I see fidget spinners everywhere. It’s incredible how popular they’ve become over the past few months, right? Though like any fad, the market is about to change. Well, that’s what my 11-year old son thinks anyway. He sensed a “bubble” brewing, so he unloaded some of his spinner inventory on the last day of school and ended up raking in $37 (little stud).
Slower “spin” in real estate: About this time of year the real estate market begins to cool or “spin” more slowly so to speak. Though at times it feels controversial or blasphemous to say that because it goes against the grain of an ultra-positive real estate shtick. Yet no matter what, it’s normal for values to soften every year, and right now we seem to be in the beginning stages of that. This doesn’t mean the market is not incredibly competitive still or values have stopped increasing. It just means high altitude values in spring tend to subtly begin a downward descent right about now.
Pregnancy analogy: The problem is when the market slows we don’t see it in the stats yet for a couple months. It’s like taking a pregnancy test. You can be pregnant, but an over-the-counter test won’t tell you that for two weeks even though your body has 100% changed. Similarly, the real estate market may have begun to shift, but we might not see any difference in the stats yet. For example, almost every year July sales take longer to sell than June sales. It’s easy to then say, “The market changed in July.” But the truth is things actually began to change in May and June. After all, let’s remember the sales that closed in July got into contract in May and June. Thus when July sales stats show a slowing, it really tells us the market began to slow a couple months prior.
The Point: Whether spinners or real estate, let’s watch for signs of change so we can speak definitively about trends and give solid advice. Let’s be cautious to not talk about markets like they always stay the same either.
I hope that was helpful or interesting. Any thoughts?
–——-——- Big monthly market update (it’s long on purpose) ———–——-
If you didn’t know, sales volume last month was the strongest May we’ve seen over the past 4 years. But don’t get too excited because sales volume for the entire year is about the same as last year. No matter how we look at it, price metrics are up 7-9% from 2016 and they increased by 2-4% last month. One of the themes that won’t go away is we have a shortage of housing. In fact, housing supply is 22% lower right now compared to last year, and it’s been putting pressure on values to increase – particularly at entry-level price ranges. The tricky part lately is many contracts are getting bid up due to multiple offers (even beyond a reasonable appraised value). This can favor sellers accepting offers from buyers who have more cash to make up the difference between the appraised value and the contract price, though FHA sales stats show first-time buyers are still finding ways to close deals. In higher price ranges the market feels much softer, though we are still seeing multiple offers when properties are priced correctly. This is a good reminder that it’s possible for the market to feel more aggressive than actual value increases. In other words, having multiple offers doesn’t mean values are increasing rapidly or at all. Lastly, we are starting to hear more about lenders rolling out 100% financing to help buyers artificially afford higher prices (sounds healthy, right?). I could go on and on with words, but let me share some graphs to show the market visually.
Sacramento County graphs this month (more here):
Sacramento regional graphs (more here):
Questions: Do you think we’re in a fidget spinner “bubble”? What else are you seeing in the real estate market? Did I miss anything? I’d love to hear your take.