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The housing market will get worse before it gets better

November 29, 2022 By Ryan Lundquist 14 Comments

It’ll get worse before it gets better. That’s pretty much true in lots of ways in life. Going through the teenage years, recovering from injury, remodeling a kitchen… and enduring a housing downturn. Today I have a few things to share, and I hope this will be helpful (especially #3 as you look to 2023).

UPCOMING (PUBLIC) SPEAKING GIGS:
12/5/22 SAFE Credit Union market update on Zoom (register here (free))
1/18/23 WCR Market Update in Cameron Park (details TBD)
1/19/23 Big market update at SAR on Zoom (details TBD)
1/23/23 Residential RoundUP on Zoom (register here (free))
5/22/23 Yolo YPN (details TBD)

Three quick things:

1) THE MARKET ISN’T THE SAME EVERYWHERE

The housing market is NOT the same in every part of the country, or even every sliver of the local market. Here are two images from John Burns Real Estate Consulting to show what I mean. Read their original post here.

Does anything surprise you on the list? It’s not a shocker that Sacramento made the falling list along with some of the usual suspects we’ve been reading about in media stories.

DIPPING PRICES IN SACRAMENTO

Here’s a look at the preliminary median price for November in the Sacramento region. I’ll solidify this visual in a week when we have more November stats collected. But do you see how the median price this year (black line) is officially below last year (orange line)? As I mentioned a few weeks back, 40% of pandemic price gains have been wiped away over the past six months. That’s not always easy to digest, but it is exactly what sellers need to hear right now. And again, the median is not a perfect metric as it doesn’t rigidly translate to every price range and location.

2) GETTING WORSE BEFORE IT GETS BETTER

Back to my blog title. It’ll get worse before it gets better. Someone saw this visual during a presentation last month and had an epiphany that closed sales volume got really ugly for a couple of years during the previous housing crash, but volume eventually returned to the market. I think the takeaway for this person was to hold on tightly right now, and hope for eventual recovery too. Of course, there isn’t any template for how a housing market needs to correct, so we don’t want to think of 2007 as the formula. But it does make sense to see some volume vanish for a season until the housing market starts to heal by becoming more affordable. It’s impossible to say how long volume will be subdued ahead, but we’ll get more buyers back as affordability increases and market confidence grows.

Worst November in Two Decades: I know this sounds super sensational, but it’s what the stats show. As of now it looks like we’re going to have the worst November in over two decades in the Sacramento region. It’s possible we could slightly surpass 2007 if an unexpected number of sales close over the next week, but November volume looks like it’ll be down about 43% from the pre-pandemic average, and down 49% from last year (Sacramento County is 46% and 50%). No matter how we look at it, nearly half the market is missing. Or we could say half the market is happening. Both trends are accurate.

November Rain: On a side note, all this talk of change reminds me of a classic Guns ‘N Roses song, November Rain.

Nothin’ lasts foreverAnd we both know hearts can changeAnd it’s hard to hold a candleIn the cold November rain

3) EXPECT A SPRING VOLUME UPTICK IN 2023

This might be helpful as you plan ahead for the spring market. It’s important to note that seasonal volume changes can still exist even in a downward market. Check out the visual below where the dark bars represent sales from January to June each year. Even in 2007, one of the worst years on record, we still saw a spring seasonal uptick in volume. This shows it’s really difficult to erase the seasonal trend in real estate – even when prices are plummeting. Granted, we don’t technically know what is ahead for the market, so if rates spike unexpectedly, all bets are off. For now, I would expect to see some seasonality ahead. This makes sense in light of stories from the trenches too where I’m hearing buyers waiting for better inventory in the spring, and some sellers will wait to list in the new year instead of December.

I hope this was helpful.

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

FREE WEBINAR ON DECEMBER 5TH:

I’m doing a deep dive into the Sacramento market on December 5th at 12pm. There is so much to talk about, and I’ll have about an hour. Thanks to SAFE Credit Union for making this FREE EVENT happen. Register here.

Thanks for being here.

Questions: What stands out to you above? What did I miss?

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

Bringing up the housing market during Thanksgiving dinner

November 21, 2022 By Ryan Lundquist 23 Comments

I don’t recommend talking about real estate during Thanksgiving dinner, but if you need some flavorful conversation, I’ve got you covered.

REAL ESTATE CONVERSATION STARTERS

Some spicy topics for the Thanksgiving table.

– Modern architecture: cool or ugly as sin?
– The Goonies house is for sale.
– Should we call it popcorn or cottage cheese ceiling texture?
– Inflation: How fun has this year been?
– Mortgage rates doubled.
– How long will interior barn doors be in style?
– Airbnb: Love it or hate it?
– Selling Sunset vs what it’s like to actually work in real estate.
– Why is the iBuyer model struggling since the market shifted?
– Elimination of single family zoning.
– Do “Gather” signs increase your home value?
– Declining home prices.
– Should I dance at Chippendales if I can’t make it in real estate?
– Who has incentive to buy, sell, and invest in today’s market?
– Why are sellers overpricing so much today?
– How to cultivate contentment no matter what the market is doing.

IF YOU’RE GOING TO MENTION RATES…

1) OLDER TO YOUNGER

“I bought my first house at 12%, so stop whining about 7%.” This is a great way to connect with the younger generation and bring encouragement about affording a house today (sarcasm).

2) FLEX YOUR LOW RATE

You’re basically a market genius and real estate prophet who clearly timed things perfectly, so brag about your 2% mortgage rate. Try to flex during dinner with something like: “Pass the cranberry sauce to the bro with a 2.25% rate.” This won’t be awkward at all. Haha.

3) BUYERS ARE WATCHING RATES & PRICES

Okay, let’s be serious. Prices have been going down in many markets across the country, and while property owners might worry about losing equity, buyers are actually excited for lower prices so they can eventually afford to buy. This reminds us that market trends aren’t the same for everyone.

Okay, this was just for fun. But to be real, I tend to think about potential things to say at the dinner table in advance so I don’t get sucked into polarizing political arguments where nobody wins. No matter what you talk about, I hope it’s connective and meaningful. And whatever is going on in life right now, may you have a deep sense of contentment and joy.

Happy Thanksgiving!!

THANK YOU

I appreciate all the conversations we’ve had this year. You’ve made me better, and I hope in a small way I’ve done the same for you. And I still haven’t forgotten when I was in the hospital two years ago and you carried me. It was humbling to be on the receiving end of a GoFundMe, but that enabled me to take a few months off to heal. I’ll never forget that.

Question: If you had to pick one of the topics, what would you bring up?

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

The housing market will figure it out

November 16, 2022 By Ryan Lundquist 29 Comments

The housing market has really changed, and it’s not an easy time to work in real estate. I know people in all parts of the profession who are having a hard time and wondering how to make things work. So, I wanted to share some perspective to hopefully bring encouragement. This post is sort of a combination of market trends and mindset. I hope it helps.

UPCOMING (PUBLIC) SPEAKING GIGS:
11/17/22 Bias & Real Estate Lunch & Learn (RSVP here)
12/5/22 SAFE Credit Union market update on Zoom (register here (free))
1/18/23 WCR Market Update in Cameron Park (details TBD)
1/19/23 Big market update at SAR on Zoom (details TBD)
1/23/23 Residential RoundUP (register here (free))
5/22/23 Yolo YPN (details TBD)

THE BIG TRUTH

The reality is we are in the midst of change and there is pain ahead. But the market will figure this out. Bottom line. And we can’t control what the market does, but we can control our response to the market.

IDEAS FOR BEING SUCCESSFUL IN A NEW MARKET

And now some encouragement. Or maybe it’s unsolicited advice. You decide.

– Work harder than ever before.
– Tighten up finances (both personal and business).
– Run toward the challenge of a new market.
– Expect fewer deals on your desk since fewer transactions are happening.
– Plan to make less money (and be grateful if you make more).
– Be okay that not everything is perfect.
– Strategize for how you need to diversify your business.
– Focus on building relationships and serving your network. If your network is small, it’s time to increase its size.
– Make a plan and work it. Be consistent in whatever you do.
– Plant seeds today that might not sprout for a couple of years.
– Expect more NOs before you get to a YES.
– Obsess over understanding who the buyers and sellers are today. Whenever you hear about a sale, ask this: Why did the seller sell? Why did the buyer buy? This give clues into who is playing the game right now.
– Know the stats better than anyone.
– Take your mental health seriously.
– Stop 24/7 housing market doomscrolling (seriously).
– Find things outside of work that give you life, and do those things.
– If you don’t have a hobby, it’s time to find or rekindle one.

WRITE A “DEAR DOWNTURN” LETTER

I know, this sound cheesy. I heard this idea from someone (Tom Ferry?). I’ve written a letter to myself called “Dear Downturn.” In my letter I lay out a plan for how I’m going to succeed in a down market. If this might work for you, go for it. Be as practical as possible about what you’ll do to position yourself for success. My letter includes things like write one weekly post, eat clean, get back to my goal weight, be a daily resource on social media, speak somewhere once a week, make a few longboards, get my turn-time down to X number of days… Here’s the start of my letter:

Dear Downturn

First of all, I’m not excited that you’re here, but I’ve been waiting for you. And I’m ready to take you on. Here is the way I’m going to conquer you.

HOUSINGWIRE PODCAST:

I just did this podcast. Check it out if you’d like. I think it goes well with this post because it’s about market trends without sensationalism.

CHOOSING HAPPINESS IN A DOWN MARKET:

It’s easy to feel awesome about life when business is thriving, but when things get tight or the phone stops ringing, that’s when we really get to find out what we’re made of. Here’s the sobering questions I’m asking myself. Am I only going to be happy during an up market? Or is it possible to have joy and contentment during a down cycle? I have to think it is possible, but it won’t happen by accident either. It’s time to get intentional.

MARKET CYCLES AND WORRY

Often when the market declines it’s a good five or six years of decline (in Sacramento at least). That might sound daunting, but it takes time for a cycle to adjust. The verdict is still out on how long the market will correct, so we’re not locked into any timeline. Of course, it feels like a game hosted by the Fed right now, so we’ll see what they do. I bring this up because if I’m lucky enough to live for thirty more years, and we have two more downward cycles within these decades, it’s possible prices could decline for more than a decade of my life ahead. This is important perspective. Am I going to be full of worry when the market is “bad” and only full of joy when it’s “good”? By the way, if this ends up being a typical cycle, remember the market doesn’t do a nosedive for the entire period. There can be portions of sharp and slower decline. It’s not just one speed for the entire cycle.

WINNING IN A DOWNWARD MARKET

People buy and sell real estate in all types of markets. In a down market, especially at the beginning, that’s when we see the biggest exodus of buyers since prices and uncertainty are too high. Today about 40% of the market has been missing lately in Sacramento, which also means 60% of the market has been happening. My advice? Focus on being a part of what is happening rather than fixating on what is missing. Also, some people who bought in 2008 and 2009 ended up winning big after the market rebounded. Technically prices still declined for three to four more years, but these buyers came out as major winners eventually as the market went up again. I mention this because it’s a good reminder that timing a bottom isn’t easy to pull off, and it’s not necessary in all cases either. I think sometimes people focus so heavily on geeky price metrics without giving enough weight to their lifestyle. Where do you want to live? Who do you want to do life with? What does your lifestyle mandate? Look, buy or don’t buy, but think about prices and your lifestyle as you make your decision. No pressure from me.

GEEKY ADVICE:

1) YOU DON’T HAVE TO BE ULTRA-POSITIVE:

If you feel tempted to only say positive stuff about the housing market, ask yourself why. Some real estate professionals think they have to keep it positive, so it can be challenging to know what to say when there is no longer a glowing honeymoon market. Now is the time to be real with what is happening. This is a season for buyers, so it’s time to abandon a seller-oriented narrative that focuses heavily on prices being up. It’s time to focus on buyers and sellers who are making lifestyle moves. What do buyers need to hear right now? What do sellers need to hear? Focus on that. If you are the expert, let people know exactly what it’s like out there. Tell the story of the market and help people find inroads to participate. Get rid of cliches and don’t promise everything will be okay (not a promise you can keep).

2) EMBRACE THE STATS, BUT DON’T DWELL ON NEGATIVITY:

This is a hard one. Some agent friends have even told me it’s tough to see some of my stats right now. My goal is always objectivity, but sometimes I feel like I’m swimming in a pool of negativity since the stats are showing declining prices and dropping volume. But this is where we’re at. If our market is going to decline for the foreseeable future, it’s time to embrace this new season and not stress over it. It is what it is. I’m not trying to be flippant about struggle, but either we can be defined by worry or we can find a way to embrace this next season of life and business. My advice is to know the stats extremely well so you can clearly articulate what the market is doing, but don’t let stats affect your mood. There has to be a way to embrace a downward trend without becoming the trend or getting sucked into a negative spiral.

3) FOLLOW & UNFOLLOW:

Choose carefully who you follow right now. Listen to objectivity and cultivate objectivity in your life. That’s what matters most. On that note, unsubscribe from people who are spewing sensationalism. It’s okay to step back from listening or following people if it’s too much for your mental health. And to be blatant, if my content feels like too much right now, take a break from my weekly post, hide me on social media, or unsubscribe. Take care of yourself (but please don’t live in denial).

I hope this was helpful. Just some stuff on my mind. Much love,

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 above? What did I miss? Any advice for real estate professionals right now? I’d love to hear your take.

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

Saying goodbye to pandemic home price gains

November 8, 2022 By Ryan Lundquist 16 Comments

Sellers have been saying goodbye to some of the equity they gained during the past couple of years. In Sacramento, we’ve actually lost 40% of the pandemic gains since May. Today I want to talk about price trends, and I hope this is helpful – whether you’re local or not. Skim quickly or digest slowly.

White wood texture background with the title, "Saying goodbye to some home equity."

UPCOMING (PUBLIC) SPEAKING GIGS:
11/15/22 Sacramento Bee Q&A at 12pm (RSVP here)
11/17/22 Bias & Real Estate Lunch & Learn (RSVP here)
12/5/22 SAFE Credit Union market update on Zoom (register here (free))
1/18/23 WCR Market Update in Cameron Park (details TBD)
1/19/23 Big market update at SAR on Zoom (details TBD)
1/23/23 Residential RoundUP (register here (free))

A meme from Dumb and Dumber with Jim Carrey and two actors in the front seat of a truck. Carrye has his hands over his ears. The caption reads, "Sellers not listening to the market."

THE POSTER CHILD FOR CHANGE

The trend isn’t going to be the same in every location across the country, but I suggest paying attention to pockets like Sacramento, Boise, and Phoenix that all seems to be the poster child for quick market change.

40% OF PANDEMIC PRICE GAINS ARE GONE

We’ve seen sharp price declines over the past six months as the median price has dropped by $75,000 (or 12%) since May in the Sacramento region. This is about three times the normal speed for seasonal softening. This doesn’t mean every property is literally worth 12% less, but I have to say the change is sizeable when looking at neighborhood comps lately and hearing feedback from real estate agents. Sellers, did you hear that?

Change: The median price rose $185,000 from the beginning of the pandemic, and $75,000 of that increase has disappeared over the past six months. Or we could say the median price is still up $110,000 from March 2020.

A bar graph from early 2020 to October 2022 to show the median price in the Sacramento region (a huge uptick and a sizeable downturn lately).

THE MARKET IS NOT A PARKED CAR

I heard someone talk about the housing market as if it was a parked car, but I disagree with the analogy because the market hasn’t literally stopped. For instance, over the past two months in the region there were 1,800 fewer sales compared to last year, but there were nearly 3,400 sales that did happen. I find it’s easy to fixate on the glaring portion of the market that’s missing, but let’s not forget to see the part that is happening.

NEIGHBORHOOD TRENDS

It’s easy to fixate on the median price for the region, but when appraising in neighborhoods my trendlines are also showing a sharp change. Here’s an example with the 95747 ZIP code in Roseville. As I talked about recently, I am definitely selecting the “declining” box in my appraisal reports.

95747 ZIP Code market trends in Roseville (a yellow scatter graph to show the downward trendline lately)

NO PRICE RANGE IS IMMUNE

“My neighborhood is super special.” I know, it really is, and so are you. But all ships rise and fall with the tide. What I mean is every price range has seen an effect from higher mortgage rates. Keep in mind volume is down in every single price range in the region too, which reinforces this point. However, the bottom half of the market has seen the biggest change in volume, which suggests buyers who are more sensitive to rate changes are having a more difficult time.

A bar chart to show the median price in various countiees in Sacramento since May

FLIRTING WITH LAST YEAR

This is exactly what sellers need to hear right now. The median price in the Sacramento region is the same as it was last October. On one hand this feels like a big event, but it’s really not a shocker since prices have changed quickly to adapt to a dramatic shift in the monthly mortgage payment. In other words, a sharp change in rates has led to a sharp change in the stats.

A bar graph to show the median price is the same as last year in the Sacramento region

OPENDOOR IS GETTING BODY SLAMMED

This market hasn’t been easy for iBuyers. 76% of Opendoor‘s active listings are listed below their acquisition price. This is blatant carnage. Keep in mind Opendoor typically has a 5% credit from the seller, but even with that it’s not enough to be profitable in so many of these listings.

Redfin: It was announced this morning that Redfin is stopping their iBuyer business. Here are some Redfin stats I posted on Twitter.

A chart to compare Opendoor acquisistion prices with the current list price among active listings in the Sacramento region (a bar chart)

WAITING FOR AFFORDABILITY

Prices have dropped, but this hasn’t translated to more affordability since rates have continued to rise. Some people are predicting lower rates in 2023, but we’re going to have to wait to see what happens. Almost nobody gets their rate predictions right, and I don’t pretend to have a crystal ball.

DOUBLE-WHAMMY FOR SELLERS

The problem with overpricing is prices are going down, so the longer you’re on the market, the more you lose. Not only will you have to lower the price due to being overpriced from the beginning, but you now have to lower even more due to prices declining since you listed. It’s a double-whammy.

A table to show the percentage and number of properties with price reductions right now in the Sacramento region by county

LOSING 2.5% PER MONTH

For five months in a row the median price has dropped by about 2.5% each month, and this visual helps show the change. The red line is the pre-pandemic average so we can see what “normally” happens from month to month. For instance, from September to October the median price normally dips by -0.07% (red line), but this year in 2022 the dip was -2.65% (black line). Remember, this doesn’t mean every property has literally lost 2.5% in actual value. Moreover, not every county has shown the same loss either by the month.

I can’t emphasize enough the importance of looking to neighborhood comps to understand the market. In other words, DO NOT automatically impose a downward 2.5% regional metric on a property (big mistake). But don’t take these stats lightly either. If anything, these numbers can be a cold shower to wake sellers up. There is a smaller pool of buyers right now, so price it right to meet buyers where they are at.

A line graph to help show monthly median price change in the Sacramento region. There is a red line to show what normal looks like and then a black line to show 2022. In short, the black line is way below the red line lately.

YEAR OVER YEAR STATS:

Here’s a look at stats compared to last year. Remember, closed sales in October really tell us what the market used to be like in September when the bulk of these properties got into contract.

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 PRICE VISUALS:

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.

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.

Questions: What stands out to you above? What are you seeing happen with prices right now? I’d love to hear your take.

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

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