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WEEKLY MARKET MINUTE, August 2022

WEEKLY MARKET MINUTE, August 2022

CALIFORNIA ASSOCIATION OF REALTORS WEEKLY MARKET MINUTE


August 22, 2022 – Housing sentiment continued to sink for both the supply side and the demand side as market’s buying conditions remained sour.

Not only did homebuilders scale back in production as suggested by the dip in building permits, but potential homebuyers have also hit the brake hard as market uncertainty and high costs of borrowing lingered on. Closed sales for existing single-family homes have taken a beating as the market has shifted in response to the recent surge in interest rates, while pending sales suggested that the market could remain soft in August.

The pace of sales declines is expected to decelerate in the coming months, however, as rates continue to stabilize, market volatility begins to subside and supply conditions further normalize.

A bounce back in California’s employment situation, was perhaps the silver lining in last week’s news, as it hints on an economy that could remain resilient in the third quarter, despite a back-to-back decline in GDP in the first and second quarter of the year.

Rising interest rates and affordability crunch drag down July home sales and prices: Housing demand in California cooled further in July as the effects of rising interest rates and high home prices hit would-be homebuyers, dragging home sales below the annualized 300,000 benchmark level for the first time since May 2020. Existing single-family home sales totaled 295,460 in July on a seasonal adjusted annualized rate, down 14.4% from June and 31.1% from July of last year. The statewide median home price was $833,910, down 3.5% from June and up 2.8% from July 2021. 

While high home prices and rising interest rates depressed housing affordability and in turn dampened demand in the midst of the peak home-buying season, buying opportunities remain in the coming months for those who have been waiting on the sideline as more listings become available, competition continues to cool off and rates begin to stabilize.

Homebuilders’ sentiment turns negative: According to the National Association of Home Builders/Wells Fargo Housing Market Index, homebuilders have become more pessimistic as their sentiment towards the housing market dropped another 6 points in August to 49. This marked the eight straight decline in the index and the first time it dipped below 50 since June 2014, excluding a very brief plunge at the start of the Pandemic. Of its three components, current sales conditions saw the largest drop by 7 points, though sales expectations in the next six months and buyer traffic also declined by 2 and 5 points, respectively. Homebuilders’ confidence has deteriorated as buyer demand continued to be diminished by affordability constraints.

Despite higher costs for land, labor, and buildering materials, about 1 in 5 builders in August reported lowering prices by about 5% in the past month in an effort to increase sales or limit cancellations. 

Housing starts decline sharply in July as building material prices rise and demand for housing softens: Higher mortgage rates upend residential construction in July with total housing starts falling 9.6% from June and 8.1% from July of last year. Single-family starts declined 10.1%, and while upward revision to starts during June helped take some sting out of July’s sharp decline, single-family starts have now declined for five consecutive months. The pull-back was attributed primarily to higher mortgage rates, which have significantly worsened affordability and caused buyers to hold off on their housing demand.

With building permits declining 1.3% in the latest report, starts will likely fall further in the upcoming months. 

California employment improves as hiring rebounds in July: 

After a bit of a slump this spring, hiring perked back up in July. California’s employers added a nation’s best 84,800 jobs in July, marking the largest gain since February.

The job gains were broad based but the resurgence in hiring appears to have been driven by a rebound in tech hiring. The state’s unemployment rate dipped to the new low, dropping 0.3% to 3.9% – the lowest level since 1976. While this rebound in hiring is good news for California’s economy, it is also becoming more evident that the labor market is cooling off as job openings fell 212,000 in June. California’s 15.7% drop was by far the largest of any state and brought job openings back down to the lowest level since August of last year. 

 

Don’t hesitate to call The Sierra Lifestyle Team for free evaluations of your home’s value or to tour homes on the market you have an interest in. We are here for you, and Alisa (almost) always answers her cell phone, 530-559-4871.

 

Top Remodeling Projects for Resale

Top Remodeling Projects for Resale

Refinishing hardwood floors is the remodeling project that pays back the most, recovering the highest percentage of its cost—147%—at resale, according to the 2022 Remodeling Impact Report, a joint study from the National Association of REALTORS® and the National Association of the Remodeling Industry.

Home remodeling projects aren’t only offering a potential boost at resale; they’re also making homeowners happier. Painting a home’s interior, adding a home office, installing hardwood flooring, and renovating closets made consumers happiest, the report shows.

The remodeling boom has continued since the pandemic began as homeowners’ desires to spruce up their homes grow, whether through large house additions or simply small one-room painting tasks.

“Quite often, an added benefit to home renovations is the possibility of an increase in the home’s value, which is a reason why some people remodel,” says Jessica Lautz, vice president of demographics and behavioral insights at NAR. “This is especially advantageous to a homeowner who may be considering selling their house or converting the home to a rental property.”

For the report, REALTORS® provided an estimate of the likely dollar value of various remodeling projects that could add to the value of a home during resale that was compared to National Association of Remodeling Industry remodelers’ estimations of project costs.

Besides refinished hardwood flooring, new hardwood flooring also had the potential for a high recovery at resale, at 118%, as did upgrading the home’s insulation, at 100%, the survey shows.

Among exterior projects, new roofing and garage doors had recovery rates reaching 100% of the project costs, according to the report.

Kitchen upgrades also showed a high potential payback at resale. NARI remodelers estimated an average kitchen remodel would cost about $45,000. But REALTORS® surveyed estimated that $30,000 of that would likely be recovered at resale—a 67% recovery rate.

House Projects That Bring the Most Joy

The survey also identified projects that made home renovators want to remain in their homes and those that brought them an increase in the enjoyment of their spaces. The home remodeling projects that received a “Joy Score” of 10, the top score, were:

  • Painting a home’s entire interior
  • Painting one room
  • Adding a home office
  • Hardwood floor refinishing
  • Closet renovation
  • Insulation upgrades

The Remodeling Boom Continues

Americans spent $420 billion in 2020 on home remodeling. Contractors report greater demand for services and for larger-scale projects, such as remodels of more than one room, according to the 2022 Remodeling Impact Report. Eighty-six percent of consumers reported that remodeling one area of their home then inspired them to remodel other areas of the house.

“The pandemic has changed the way we use our homes, and many of those changes are here to stay,” Lautz says. “As a result, homeowners needed to reconfigure or remodel how they use their home and maximize space.”

Thirty-five percent of homeowners said one of the top motivators for their remodel was to improve their home’s functionality and livability.

Also, 22% of homeowners were motivated to have greater durability in the materials and appliances inside their homes. Fourteen percent were motivated to improve the beauty and aesthetics of their home.

Source: 

2022 Remodeling Impact Report,” National Association of REALTORS® (April 6, 2022)

 

 

 

 

Market Update Nevada County March 2022

Market Update Nevada County March 2022

Market Observations 

 

Market Update Nevada County March 2022
 

 
 

March 2022 is a Seller’s market*


Home For Sale in March 2022: 3033 units.
• Up 15.1% compared to last month
• Up 23.6% compared to last year

Home Closed in March 2022: 3817 units.
• Up 30.1% compared to last month
• Down 2.2% compared to last year

Home Placed under Contract in March 2022:4555 units.
• Up 29.2% compared to last month
• Down 4.4% compared to last year


*Buyer’s market: more than 6 months of inventory based on closed sales
Seller’s market: less than 3 months of inventory based on closed sales
Neutral market: 3 – 6 months of inventory based on closed sales

 

 
March 2022 Average Sold Price per Square Footage is Appreciating*

Average Sold Price per Square Footage in March 2022: $336 
• Up 2.8% compared to last month
• Up 17.9% compared to last year


*Based on 6 month trend – Appreciating/Depreciating/Neutral

 

March 2022 Average Continuous Days on Market trend Remains Steady*

Continuous Days on Market in March 2022: 19 
• Down 20.8% compared to last month
• Down 9.5% compared to last year

March 2022 Sold/Original List Price Ratio is Rising*

Sold/Original List Price % in March 2022:103% 
• Up 2% compared to last month
• Up 1% compared to last year


*Based on 6 month trend – Rising/Falling/Remains Steady

 

 

 

March 2022 Average For Sale Price is Appreciating*

Average For Sale Price (in thousand) in March 2022:$820 
• Up 2.5% compared to last month
• Up 3.8% compared to last year

March 2022 Average Sold Price is Appreciating*

Average Sold Price (in thousand) in March 2022:$639 
• Up 5.1% compared to last month
• Up 16.4% compared to last year


*Based on 6 month trend – Appreciating/Depreciating/Neutral

 


March 2022 is a Seller’s market*



Months of Inventory based on Closed Sales in March 2022: 0.8 

 

• Down 11.1% compared to last month
• Up 31.8% compared to last year


*Buyer’s market: more than 6 months of inventory based on closed sales
Seller’s market: less than 3 months of inventory based on closed sales
Neutral market: 3 – 6 months of inventory based on closed sales

 

Don’t hesitate to call The Sierra Lifestyle Team for free evaluations of your home’s value or to tour homes on the market you have interest in. We are here for you, and Alisa (almost) always answers her cell phone, 530-559-4871.

 

All That Said, But Is the Party Almost Over For Sellers?

As Buyers Reel, Sellers May Need to Consider Price Drops

 April 15, 2022

Higher mortgage rates may soften demand this spring as worsening affordability prices more buyers out of the market.

With mortgage applications down 6% from a year ago, sellers may need to be more realistic about how much they can ask for their property. An increasing number of listings are experiencing price reductions, climbing at the fastest pace since at least 2015, according to a new Redfin survey. Still, only 3.2% of homes on the market are seeing price drops.

“There really is a limit to homebuyer demand, even though the market over the past few years has made it seem endless,” says Daryl Fairweather, Redfin’s chief economist. “The sharp increase in mortgage rates is pushing more home buyers out of the market, but it also appears to be discouraging some homeowners from selling. With demand and supply both slipping, the market isn’t likely to flip from a seller’s market to a buyer’s market any time soon.”

The National Association of REALTORS® has forecast home sales to slip 10% in 2022, mostly due to rising mortgage rates that are pricing out more would-be buyers. However, NAR still predicts home prices to rise by 5% this year.

For first-time home buyers, the cost of buying the same home this year compared to just one year ago has jumped by 40%—a combined impact of higher home prices and mortgage rates.

“There will be an inevitable slowdown in home sales,” Lawrence Yun, NAR’s chief economist, recently said in a statement. “Keep an eye on days-on-market and a decrease in multiple offers. Home sellers should not expect big, easy profit gains.”

Even with some early signs of cooling, the housing market remains elevated. Homes are selling at some of the fastest speeds ever, and price escalations on asking prices are still common, Redfin reports.

Forty-five percent of homes that went under contract found a buyer within a week. Also, the average home sold for 2.4% above its asking price, Redfin notes.

Source: 

Housing Market Update: Demand Slips, Pushing More Sellers to Drop Asking Prices,” Redfin (April 14, 2022) 

 

Low Appraisals Stall 23% of Home Sales

Low Appraisals Stall 23% of Home Sales

 

October 2021

Home buyers are bidding up home prices as they compete for homes.

But appraisals don’t always agree with the offer the seller finally accepts. Some homes are appraised below the agreed-upon sales price, which could upend a deal.

Twenty-three percent of contracts were delayed due to appraisal issues, according to the latest REALTORS® Confidence Index Survey, based on a survey of real estate professionals’ transactions. About 12% of transactions were then terminated due to appraisal issues.

“I don’t remember any time where the frequency of buyers being willing to pay so much more than the market data was this high,” Shawn Telford, chief appraiser at CoreLogic, told The Wall Street Journal.

Many buyers are stretching their budgets to win a bidding war.

But mortgage lenders will usually only offer a loan amount for the appraised value of a home. When a home appraises too low, parties must come back to the negotiation table. Sellers may need to agree to lower the price or buyers may have to come up with more money on their own. If all else fails, the deal may fall through.

Appraisers usually factor in recent closed and pending sales to determine the value of a home.

But a sale can close in a month or two after going under contract. In a fast-moving market, some home sellers complain that appraisals aren’t keeping pace.

Appraisers told The Wall Street Journal that they have a thorough assessment for valuating a home that goes beyond what just a buyer is willing to pay during a bidding war.

They want to protect buyers from overpaying, Joan Trice, president of the Collateral Risk Network, told the Journal. The Collateral Risk Network is an organization for both appraisers and lenders.

“In a frenzied market, it is harder to nail down what value is,” Jonathan Miller, chief executive of Miller Samuel Inc., an appraisal firm, told The Wall Street Journal. “Just because the appraiser doesn’t agree with the purchase price, whatever the reason, doesn’t mean they’re wrong.”

Some buyers are waiving appraisals to make their offer in a bidding war stand out even more to a home seller.

But that is lessening somewhat: Twenty-five percent of buyers waived their appraisal contingency clause in August, down slightly from 27% in July.

Source: Soaring Home Prices Are Roiling Appraisals and Upending Sales,” The Wall Street Journal (Oct. 10, 2021) [Log-in required.] and “REALTORS® Confidence Index Survey: August 2021,” National Association of REALTROS®

On the other hand, the highest premiums on home purchases are found on May 23 and May 27, both at 17.4%; May 20 at 16.6%; May 16 at 15.6%; and May 19 at 15.4%.

 

 

 

 

Don’t hesitate to call The Sierra Lifestyle Team for evaluations of your home’s value or to tour homes on the market you have interest in. We are here for you, and Alisa (almost) always answers her cell phone, 530-559-4871.

Market Update Nevada County September 2021

Market Update Nevada County September 2021

Market Observations

Market Update Nevada County September 2021

 

September 2021 is a Seller’s market*

Home For Sale in September 2021: 271 units.
• Up 17.3% compared to last month
• 0% compared to last year

Home Closed in September 2021: 125 units.
• Down 10.1% compared to last month
• Down 35.9% compared to last year

Home Placed under Contract in September 2021: 145 units.
• Up 5.8% compared to last month
• Down 2% compared to last year

*Buyer’s market: more than 6 months of inventory based on closed sales
Seller’s market: less than 3 months of inventory based on closed sales
Neutral market: 3 – 6 months of inventory based on closed sales

September 2021 Average Sold Price per Square Footage is Appreciating*

Average Sold Price per Square Footage in September 2021: $309
• Up 1.3% compared to last month
• Up 17.5% compared to last year

*Based on 6 month trend – Appreciating/Depreciating/Neutral

September 2021 Average Continuous Days on Market trend Remains Steady*

Continuous Days on Market in September 2021: 28
• Up 16.7% compared to last month
• Down 48.1% compared to last year

September 2021 Sold/Original List Price Ratio is Falling*

Sold/Original List Price % in September 2021:98%
• Down 1% compared to last month
• 0% compared to last year

*Based on 6 month trend – Rising/Falling/Remains Steady

September 2021 Average For Sale Price is Depreciating*

Average For Sale Price (in thousand) in September 2021: $731
• Down 0.1% compared to last month
• Down 0.9% compared to last year

September 2021 Average Sold Price is Neutral*

Average Sold Price (in thousand) in September 2021:$627
• Up 3.6% compared to last month
• Up 9.8% compared to last year

*Based on 6 month trend – Appreciating/Depreciating/Neutral

September 2021 is a Seller’s market*

Months of Inventory based on Closed Sales in September 2021: 2.2
• Up 30.1% compared to last month
• Up 57.6% compared to last year

*Buyer’s market: more than 6 months of inventory based on closed sales
Seller’s market: less than 3 months of inventory based on closed sales
Neutral market: 3 – 6 months of inventory based on closed sales

 

Don’t hesitate to call The Sierra Lifestyle Team for evaluations of your home’s value or to tour homes on the market you have interest in. We are here for you, and Alisa (almost) always answers her cell phone, 530-559-4871