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WARNING – This market report is a bit longer than usual. Because of the changes over the summer, the local market is indeed shifting, and I want to be sure to cover everything – and clearly. Also, it’s HYPER local this time. If you’re looking for some of the usual integration of state and national stats, you’ll have to browse the web for that this quarter! There’s just too much to cover regarding our local market..Let’s dive in!
LET’S TALK INTEREST RATES
Interest rates are one variable in the complex equations of economic processes. Because they are so intimately related to the home buying or real estate investment process, they directly affect the market on a national level when they change. In other words, the real estate market fluctuates as a result of economic factors, interest rates being a major one.
Rates have been relatively stable AND coming down for a long time, so when rates began slowly climbing in March of 2022, it wasn’t really a surprise, considering that the average rate for 2021 was an historic low. In fact, rates have been quite low for some time and so the slow rate rises were absorbed easily by the robust market.
However, in mid-summer, rates started jumping precipitously, in, what for many in the lending world, was the fastest rate hikes they’d ever seen. Indeed, if rates continue to rise at this pace for the rest of 2022, then 2021-2022 will represent the biggest % change in the history of rates since 1971 (using the available data from this website from Freddie Mac: https://www.freddiemac.com/pmms/pmms30)
In fact, if rates continue, we may see that rates actually doubled year over year, something I do not believe has happened before. The 2021 average was 2.96 and so far for this year the average is 4.87, with the rate for September 2022 noted as 6.11.
Just to be clear, that’s like saying that if you could have afforded a house at $470K in October of 2021, now in October of 2022, you can afford a house at $357K. That’s a tremendous cut in one’s purchase power, and also is a bit sad that the differential is INTEREST.
Needless to say, there was a near immediate correction in our market, where suddenly things kind of came to a halt as everyone wondered what exactly, was going on. Overnight, our market became what I am affectionately calling “volatile.” We had sellers who had put their properties on the market during what seemed to be a stable, and appropriate time to safely list and sell one’s asset for a profit. On the flip side, you had buyers looking at those properties, priced at what may or may not have been the top of the market, trying to consider the fact that these same homes were going to cost them thousands more in interest… with rates rising sharply, sometimes on the daily. For the rest of July and some of August, there was a lot of conjecture about what was happening and the ‘correct’ way to deal with it as a buyer or seller…
So here we are now, several months into this shift.
How has our market responded?
It can be noted that adjustments in market fluctuations following national economic situations tend to take a little time to shake out. Real Estate is not as immediate as the stock market – one reason why it makes a good investment for some people. When scenarios like this arise, most buyers, even cash buyers who aren’t involved in the mortgage market, tend to get a little skittish and want to wait out the wave to see what is happening. All buyers tend to be concerned about overpaying for a property.
Since rates went truly wonky in July, buyers and sellers seem to have adjusted, and the statistics around what happened in our local market during that time are pretty interesting, so let’s take a look.
Sale-to-list Price Ratio
The sale-to-list price ratio gives us some information about wether or not properties are tending to sell for over or under the asking price. It’s a broad indicator of the overall trends in a market area. Sale to list price ratios are also a little difficult to put a lot of weight into because as a market gets more robust, so do the listing prices, right? So, if you see a sale-to-list price ratio consistently over 100%, you can assume that sellers and Realtors are adjusting their list prices, over time, to compensate. The sale-to-list price ratio is the most interesting to look at when we’ve had a ripple in the market (or economy) and we want to see how our market responded – which is exactly what has happened.
Going back about a year, the ratio has been staying over 100% (indicating that properties were selling for more than list price) except for a tiny dip in January and February. April 2022 was the highest point at 102% and even though it went down somewhat, in July (post the rate hikes) we saw a full percent rise over June. This can be explained by understanding that the majority of closing escrows in July were from contracts started in June. Despite the fact that we saw the interest rates jump in early July, the market stats don’t really reflect that until August.
At the end of August, the ripple through the market was entirely evident, with the Sale-to-List price ratio dropping quickly to 95.2% September was similar, although down further still to 94.7%. What does this mean?? For starters, it translates easily into two words: Price Reductions.
Yes, this means that for the moment, an average, prices are coming down to adjust for rates.
What this means for you personally depends a little bit on wether you are a buyer, seller or investor. Also, because we know that this drop is in direct connection to what happened with interest rates, it’s truly difficult to assess what may or may not be the right moves to make in Real Estate right now – which brings me back to my basic message here, which is that you can go ahead and consider our market somewhat “volatile” in Humboldt right now.
We’ll deep dive more into what that means for you as a buyer/seller/investor in a minute. But for now, let’s look at a couple more stats.
The absorption rate is a number indicating the average amount of time that properties in an area are taking to go from listed to sold.
Assessing the Absorption Rate is actually pretty interesting, in this situation, considering that the numbers show a direct increase in the amount of time that properties were staying on the market connected to the SLOW rise of interest rates that we saw back in March.
Here are the numbers.
The rate had been lingering right around 1.7/1.8 since last year and into late winter. Rates started a slow rise in March and by the end of that month, the Absorption rate is up to 1.93 months. It continues a slow rise, each month, similiar to the way that rates were slowly rising at the time, until it reached a peak in…. ….you guessed it…. July. At a whopping 3.38 months. This is another strong indicator of a “slowing” market, although only time will tell if it’s a more permanent response, or if the numbers we’re seeing have more to do with the shockwave of the way that rates are rising precipitously right now.
Since July, properties are still taking longer, with August clocking in at 3.26 and September at 3.41 months.
This is a VERY important stat for potential sellers. We have had a LONG stretch of time where properties were “flying off the shelves” and escrows were competitively short. If you’re looking to sell soon, you can assume that length of time will be quite a bit longer – something that’s important to plan for when moving, dealing with tenancies, or exchanges, etc. Also, if you’re thinking you want and prefer a short escrow, you may need to compromise on asking price.
We know that some buyers have been scared away by the interest hikes, but what about sellers? Are people still putting properties on the market?
The numbers seem to indicate that the answer is yes. In the last few months, we have seen the number for NEW list volume drop somewhat, however that is totally normal for this time of year, and the year-over-year new list volume is actually very much on par with where it was last October.
One List Volume number that is reflecting what is happening in the market is the ACTIVE list volume. These are properties that are not NEW listings for that month, but are actively for sale.
Whenever you see the Absorption Rate stat start to fluctuate, this one follows suit, and the Active list volume had a steady climb starting in March and peaked in July. Sound familiar?
Since then, the Active List Volume has come down somewhat, mirroring the Absorption Rate. It is also the time of year when less properties get listed, so moving into Late Fall and Winter, we’ll likely see that come down a bit more.
Well, yes. But we do not have enough of the kinds of homes/properties that people want, which tend to be move-in ready properties on the coast in good shape. The List volume typically rises in Spring, and then again in Summer, but this year, the rise in Spring wasn’t tremendous, and when the July interest spikes hit, this must have put off some sellers, because list volume has remained low throughout the Summer. This could paint a picture for prices to rise because of scarcity in the market. More on that in the sections for buyers/sellers.
Looking at stats is one way to assess where Humboldt County is currently at with our housing market. There are some consistent truths that are often disregarded, but have a huge sway in the health of our market and they are this:
We do not have a lot/enough new building happening locally
- People are continuing to move to the area
- People are continuing to invest in the area
- Recent events suggest that our area will continue to see these trends for the foreseeable future.
The last “truth” is actually pure forecasting, and while we’re being honest, I’ve talked to other real estate related professionals who do not share that opinion with me. There are a good quantity of smart, educated people who truly believe that our area is going to see some downturn. Oftentimes, the loss of the income spent locally by the collapse of the cannabis industry is the typical reason cited for this fallout.
However, there are a number of things happening in our area that suggest other industry is moving in and/or will want to soon, and that is more where I am focusing my thinking.
- Aqua farms coming soon
- Offshore wind and production coming soon
- Cal Poly growth forecasted
- Google Undersea cable and potential for growth
- And more…
It sometimes feels extremely redundant to mention these things over and over, but these are actually HUGE projects and realities coming to our SMALL area, and they will impact housing, jobs and quality/style of life and culture in our area. Because of the lack of enough new builds, and the consistent influx of people, this points to a likely continued increase in prices and sales, even when the rest of the nation is still spinning out from the rates fiasco.
Historically, Humboldt County is somewhat protected from the largest of the swings in the housing market because of our rural area. The same is likely true in this circumstance, and may be a moot point if we continue to exist in a housing bottle neck.
What This Means if You’re a BUYER
Well, at the risk of being extremely repetitive, (I’m always saying this…) if you’re looking to buy a home that will be your primary residence, the chances are extremely good that such a move would be a wise financial investment, even with rising rates. This is, in my opinion, especially true if you are smart about your purchase, patient, and most especially if you’re willing to invest some sweat equity.
Some predict that rates will go down, others think they’ll stabilize close to where they are now – but either way, in the meantime, if you’re paying a mortgage for a period of years, you will still be saving money in the long-run over paying rent now.
If you’re looking to make an investment, your interest rates are likely even higher, which is definitely a consideration for an investment. However, the good news is that multi-family properties have not appreciated as quickly as single family properties, so their price point per unit can still be a really reasonable purchase. Most multi-family properties in the area could use investors willing to make improvements as well. I actually have A LOT to say about investment property purchase/selection, but that’s a bit beyond the scope of this report. If you’re hoping to invest in a single family residence, you’ll be facing some different circumstances.
As far as the overall question of wether or not one should wait to buy – the answer will always be based on personal needs/situations, but it should be known that housing for one’s self is a quality choice, and that investment properties are still very reasonably priced in our area – especially commercial properties. The key to navigating the market for an investment right now is being selective and thoughtful about your purchase.
What About Selling? Should I Wait?
It should go without saying that if you are in a position where you need or even deeply want to sell your property, then it’s likely the right time for you. It’s sometimes hard to imagine that properties are always being listed and sold regardless of market fluctuations, because there will always be circumstances where people NEED to make the move and sell a property. However challenging it is to imagine – the show goes on. If you’re in this position, selling now might even benefit you because of said bottle neck.
Now, if your’e not in NEED, either personally or financially, waiting might be a good option.
Let’s talk it out.
Referring to our current real estate market as Volatile, is essentially code for “anything could happen” “things are a bit unstable” “there are no promises or guarantees”…
We all know that these things are true all the time anyway – but right now – they’re especially true. Until rates settle down (not necessarily GO down) we’ll have aftershocks in the market response. Since we’re also heading into winter, when historically we have slightly less market volume, we may see an even tighter bottle neck.
But wait, a bottle neck could be a great thing for a seller, right?
Yes. First, it’s true that if you’re smart about when and how you list, and depending on your individual situation, you can definitely still maximize your profit in a sale in this market. The reality is that we may have “peaked” and are on our way to lower price points, but even if that is true, we are still VERY near the top of said peak.
Regarding a bottle neck, (near the peak, too!) depending on what happens over the next few months with the economy/rates, etc, we may even see price points in our area increase. If a bunch of sellers get scared off from listing their properties, assuming there aren’t many buyers right now, there may be a moment to benefit from that. I am speaking specifically about our coastal Humboldt Real Estate Market right now. I do think it’s possible that while the rest of the nation scrambles to stabilize, we may find ourselves sitting on premium real estate because of people deciding to “hold” instead of “sell” in Humboldt… sorry… we’re kind of a superstitious bunch, don’t you think?
If you add to this any personal needs around housing, change-of-life situations, etc… you needn’t worry that you’ve missed the party and will lose out if you end up listing now.
Some Year-Over-Year Comparisons for the Southern Humboldt Real Estate Market
It’s not a perfect comparison, but we are into our final quarter of 2022 and looking at year-over-year stats is interesting! Keep in mind that the following stats are ONLY for the South County area.
The number of properties listed in 2021 was 422, and YTD for 2022, there have been 341. It’s likely that by the end of the year we will see that that 2022 had fewer listings overall.
The SOLD listings in SoHum for 2021 topped out at 188 and so far this year, we have 138. If you compare these two numbers, they basically show that not only were there less properties listed in 2022, but even fewer of them sold.
One statistic that could help explain this difference, is that in 2022, the Median LIST price was up significantly over 2021. It was up 32% from $249k to $330k. The large number of expensive listings in the south county area likely account for that. Additionally, it is interesting to note that a disproportionately high number of our current listings in Humboldt County are in Souther Humboldt, and have been so, for some time. As of this moment, there are currently 381 residential listings for sale in all of Humboldt County (on our multiple listing service). Over 100 of those are in the South County area, and if you add Carlotta/Mad River, it’s closer to 130 listings. Considering the difference in population density, there are inordinately more properties listed for sale and Southern Humboldt. It’s pretty plain to understand that one real cost and fallout of the cannabis industry are these properties and their owners.
On the flip side, I’ve had quite a few out of area clients ask about Garberville after watching Virgin River. (Say what you will, but that Netflix show works like an advertisement for living in Humboldt County, wether it’s accurate or not!…)
I don’t like to over-simplify things, so I’m feeling okay about writing this 4.5 page essay about our market situation, but in truth it is actually simpler than you might think. The blessing of a volatile market is that most statistical analysis is not going to be accurately predictive at this point. Additionally, because of our highly specialized/unique HumCo real estate market, we don’t fit a lot of the usual forecasting boxes. In fact, the complexity of Humboldt county real estate makes our averages almost unusable statistically because of HUGE variations in the properties and homes and areas in the county.
Nothing written here is intended as advice. Certainly, now would be a really good time to get educated, thoughtful, and make careful decisions around your real estate transactions.
I hope one Humboldt Realtor’s perspective has give you a bit to think on – and that if you have questions, or if you ever want to dive deeper, you’ll give me a call.