A spike in listings & sitting on the market

June 20, 2022 By Ryan Lundquist 21 Comments

The pile of listings is growing, and it’s taking longer to sell. That’s what so many housing markets across the country are experiencing right now. We’re on the cusp of seeing some real change in the stats over the next few months. Here are some things on my mind. Anything to add?

wooden house with a red arrow up. The captionn is the blog post title.

Why have we seen a spike in listings?

We have almost 3,400 active listings today in the Sacramento region. This is actually still lower than a normal level, but over the past two months there has been a dramatic uptick. What is causing this change? It’s not that sellers have rushed to list, but rather we’re seeing fewer buyers. Since April we’ve easily had over one thousand fewer pendings in the region. Instead of getting into contract, these properties have essentially stayed active. In short, we’ve seen a rise in listings due to a fall in demand.

It’s taking longer to sell (check out the actives):

I think this is a helpful way to show market change. Sales in June have gone quickly, it’s taking longer for pendings to get into contract in recent weeks, and active listings are really starting to sit. And when actives close eventually, that’ll really affect the stats. Do you like this visual?

A data table to show days on market trends for varioius areas of Sacramento. It basically shows sales in June, pendings since June, and current actives. Here's the trend. It's take longer to sell.

NOTE: Sales in June got into contract in May, so they really tell us more about what the market was like in May.

The stats are hot, but that’ll change more in July:

The market has been changing, but we haven’t seen too much change in actual sales stats yet. The truth is it takes time for temperature change to show up in the numbers. This dotted line projects days on market through July based on pendings so far in June. The black line (2022) is going to get a whole lot closer to the red line (pre-pandemic average). We are still not back to a normal days on market, but that can happen quickly. As I’ve said, we’ve waived goodbye to the most aggressive market ever. This is key to recognize since it’s simply going to take longer to sell today.

Duh, it should be taking longer:

Some of what we are seeing is seasonal because it should take longer to sell at this time of year, but we’ve also experienced a market shift since affordability has been given a severe beating in recent months. So, what we are seeing isn’t just seasonal. This is about a bigger change where buyers are struggling to afford and stay in the game.

I’m exhausted and out of quarantine:

I just got out of quarantine. Covid finally got me after all this time. My family actually had to cancel a New York vacation last week because of this, so that was a real bummer. I honestly so needed a vacation, but that’s water under the bridge now. Anyway, I’m grateful for health, and I’m also really tired, so I’ll be inching back to work and trying to pace myself.

Thanks for being here.

—–——– MORE VISUALS FOR THOSE INTERESTED ———––

GLOWING AND SLOWING:

There are two housing markets right now. Glowing sales stats from May. And slowing stats in June. This is important to recognize because we want to understand sales from the past while not ignoring listings and pendings today. The stats from May are still quite elevated in that properties sold a few percent above the list price on average. On one hand this reflects a market that is still statistically above the normal trend, but on the other hand let’s remember sales in May really tell us more about pending contracts in April (that closed in May). My advice? Recognize hot stats from previous months, but don’t ignore slower metrics right now with fewer offers, increasing days on market, dropping sales volume, more price reductions, etc….

SHARING POLICY: I welcome you to share some of these images on your social channels or in a newsletter. In case it helps, here are 6 ways to share my content (not copy verbatim). Thanks.

Some visuals…

YEAR OVER YEAR:

Annual stats are important to digest, but don’t forget to look at month to month stats. But remember, sales in May really tell us what the market used to be like in April when these properties got into contract. Also, not every location and price range have the same trend.

MONTH TO MONTH:

Looking at sequential months is key too so we don’t just get stuck or hyper-focused on last year (the past).

OTHER VISUALS:

Just in case you’re hungry for more…

MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.

Thanks for being here.

Questions: What are you seeing out there in the market? What did I miss? I’d love to hear your take.

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

Buyers gaining power & farewell real estate honeymoon

June 6, 2022 By Ryan Lundquist 14 Comments

Sellers haven’t had to negotiate much with buyers over the past two years, but that’s changing. As of today, a whopping 35% of active listings in the Sacramento region have had a price reduction (more here). This is a big change from the market we had just a few months back, so let’s talk about one aspect of a power exchange – seller concessions.

A light blue background with some wood slats on the bottom. The title says, "Sellers, you've lost some power."

THE HONEYMOON IS OVER: It’s like the market was on a honeymoon for nearly two years. Nothing but glowing stats, mimosas, and tropical paradise. Now it’s trying to figure out what normal looks like as the honeymoon stage is over. Of course, the doom perspective would say divorce is coming…

EXPECT MORE CONCESSIONS: We’re poised to see sellers have to negotiate more often with buyers, so expect to see more credits for repairs and closing costs (or price reductions instead). We’ve seen a quick rise in the number of active listings, so sellers have so much more competition right now. We still technically only have five weeks of housing supply, but this feels way different than two weeks of supply about six months ago. We’ve become really used to anemic supply, so having about 3,000 actives feels like a massive amount (even though closer to 4,000 would be normal). In short, we’re poised to see supply continue to rise since we’re seeing fewer pending contracts – and therefore more listings that are staying on the market. Anyway, back to the topic. Seller concessions won’t happen in every transaction, but this will hands-down be one thing we see more frequently due to buyers gaining power lately. By the way, here’s a post about why appraisers ask about concessions.

FIVE THINGS TO KNOW ABOUT CONCESSIONS

1) Concessions to buyers have fallen for two years

Ever since rates dipped below 3% in the summer of 2020, we’ve seen fewer concessions being given to buyers. This means sellers haven’t been offering credits for repairs or helping to cover closing costs as much as they were doing previously. About 42% of transactions had concessions in July 2020, and that number has been closer to 25% over the past couple of months.

Action Step: Be ready to see this percentage increase in months ahead as we move beyond the hottest market ever.

Here’s a different way to look at it. Numbers instead of percentages.

2) There are more concessions at lower prices (duh, thanks)

Not a shocker. The lower the price, the greater the chance there will be concessions given to the buyer from the seller. For instance, between $400,000 to $500,000 so far in 2022, about 30.3% of all transactions have had concessions. And above $1.2M, only 16.2% of sales have had concessions. Don’t make too much of under $400K since there aren’t many sales.

Action Step: Recognize the market temperature isn’t the same in every price range and neighborhood. Also, expect for these percentages to start ticking up. This is basically what a really aggressive market looks like, and it’s time to see the stats move beyond that.

a bar chart to show concessions by price range in sacramento county

3) Most credits have been under $10,000

In Sacramento County so far in 2022, over 26% of all sales in MLS have been listed with concessions to the buyer. Among these sales, 91.6% gave a credit under $10,000, which means we’ve overall seen a modest dollar amount given to the buyer (when considering higher home prices).

Action Step: Sellers, don’t be afraid to give a credit if that is the thing that helps get your deal done. Gone are the days of not negotiating.

4) The average concession amount has been $4,987 in 2022

The average concession amount in Sacramento County this year has been about five thousand dollars. It’s rare to see concessions above $20,000, and only one sale was above $30,000. It does happen, but the bulk of the blue dots are below $10,000 (with the average at $4,987).

Action Step: Buyers, you’ve gained power, but be careful about asking for too much. You still need to bring a strong offer – especially at lower price points where there is more competition. Back in 2009 sellers often gave a credit at 3% for closing costs (when prices were lower), but that hasn’t been common today. If it becomes common, so be it, but for now it’s not what I’m seeing when looking through concession descriptions and figures in MLS.

5) The most common concessions are…

Here is a word cloud to show the most common concessions in Sacramento County in 2022. The larger the word, the more common the word was in MLS. I made this by exporting concession descriptions to wordclouds.com.

A word cloud to show the most comment concessions

And here is a list with the top concession descriptions shown in MLS. The number one word was “closing” due to “closing costs” being a massive reason for concessions.

Action Step: Sellers, many buyers are going to want help with closing costs or repairs in coming time since affordability has taken such a hit lately. It would be wise to recognize this and negotiate as needed.

DATA SOURCE: These visuals represent concessions data found in MLS. This is not a perfect dataset since the concessions field is not required for every listing. This means sometimes agents simply do not fill it out. However, I wanted to take these stats for a test drive, and I think there is likely enough information to be meaningful for two reasons: 1) We can see a definitive trend through the years as the market changes; and 2) When agents select “yes” for concessions, it becomes required to enter a specific dollar amount. I suspect a few people might say “Call Listing Agent” is written instead of a dollar amount for concessions, but that’s not how it works. There is another field called “Concessions Description” where further details about the dollar amount can be provided. This is where we see things like, “Repairs for roof,” “Closing costs,” or “Call Listing Agent.” Anyway, I’m leaning toward liking these stats, but I’m also aware this isn’t perfect. In short, I won’t be basing my entire perception of the market on concessions data, but I do think there is something here to watch. Anyway, I’d love to hear your take. Yes or no?

MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.

Thanks for being here.

Questions: What stands out to you the most about concessions? What did I miss? Anything else to add?

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

Saying goodbye to the hottest housing market ever

May 31, 2022 By Ryan Lundquist 21 Comments

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.

A picture of a house made of money with the title, "Saying goodbye to the hottest housing market ever."

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.

This line graph shows a spike in home size during the pandemic in both the median size and the average size. The graph goes from 2012 through May 2022

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.

A bar graph to show the percentage of price reductions right now in the sacramento region. 33.11% of all listings have reductions.

4) Watch the forest and the trees:

I sometimes hear people make sweeping statements about the market while looking at only one example. My advice? Take time to know the forest and the trees. It’s key to understand the big picture of what the market is doing (the forest), while recognizing not every neighborhood and property is going to have the same dynamic (the trees). In other words, we want to be careful not to judge the entire forest based on a few trees. In real estate, the classic example is to judge the market based only on what is on our desk.

Confirmation bias: On a serious note, be careful of confirmation bias because it’s easy to look at a stat or small sample, and then paint the entire market with a doom brush or rosy narrative. There are many people who are so thirsty for a crash that all they see is doom. And there are others who aren’t recognizing a temperature difference because they’re too fixated on blazing hot headlines from the past. By the way, here’s a weekly video from Altos Research. I think Mike Simonsen has a balanced view of things. Worth digesting.

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.

A poll on how many offers agents are seeing. A poll from my Instagram stories. 13% of people saw 0 offers, 24% saw 1 offer, 49% saw 2-3 offers, and 14% saw 4-5 offers

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.

A picture of a unicorn sillouette with a statement saying, "I offered way over asking price. I just didn't know I was the only offer."

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.

A line graph to show pending contracts by the month since 2016. There is a line for 2022 that has dipped in recent months, so this visual helps show that pendings are down from previous years.

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).

A line graph from Redfin to show the number of weekly pending contracts in Sacramento County. The line for 2022 has dipped over the past 6 weeks, but over the past month it went a bit more horizontal instead of a massive downtrend

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.

A line graph to show adjustable rate mortgages from 15 years ago until now.

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.

Buyers feeling like they can actually get into contract. That's the title of this meme. It's a picture of one of the kids in the Stranger Things series (Dustin). Smiling kid.

This meme is of Eleven of Stranger Things with her hand extended. The title reads, "Sellers trying to use their power to bring multiple offers."

BONUS THOUGHTS:

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.

An image with a note to basically encourage people to remember to take care of their mental health. It's easy to obsess over real estate, but this is a marathon.

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.

MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.

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?

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

Fastest market ever & price deceleration

May 23, 2022 By Ryan Lundquist 13 Comments

The housing market has been changing these past couple of months. As I’ve been saying, it isn’t cold, but the temperature is surely different. Anyway, let’s talk about two things to watch in months ahead – price deceleration and days on market. Any thoughts?

A photo of a road with two lanes. One lane says "fast" and the other says "slow." There is also the title of today's post, stating, "Two things to watch in today's housing market."

This post feels a bit nerdy or heady, but this stuff is so important. I hope you pick up a few nuggets – even if you aren’t local.

1) PRICE DECELERATION:

When this year began, lots of people predicted and hoped for price deceleration. The idea is price growth would slow, so instead of being 20% higher compared to last year, the percentage would start to be lower over time.

It’s possible we’re starting to see deceleration in the stats, but we still need a few months to be sure. See image.
We’ve been growing at a freakish pace, and we need to see slower growth for the sake of health.
This doesn’t mean prices are declining, though some sellers have priced lower than recent sales to generate interest (or multiple offers).
Last year was really aggressive and this year the market crested a month early. In short, let’s be aware of what we are comparing.
Not every local county is showing deceleration like the regional image. This is why I’m saying we need a few more months of stats. This is simply a preview of some trends on my desk. Frankly, it could take a bit to see price deceleration in the stats, but let’s be on the lookout.

A lline graph to help show price deceleration starting to happen.

2) DAYS ON MARKET:

I have some brand new visuals to help us watch how long it is taking to sell so we can gauge a change in temperature. Do you like these?

We’ve had the fastest market ever over the past two years.
It’s starting to take slightly longer to sell.
We are still quite far from a normal trend (the red line).
Pendings are moving quickly, but let’s not forget to look at what isn’t selling too (properties with price reductions).
I expect to see the black line (2022) tick up in coming months.
For the sake of market health, we want to get closer to the red line where it’s taking 30 or so days on average to sell.

A line graph to show multiple years of days on market in Sacramento County. This shows the past two years have been the fastest-moving years ever compared to all other previous years

A look at the average and 2022 days on market. A l ine graph to show these two years.

A line graph to show that we've had the most aggressive market ever over the past two years

TOP GUN REAL ESTATE MEMES:

Lately I’ve been making more real estate memes. It’s just how my brain works. Anyway, Top Gun 2 is coming out in a few days, so I give you the following. The second meme alludes to buyer “love letters.”

A meme showing Tom Cruise shake Val Kilmer's hand (Top Gun actors). The title says "Sellers finally negotiating a bit more with buyers."

Another Top Gun meme. Tom Cruise is singing to Kelly McGillis with other people in the background in a bar. The title says, "Buyers trying to impress sellers without violating fair housing laws of course."

MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.

Thanks for being here.

Questions: What are you seeing out there in the market? What do you think of the new visuals?

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

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