The housing market is definitely heating up for the spring, but it still feels frozen with so many buyers and sellers sitting right now. I recently talked about sellers sitting out of the market, but today let’s look at buyers.

The housing market is definitely heating up for the spring, but it still feels frozen with so many buyers and sellers sitting right now. I recently talked about sellers sitting out of the market, but today let’s look at buyers.

UPCOMING (PUBLIC) SPEAKING GIGS: 3/06/23 Matt the Mortgage Guy YouTube Live 3pm PST 3/09/23 Matt Gouge Event TBD 3/10/23 PCAR Market Update Lunch & Learn 3/28/23 Downtown Regional MLS meeting 4/1/23 NAA Conference in Sacramento 4/13/23 Realtist Meeting 5/4/23 Event with UWL TBA

GOOD & BAD TIMES IN REAL ESTATE DON’T LAST

Last week I had lunch with a real estate broker who’s been in the business a long time. He said the good times never last. And neither do the bad times. I just wanted to remind everyone of this truth. I loved the way he put that.

14 YEARS OF BLOGGING

My blog turned 14 years old yesterday. It’s been a fun ride, and I’m so grateful for all the relationships that have been built. Here’s to lots of conversations ahead and getting through these awkward teen years.

HELLO SPRING VOLUME

The housing market is clearly heating up for the spring. The black line below represents 2023 weekly closed sales, and we’re starting to see an uptick for the spring season. It’s a normal trend for the time of year to see volume increase, so this line should keep moving up even though it’s still clearly down from previous years (which reminds us the market also feels frozen). 

MISSING & HAPPENING

When looking at the past 60 days of closed sales compared to last year, we’re missing 42% of volume this year. It’s easy to say we’re seeing fewer sales because of fewer listings, but this is about affordability rather than not enough listings (even though new listings have been down). For friends who work in real estate, I suggest dwelling on the part of the market that IS happening. I recommend obsessing over every escrow to understand who is buying and selling in today’s market (clues for how to focus business).

Okay, 2021 did have more sales, so let’s look at the pre-pandemic average too. This makes a slight difference in the stats, but really nothing major.

SELLERS & BUYERS

Sellers, the pool of buyers shopping today is still much smaller than normal, which means it’s critical to price correctly and negotiate as needed. Don’t walk into the room like you have all the power because buyers are sensitive to paying the right price, and we’re not seeing rampant overpaying like we did in 2021 (even though some properties are getting bid up). And buyers, be patient, be comfortable with the mortgage payment, recognize competition isn’t dead, and get all the market will give you. 

PENDINGS DID THE LIMBO DURING JANUARY

2023 started with low pendings, but that’s not a shocker since it’s been the trend for many months. So far, the story is the same in February with subdued pendings, though the number of pendings is picking up for the spring as the market heats up. The hope is to see pending volume tick up more substantially as affordability improves, but that’s tough with rates shooting up lately. For weekly pendings, check out Redfin data.

BUYERS HAVE BEEN SITTING SINCE THE SHIFT

January 2023 is obviously lower than the start of any other year, but check out the black line (2022). Pending contracts have been tapering since the market changed last year, so we have a clear trend of buyers holding tight. The reality is the graph for new listings looks just the same, so we have a chunk of both buyers and sellers sitting right now.

CLOSING THOUGHTS:

We’re seeing the seasonal market heat up right now, but the market still feels a bit frozen since we’ve been missing about 40% of buyers. The bottom line is we need affordability to improve to get back to normal levels. I feel like a broken record saying this, but it’s true.

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.

Questions: What is it going to take to see more buyers? What are you seeing right now in the listings and pendings? I’d love to hear your take.

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

The housing market is getting hot again for the spring. It went from an ice bath in the fall to a hot shower so far in January. It’s not scalding like 2021, but it’s been a striking change. Let’s talk about this.

The housing market is getting hot again for the spring. It went from an ice bath in the fall to a hot shower so far in January. It’s not scalding like 2021, but it’s been a striking change. Let’s talk about this.

UPCOMING (PUBLIC) SPEAKING GIGS: 2/8/23 SAFE Credit Union “Snacks & Facts” (for RE) (register here) 3/06/23 Matt the Mortgage Guy YouTube Live 3pm PST 3/08/23 Matt Gouge Event TBD 3/10/23 PCAR Market Update Lunch & Learn 3/28/23 Downtown Regional MLS meeting 4/1/23 NAA Conference in Sacramento

This post is designed to skim quickly or digest slowly.

THE HOUSING MARKET SO FAR IN 2023

It’s heating up & we need time: Each week we get a slightly better view of the 2023 market, so it’s important to keep watching different metrics to understand what is normal and what is not. In late January we’re finally getting a better view of what’s happening with pendings, actives, and prices.

Temperature shock: We had the worst monthly volume ever in the Sacramento region over the past 90 days. It’s like fall was a housing market ice bath, but now the market is a hot shower. Look, the trend feels so different right now, but part of me wonders if some of the heat perception is the result of such a stark contrast from cold to hot. Time will tell. 

Normal spring seasonal stuff: So far, we’re seeing typical signs of a spring season with more pendings, properties getting into contract quickly, more multiple offers, more mortgage applications, and new listings. The number of mortgage applications and pending contracts are still down though, so it seems premature to say the market is normal. 

Buyers are targeting older listings too: Buyers are targeting new listings, but stuff that’s been sitting on the market is also getting into contract. 31% of pendings in January are units that listed since January, but 69% of pending contracts listed before the new year. Nearly 18% of pendings listed before October 2022 too. Friends, demand woke up, and buyers aren’t overlooking older listings (they still aren’t overpaying though).

The spring feels hot, but not 2021 hot: The housing market was moving about twice as fast as usual for most of 2021, but that’s not the case so far in 2023. I’m not downplaying the temperature change lately, but I want to be careful about saying it’s 2021 all over again because so far the stats don’t support that. To give the market an awkward word picture, it’s Brad Pitt at 59 years old hot, not Legends of the Fall hot (sorry).

Sellers wearing golden handcuffs: Sometimes the narrative is sellers are rushing the market, but we’re not seeing that sort of dynamic. It’s as if rates at 3% over the past few years are golden handcuffs keeping prospective sellers from listing. Or maybe the replacement home is just so expensive today for most people regardless of the rate they have, so it’s hard for anyone to move. Anyway, new listings have been anemic in January as we’ve only seen about 1,100 units in the region compared to 2,000 last year for the full month. I’ll talk about final monthly numbers next week or so.

Higher-priced listings in 2023 so far: Larger homes are listing (normal spring trend), which means buyers are finally starting to have a higher-quality selection instead of smaller leftovers from the fall. The active units are being priced higher, which could in part stem from the size difference. Pendings in January are listed about 1% higher than the median price of January’s closed sales and 3% higher than December (normal trend). We’ll see where they close though because a pending price isn’t always the final price. In short, preliminary stats suggest we could see a spring price uptick. It’s still early to say this, but larger homes and higher prices in January suggest this could happen. And as I mention below, a spring uptick even happened in 2007.

The right price moves quickly: It’s that time of year where it’s going to take less time to sell. 28% of pendings in January so far got into contract within ten days, and about 46% of units got into contract within thirty days of listing. This underscores the importance of pricing it right. Technically the average for pendings this month has been a whopping 60 days, and a number that big speaks to lots of properties that got into contract that were listed prior to January. But here’s a stunning stat. Active listings have been on the market 86 days, and that shows how many stale overpriced units there are right now.

Lower prices are hotter: The hottest price point in town is under $500,000. In fact, 40.7% of all pending contracts in the region since January have been under $500,000. A whopping 49.7% of these pendings had multiple offers too compared to 37.9% of units above $500,000. Honestly, these numbers aren’t unexpected for what we should see since the bottom half of activity tends to be more competitive.

Not a buyer buffet: Buyers, you do have more power in today’s market, but there is still competition – especially for lower-priced units and homes that check all the boxes. In short, it’s not a buffet where you can take whatever you want at any price. As Realtor Jenica Williams said on my Facebook this week, “It’s a price war and a beauty contest out there.” As I keep saying, for anyone buying right now, be confident in your decision, be patient, and get the most the market will give you.

33 offers is NOT the new norm: There is a listing in Sacramento with 33 offers right now, which sounds wild, but it’s also an outlier. 8.7% of pendings in the region over the past two weeks have five or more offers. Look, the market is undeniably heating up for the spring, but let’s not give too much weight to sensational examples. A property sold at the end of November with 43 offers during one of the iciest months on record (closed at $315K). If a property is getting that many offers, there is probably a story and/or pricing strategy. If I went to the mall and saw one teenager sporting a mohawk, it would be a mistake to say, “Dude, every teen has a mohawk.” One example isn’t a trend.

Seasonal markets happen even during declining years: One of the things I’ve been emphasizing in recent months is a seasonal spring uptick tends to happen even during declining years. What I mean is decades of stats show there is an uptick in the number of sales and more attention on the housing market even in years like 2007 and 2008. Thus, today we want to be careful about interpreting a seasonal uptick as a full-on rebound. We need more time to make that determination in my opinion.

The market isn’t just one thing to everyone: I ran a poll yesterday on Instagram, and while it’s not scientific research, the results remind us the market isn’t the same for every escrow. We’re hearing some stories of offers above the list price, some properties getting multiple offers and still going below the list price, and listings without any movement at all.

Affordability is still a glaring issue: It’s possible some buyers have gotten used to the idea of 6% rates, and some are finding a bit of affordability relief in light of a 15% dip in the median price last year. But let’s be real. We’re still missing a ton of buyers in the marketplace, and we need to see more affordability to get these buyers back. Just this week a tenant told me it was cheaper for him to rent than buy (he was right). 

Might not go above the list price: A house in Sacramento has six offers, and the accepted offer is at the list price. This reminds us getting multiple offers today isn’t always the same thing as 2021 where so many listings were bid up with contingencies removed.

Is this 2021 all over again? Nope. And let’s hope the answer stays NO because that was total chaos. These days the mention of multiple offers can evoke housing market PTSD from 2021, but let’s remember getting multiple offers is a normal part of the real estate experience for a portion of the market. I keep hearing the sentiment that “multiple offers equals 2021,” and that’s false. Here’s a wide view to show what I mean. 46% of pendings over the past two weeks had multiple offers, which is a pretty normal level for the time of year, and we SHOULD be seeing more multiple offers in the spring season. Granted, if this percentage really starts to increase, then we’ll need to change our narrative. Keep in mind we started 2021 with about 70% of pendings with multiple offers, so it’s not the same vibe today (thankfully).

Has the housing market bottomed out? There is lots of talk about the housing market bottoming out. Bill McBride of Calculated Risk points out there can be an activity bottom and a price bottom. I think this is a genius distinction, and it’s what happened in Sacramento during the last housing crash where we had really subdued sales numbers for two years before volume rebounded. But prices still declined for multiple years after volume came back. Time will tell what happens ahead and how long this downward cycle will last, but with lots of focus on the market bottoming out, it would be wise to be looking for multiple bottoms (I know, that sounds a little pervy).

Pending volume is still subdued: The number of pending contracts is starting to see an uptick for the spring, but it’s still lower than a normal level. It’s possible we could see easily see 400 to 500 fewer pendings than last January, but I’ll report on that next week. What we want to watch ahead is whether the volume number starts to shrink. We’ve been missing about 40% of all buyers, and we can gauge when this number gets to 35%, 30%, 25%, etc… In my opinion, it’s really early to make a definitive call that volume or prices have bottomed out, so the next few months in particular will be helpful for volume at least (it’s really early to make a declaration on prices). Like I said in my 2023 outlook, I expect volume to be subdued this year, but with prices dipping, we will see some buyers come back. If rates end up dropping too, that will help even more.

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.

Questions: What are you seeing out there right now? 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.

A foreclosure wave is coming!!! And short sales are about to be unleashed!!! That’s often the housing narrative, and let’s talk about that while looking at some changes we’re starting to see in the Sacramento market. I hope this is helpful, whether you’re local or not.

Skim by topic or digest slowly.

A foreclosure wave is coming!!! And short sales are about to be unleashed!!! That’s often the housing narrative, and let’s talk about that while looking at some changes we’re starting to see in the Sacramento market. I hope this is helpful, whether you’re local or not.

Skim by topic or digest slowly.

UPCOMING (PUBLIC) SPEAKING GIGS: 1/12/23 Appraisal Buzz / McKissock Webinar (register here) 1/18/23 WCR Market Update in Cameron Park (register here) 1/19/23 Big market update at SAR on Zoom (register here) 1/23/23 Residential RoundUP on Zoom (register here (free)) 2/8/23 SAFE Credit Union market update (details TBD) 3/10/23 PCAR Market Update Lunch & Learn (detailed TBD) 4/1/23 NAA Conference in Sacramento

MORE DISTRESSED PROPERTIES ARE POISED TO COME:

There is no longer a foreclosure moratorium in California, so we should see more foreclosures ahead. We should see more short sales too since a sharp change in prices lately will mean some people who bought over the past year especially will start to owe more on their mortgage than the house is worth. I realize this can bring up lots of PTSD from the last housing bubble, and the inclination is to say we’re on the cusp of The Big Short 2.0 (classic movie). But having more distressed sales ahead doesn’t automatically mean there will be a distressed property avalanche like last time. The truth is it’s impossible to predict how many distressed sales we will see, but right now delinquencies are low, there is political pressure in California to not see foreclosures happen, we don’t have the problem of adjustable rate mortgages ready to reset, we’ve had a decade of strict underwriting, and lenders theoretically should have a more efficient process to handle short sales and loan modifications. We’ll see what happens, but I advise being careful about hyping a foreclosure tsunami. If I had to guess, I’d say we won’t have the same bank-owned bloodbath we saw last time, but we should still see more distressed properties ahead.

WE ARE AT THE BOTTOM:

We have bottomed out with distressed sales, and there isn’t any place to go but up. For instance, so far in Q4 we’ve seen 0.29% of all sales as either bank-owned sales or short sales in Sacramento County.

WE’RE SEEING A TRICKLE OF NEW BANK-OWNED LISTINGS:

There have only been 50 bank-owned sales in the Sacramento region this year, but there are currently 45 bank-owned listings, so there has been an increase in distressed listings. I’ve heard a few REO brokers tell me they are starting to get listings and hearing of more coming. I’ll admit I’m careful about putting too much weight in stories because we’ve been hearing about foreclosures coming for over a decade. But I am seeing more distressed listings hit the market, so there is at least something to this. No matter what, the number of listings is a DROP IN THE BUCKET of total volume, so be careful about selling fear. Yes, there is a trend here, but these aren’t 2007 foreclosure vibes either.

UNDER $500K: Most bank-owned listings are under $500K right now, and most are also under 1,700 sq ft. This tells us entry-level price points are experiencing more foreclosures hitting MLS (not a shocker).

OLDER UNITS: Most bank-owned listings are 20+ years old.

SHORT SALES LISTINGS ARE INCREASING

In all of 2022 there have only been ten short sales in the Sacramento region, but there are now 19 short sale listings. Some of these short sales are clearly due to market conditions (prices dropping), but others are personal circumstances. In other words, it’s not just one thing.

EXPECT MORE UNDERWATER OWNERS AHEAD

The market has seen sharp price change, so we should logically expect to see more people in a negative equity position. The most vulnerable groups are FHA and VA owners in light of putting little money down when purchasing. Over the past year, there were 3,278 FHA and VA sales in the Sacramento region, which is 13.7% of all sales. It’s hard to say how many local owners are currently underwater in their mortgage, but a good portion of FHA & VA buyers are candidates. Keep in mind there are conventional programs that require little money down, so conventional buyers aren’t immune from the trend.

Not everyone who is underwater on a mortgage is going to sell, so it would be a mistake to sensationalize this data or say things like, “13.7% of owners are in trouble.” Please don’t do that. Ultimately, if more people start feeling economic pain and job losses, that could help the trend grow. For now, we are at the beginning of a trend.

WATCH FOR INVESTORS:

A Realtor friend reached out this week and let me know of a local investor with some properties heading toward foreclosure and some possible short sales. In this case, the investor is having a problem with not enough cash for rehab costs. I’m not sure if there are other issues, but one of the struggles with flipping homes today is such quick price change has wiped out room for profit.

A LANGUAGE LEARNING CURVE:

There are lots of people who work in real estate today who have no idea what a short sale is, and they may not be familiar with terms like being “underwater.” Thus, there will be a learning curve ahead as this trend unfolds. I often joke with people saying a short sale is when a short person sells a home (sorry, dad joke). In truth, a short sale is when the owner owes more on the house than it’s worth, and the lender gives approval for the sale to happen despite that. And being “upside down” or “underwater” is a description of owing more on the house than its worth (nothing to do with Stranger Things or flooding).

LOCATION OF SHORT SALE LISTINGS:

There are only 19 short sale listings right now. Technically there are a few missing on this map because they are located in such outlying areas. The green pins are listings and the blue pins are pendings. 68% of short sale listings are in Sacramento County, 16% are in Placer County, and the rest are split between Yolo and El Dorado.

Nationwide FHA: Black Knight shows FHA delinquency rates have increased more nationally, so this is something to watch (see PDF).

1.44% OF LISTINGS ARE DISTRESSED IN SACRAMENTO (TECHNICALLY)

Only 1% of all current listings and pendings combined in the Sacramento region are bank-owned, and only 0.44% are listed as short sales. Technically we could say 1.44% of listings and pendings are distressed, but it’s also the end of the year, and there aren’t that many listings right now. In short, as more listings presumably hit the market in the spring, the percentage of distressed listings could get smaller. We’ll see.  

THE STATE OF CURRENT DELINQUENCIES

There has NOT been a major uptick in national mortgage delinquencies, but this is something we should watch – especially with talk about credit card debt rising. I think sometimes people are saying things like, “The foreclosure wave is about to hit,” but we aren’t having a massive delinquency problem. Could this change in the future? Sure. But for now, we need to let actual stats form our narrative instead of imposing a narrative of doom. As far as the future, if we have economic pain ahead, it would make sense to see more delinquencies. We’ll see. Visuals from Black Knight (see PDF).

AGENTS, PLEASE INPUT DATA CORRECTLY INTO MLS:

Friends, please input properties correctly into MLS if they are short sales or bank-owned properties. Accurate data helps everyone, and when stats aren’t accurate, it can lead to an off-base narrative.

BUYERS, DON’T GET YOUR HOPES UP:

Be realistic that there are VERY FEW distressed listings right now, so if your plan is to target a foreclosure or short sale, that’s a tiny pond for fishing. Moreover, 26% of bank-owned listings and 31% of short sale listings have been on the market for more than one hundred days, so there is clearly a breakdown with overpricing, negotiation, or something else. In other words, just because it’s distressed doesn’t mean it’ll be easy to close. Ultimately, the verdict is still out too on how efficient lenders are going to be with short sales. Stay tuned.

CLOSING THOUGHTS:

We are seeing slightly more distressed sales hit the market, and we need to pay attention to this. But it’s important to keep the narrative in check. Current distressed inventory is a drop in the bucket compared to total volume, so let’s NOT say there is a massive wave. Let’s keep watching.

I hope that was helpful.

HAPPY HOLIDAYS: This is my last blog post of the year. Merry Christmas and Happy Holidays from my family to yours. Thanks for making this year so great. I appreciate all the conversations.

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? What do you think will happen ahead with distressed sales? What did I miss?

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