The housing market is really starting to feel the pain of rising mortgage rates. Today I’d like to reveal some new stats from October to show what I mean. I also have some thoughts on the spring season when prices drop. Whether you are local or not, I hope this is helpful.
This message is designed to skim quickly or digest slowly.
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11/4/22 Market update in Roseville (real estate pros only (details here))
11/15/22 Sacramento Bee Q&A at 12 p.m. (RSVP here)
11/17/22 Fair Housing Lunch & Learn (RSVP here)
5/12/22 Safe Credit Union Webinar (details TBD)
01/18/23 WCR Market Update at Cameron Park (details TBD)
01/19/23 Important market update at SAR on Zoom (details TBD)
01/23/23 Market Update with Joel & Mike (details TBD)
A 40% DROP IN VOLUME IS A SYMPTOM OF FIGHTING
We are seeing that many markets across the country are experiencing a decline in sales volume, which is the by-product of a rapid shift in affordability due to rate increases. In Sacramento, volume took a beating last month. We still need a week to solidify the numbers, but we’re going to be down about 40% from last year. Keep in mind that most October selling was contracted in September when rates were at 6%, so a 40% drop doesn’t even reflect rates of 7% yet.
NOVEMBER VOLUME WILL LIKELY BE WORSE
In October, the volume of locally pending contracts fell by 40% to 50% depending on the week according to Redfin and Trendgraphix. This means November closed sales volume is likely to be hit harder than October, which highlights that 7% rates are pulling more demand out of the market (thanks Captain Obvious).
NOT ABOUT DOOM
By the way, I don’t write like a disaster guy. It is a matter of perspective formed by statistics. This may not be easy for some to hear, but I just want to talk about the market that actually exists. I have no interest in promoting a pink narrative too.
NOT EASY TO ADJUST FOR SELLERS
Prices changed so quickly that it was difficult for sellers to adapt. I’ve had a few conversations recently about salespeople feeling remorse for not accepting an offer in the spring or early summer. A seller now has an offer about $60,000 lower than an offer made a few months ago. It is not easy to swallow, but it is the reality that imposes itself on us. I’m also not saying that prices have dropped by exactly $60,000 everywhere, but there has been a noticeable drop (more on that soon).
PRICES FLIRATING WITH LAST YEAR
As I said a few weeks ago, it looks like the median is about to dip below last year. So far in Sacramento County, the preliminary median price for October is $1,000 lower than the same time last year. It’s honestly too early to pull the monthly median, so I’ll share a solidified version next week. We’ll see how the numbers change by next week.
Besides, here is a thread with weekly price charts (instead of monthly).
WHAT HAPPENS IN SPRING DURING A DOWN MARKET?
Alright, now some quick thoughts on spring when house prices are down. I think a lot of people are wondering what’s in store for us at the start of 2023. In short, not all spring markets are the same, but if you look at the decline years of the 1990s and 2000s, there’s many years when prices rose slightly or seemed more stable in the spring.
Seasonality does not always disappear: The darker bars show the median price from January through June, and in 2006, 2007, and 2008 there was a flat to slightly bullish mood for a few months before the declines persisted past the onset of spring. Of course, this could be due to the sale of larger homes in the spring, but even if this is the case, it shows seasonality isn’t always dead in years of decline. We will see what happens in 2023. It is difficult to predict this year because we are in a unique situation with rapid rate changes.
The 1990s: The price trend in the spring is a little more random in the 90s because sometimes the prices clearly fell in the spring (black bars), but in other cases like 1994 there was a much more pronounced seasonal increase.
Don’t get stuck on prices: I think the visuals above are really interesting, but they are also not the final charts as they only deal with the price. As I always say, don’t get stuck on price alone, because sometimes sales volume tells a more compelling story. Anyway, I guess it’s ironic that I’m only showing prices here, but I hope to share more context in the future. I have many thoughts about market cycles. The only thing I don’t have is historical volume data prior to 1998, so I’m listening if anyone has a local source for this.
Thanks to be here.
MARKET STATISTICS: I will have lots of market stats this week on my social media so watch TwitterInstagram, LinkedIn and Facebook.
Questions: How are 7% rates affecting buyers right now? What do you remember from my statistics above? What did I miss? I would like to hear your point of view.
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