health and housing doomscrolling
Look, I want to say one thing in closing. Lots of people are obsessing about the housing market and even stressing over stats and trends. It’s easy to watch the housing market like it’s cryptocurrency – constantly changing by the minute. But we need time and objectivity to see the trend, and the housing market doesn’t change every time we log on to social media. My advice? Take your mental health seriously by finding ways to add peace into your life in the midst of a changing real estate landscape. I’m not saying to ignore any stats either (not at all). I’m just saying to keep stats in their proper context.
There is so much more we can talk about. Let me stop here for now. Stay tuned for a big market recap for May in about two weeks.
Thanks for being here.
Questions: What are you seeing out there in the market? What number stands out to you the most? What did I miss?