October Market Update

Numbers are out for October. As you can see, price of "sold"  homes  have increased in most areas. Yes, compared to last year same month, homes sold for more. However, when trying to figure out the market, we need to look at more than one metric. 

Look at the graph below for Sacramento County. The orange bar graph shows the "Days On Market". (Average # of  days it took for homes to sell) 
For August to October of 2017, numbers were 24, 26, 28. 
In 2018 these numbers were 28,30,36. 
Conclusion: Last quarter it took longer time to sell homes than same quarter last year. 
Loot at the green line in the same graph which shows what % of the original list price, sellers were able to get for their homes. 
Those numbers for August to October of 2017 were 99, 99, 98. 
This year, they were 98, 98, 97. You might think there is no significant change.  Well, there is because these numbers normally fluctuate  between say, 95 to 105. 
Let me put it in perspective for you: In Sacramento county, average price of a sold home was $406,000. In this market if SP/Orig LP % is 100%, then it means on average, all the homes were sold for $406,000, the asking price.  Cool ha? Now, let's imagine in the same market, this metric is 97%, (like it was in October of this year,  meaning their homes were sold at %97 of the list price which is $394,000. You might say" Big deal.So a house was listed for $406k and was sold for $394k." NO! We are looking at the data of A WHOLE COUNTY, County of Sacramento. That's  almost 1400 sold homes. 1400 homes were sold at 97% of the asking price. That IS a rather big deal.  No sky is not falling on real estate market but it must be kept in perspective when trying to figure out the trend. 

This next graph shows the "Inventory" for county of Sacramento. Here is a good definition of "Inventory" I found online:Months of supply (or inventory) is the measure of how many months it would take for the current inventory of homes on the market to sell, given the current pace of home sales. For example, if there are 50 homes on the market and 10 homes selling each month, there is a 5 month supply of homes for sale.

Months of supply is a good indicator of whether a particular real estate market is favoring buyers or sellers. Typically, a market that favors sellers has less than 6 months of supply, while more than 6 months of supply indicates an excess of homes for sale that favors buyers.

Let's look at numbers: August to October 2017: 1.4, 1.6, 1.6. 

This year: 1.8, 2.4, 2.1. Conclusion: More homes to choose from  this past quarter than same quarter last year. Good news for the buyers. 

So you might ask "Bahman, you're contradicting yourself. You said prices are still going up but you're also stating that inventory is higher, it's taking longer for homes to sell, and sellers aren't getting what they want for their homes. So, what is it?" Well, answers to "Where is real estate  market heading?" isn't always a simple "It's going up (or down)" or "Oh, it's very much a seller's (or buyer's) market". 
I'm going to quote Ryan Lundquist, the leading appraiser in Sacramento county who writes for Sacramento Bee and often is interviewed by local TV chanals. He says that "you don't often see market changing by looking at prices." One first sees it in other metrics like sales volume, days on market and inventory(months of supply) then prices follow. We are, IMHO, in that phase right now. We are at the beginning of the shift. Sellers are  pricing their homes high and buyers are not willing to pay that amount. This results in high inventory, more days on market and getting less than what they listed their home for. 
Next few months will be slow due to holidays. What is it going to look like in the spring? (California spring market begins as soon as Christmas lights are down) I don't have a crystal ball but if I had to bet, I would bet on  prices going down next year. 
If you're thinking of buying or selling a house, I highly recommend you do your own research. This is my blog and these are solely my opinions. 
You can look at Ryan's blog by going to http://sacramentoappraisalblog.com/