The housing market is feeling the pain of higher rates – Sacramento Appraisal Blog
The housing market is really starting to feel the pain of higher mortgage rates. Today I’d like to unpack some fresh October stats to show what I mean. I also have some thoughts about the spring season when prices are dropping. Whether you’re local or not, I hope this is helpful.
This post is designed to skim quickly or digest slowly.
UPCOMING (PUBLIC) SPEAKING GIGS:
11/4/22 Market update in Roseville (real estate pros only (details here))
11/15/22 Sacramento Bee Q&A at 12pm (RSVP here)
11/17/22 Fair Housing Lunch & Learn (RSVP here)
12/5/22 Safe Credit Union webinar (details TBD)
1/18/23 WCR Market Update at Cameron Park (details TBD)
1/19/23 Big market update at SAR on Zoom (details TBD)
1/23 Market update with Joel & Mike (details TBD)
A 40% DROP IN VOLUME IS A SYMPTOM OF STRUGGLE
We’re seeing lots of markets around the country with dropping sales volume, which is the byproduct of a quick change in affordability due to rate increases. In Sacramento, volume took a beating last month. We still need another week before solidifying numbers, but we’re going to be down about 40% or so from last year. Keep in mind most sales in October got into contract in September when rates were at 6%, so being down 40% doesn’t even reflect 7% rates yet.
NOVEMBER VOLUME WILL LIKELY BE WORSE
In October, pending contract volume locally has been down between 40% to 50% depending on the week according to Redfin and Trendgraphix. This means November closed sales volume will presumably take a bigger hit than October, which underscores rates at seven percent are taking more demand out of the market (thanks Captain Obvious).
NOT ABOUT DOOM
By the way, I’m not writing as a doom and gloom guy. This is all about perspective formed by stats. It might not be easy for some to hear, but I’m only interested in talking about the market that actually exists. I have zero interest in promoting a rosy narrative too.
NOT EASY FOR SELLERS TO ADJUST
Prices have changed so quickly that it’s been tough for sellers to adapt. I’ve had a few conversations lately about sellers feeling remorse for not accepting an offer in the spring or early summer. One seller now has an offer about $60,000 lower than an offer made a few months back. That’s not easy to swallow, but it’s the reality upon us. I’m not saying prices are down exactly $60,000 everywhere either, but there has been a notable drop (more on that soon).
PRICES FLIRTING WITH LAST YEAR
As I talked about 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 below last year at the same time. 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 between now and next week.
By the way, here’s a thread with weekly price graphs (instead of monthly).
WHAT HAPPENS IN THE SPRING DURING A DECLINING MARKET?
Okay, now some quick thoughts about the spring when home prices are declining. I think lots of people are wondering what is ahead as 2023 begins. In short, not every spring market is the same, but when looking at declining years in the 1990s and 2000s, there are many years where prices ticked up for a bit or looked more level during the spring.
Seasonality doesn’t always disappear: The darker bars show the median price from January to June, and in 2006, 2007, and 2008 there was a flat to slightly up vibe for a few months before declines persisted after the early spring. Of course, this could be due to larger homes selling in the spring, but even if that’s the case, it shows seasonality isn’t always dead during declining years. We’ll see what happens in 2023. It’s hard to predict this year because we’re in a unique situation with quick rate changes.
The 1990s: The spring price trend is a bit more hit and miss in the 90s as sometimes prices clearly declined during the spring (black bars), but in other cases like 1994 there was a much more pronounced seasonal uptick.
Don’t get stuck on prices: I think the visuals above are really interesting, but they’re not the end-all graphs either because they only discuss price. Like I always say, don’t get stuck on prices alone because sales volume sometimes 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 ahead. I have lots of thoughts about market cycles. The one thing I don’t have is historic data for volume prior to 1998, so I’m open ears if someone has a local source for that.
Thanks for being here.
MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.
Questions: How are rates at 7% affecting buyers right now? What stands out to you about my stats above? What did I miss? I’d love to hear your take.
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