blockin' out the scenery,
breakin' my mind
Do this, don't do that,
can't you read the signs?”
So goes the old 1970s song originally by Five Man Electric Band but redone by Sacramento's own Tesla in 1990. Those lyrics certainly still apply not only to highway billboards and guide posts along old country roads, but also signs of things to come in just about every aspect of the economy. In fact, there are signs we can look for that will tell us if the market is on the rise or ready for a slight decline; a seller’s or a buyer’s market.
Of course, home sales don’t act in a vacuum and things never line up perfectly, so some cities or regions may show several conflicting signs at the same time. But, in general, by tracking certain telltale data, we can see trends in the real estate market and know when it’s a smart time buy, sell, or invest.
Signs of a hot (sellers) market:
1. Buyer demand is high, especially in the starter and mid-price ranges.
2. At the same time, housing inventory is low, feeding demand.
3. Based on that combination, sales keep closing at steadily rising prices.
4. Houses don’t stay for sale long, with Days on Market low and dropping.
5. The volume of home sales is higher than average and increasing.
6. You’ll see multiple and competing offers on many listings.
7. Sellers offer few amenities, credits, or incentives to buyers.
8. You see few price reductions, as home usually sell at or above asking price.
9. Realtors see a lot of traffic on their listings, including on-line and in-person visits.
10. In fact, the release of new listings are often an event unto themselves!
Signs of a cooling (buyers) market:
1. Unlike a seller’s market, you’ll actually see increases in the housing inventory available.
2. The Days on Market climbs steadily as homes don’t sell nearly as quickly.
3. Even when priced right, sellers see fewer offers on their listings, and far less bidding wars or competing offers.
4. Listings get less online and in-person views, and there is far less traffic at open houses.
5. Increasingly-desperate sellers start reducing prices at a greater rate.
6. They also start offering more incentives and credits to attract and appease potential buyers.
7. Bucking the trend of ever-escalating prices, new listings are priced at the level of recent closed sales or even lower.
8. Homes also sell for a smaller percentage of their original list price.
9. Due to decreasing demand, the volume of sales starts to lag.
10. Real estate ads get bigger, louder, and more extravagant!
Like we mentioned, these are just signs that point to a destination, but there are many stops along the way. Somewhere in between a white-hot seller’s market with fast-climbing prices and a stagnant buyer’s market with price declines sits many degrees of more balanced markets.
Here are some signs of a balanced or neutral market:
1. Inventory levels are normal compared to previous years.
2. There is no excess or surplus of housing inventory, with three to six months active inventory considered a normal range.
3. New listings are priced at or near prices of recently closed listings.
4. Sales volume is consistent and typical with the same season in previous years.
5. Median sales prices have stabilized, which can mean a normal negative or positive range with no huge spikes or valleys in prices.
6. Homes that are priced correctly sell within a typical 30 to 60 days, but Days on Market aren’t abnormally high or low.
7. Real estate ads (and blogs!) are a little smaller and less loud again!
Of course, Sacramento is in an extremely hot seller’s market right now, with a huge inventory crunch, rampant demand following redevelopment in the region, low interest rates, steep competition for buyers, and rising equity for sellers and homeowners.
But in the coming months and years as the market goes through normal and healthy seasonal and market corrections, you’ll be able to identify some of the signs along the way!