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Talking real estate cycles at the dinner table

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Let’s talk about real estate cycles. Are we at the top of the market? Lots of people are wondering, so I figured I’d throw out some charts to help fuel conversation. My goal here isn’t to say YES or NO, but to focus on stats for the sake of discussion. Well, and if you need something to talk about at Thanksgiving dinner besides politics… 

CYCLE CHARTS: Here’s some charts to show the annual median price in various local counties. What do you see? Look at price changes and cycle lengths. If you’re not local, what would charts like this look like in your market?

NOTE: The market started increasing in the late 90s, but stats from then are limited. Just know the first cycle above would have been a couple of years longer.

What about the ’70s and ’80s though?

Someone in the comments wanted to see price trends in previous decades, so here’s the 70s and 80s for context from the Freddie Mac Price Index. I’d love to expand my charts above, but I don’t have quick access to mass stats to make that happen. I’ll keep my eyes open though.

THOUGHTS ON REAL ESTATE CYCLES:

1) Up and down: Sometimes we get stuck talking about real estate like it only increases in value, but that’s fiction. The reality is markets go up and down – just like relationships, the stock market, or my pants size. The truth is we see longer periods where prices increase, decline, or persist in stability.

2) The seven-year cycle: Some say the market changes every seven years, which is a nice idea, but there’s no universal rule that says the market has to behave a certain way after a specific period of time. I definitely buy into the idea of market cycles, but I’m not dogmatic about a fixed number of years.

3) Momentum change: Right now as charts show we’re seeing momentum slowing in the market. What I mean is we’re typically seeing more subdued appreciation rates over the past few years. That’s not really a surprise though as affordability is becoming more of an issue with today’s prices.

4) Other: What is point #4?

I hope that was interesting or helpful.

HAPPY THANKSGIVING: From my family to yours I wish you a very happy Thanksgiving. I’m glad we’re in this together and I appreciate our weekly conversations. Over coming days I hope you get some time off and find refreshment. I honestly hope you don’t bring up real estate cycles at the dinner table. But then again if you do, let me know how it goes….

Questions: What do you see in the charts above? What stands out to you most? I’d love to hear your take.

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Is it just me or is the market slowing?

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The market is slowing. We’ve been hearing that all over the place lately and it’s been a common clickable headline. But it’s not just hype because there’s some truth to it. Today I want to show this reality with a few visuals, mention three takeaways, and unpack a huge Sacramento market update for those interested. I hope this is helpful – whether you’re local or not.

Tighter Prices: Is the market slowing? How would you show that? Take a look at the rate of price changes in the images below and let me know what you see.

OCTOBER:

PAST 90 DAYS:

ENTIRE YEAR:

TAKEAWAYS:

1) Slowing: Prices are still up, but they’re not up by as much this year. What I mean is in years past we’d regularly see 7-10% price increases when running stats, but over the past few months we’re starting to see 4-6% increases instead. This helps show the market as a whole is slowing.

2) Dull fall & critical thinking: Stats have begun to change more significantly these past few months since a slower feel hit the market. A few months back sales volume dipped, but now after multiple months of lower volume this is becoming a trend (at least for the fall). As we watch this unfold and see that prices are much tighter together as I showed in the charts above, let’s consider two things: 1) Price stats today are more subdued in light of a much duller fall season (duh); and 2) Last year’s fall season ended up being a little more flat than usual, so higher prices from then could be helping this year’s numbers appear a little more depressed. I know, it sounds like I’m trying to soften the idea of the market slowing, but that’s not it at all. I’m thinking critically through the numbers and explaining in part why they are the way they are. Ultimately I find myself interpreting these numbers cautiously, and I think we need to get beyond this fall to see the bigger picture of what the numbers show us and where the trend is going to go.

3) Wide & narrow view: I chose to share stats in three ways on purpose to show something important. Did you notice a difference in the price change depending on how wide or narrow the dates were – whether 30 days, 90 days, or 12 months? Basically the more data we considered, the larger the price gap was. This is a good reminder to look at the market in different ways to try to discern the trend. It’s also a good reminder to be careful of pulling older data because sometimes that can mask a trend that is happening right now.

The future: Naturally when hearing about momentum slowing in a market it’s easy to start predicting the future as we see price gaps tighten. Many say the market is going to crash, others say it will correct by 10%, and some say it will level off and progress into a state of balance. All three of these ideas have one thing in common. They’re guesses.

I hope that was helpful.

—–——– Big local monthly market update (long on purpose) —–——–

Last year the fall season felt more flat than not, but this year is a different story. We are definitely having more of a dull seasonal lull that reminds us how the market felt in 2014 when the fall season was definitively soft. Here are some of the things I’m watching right now. I’d love to hear what you are seeing. Please comment below or send me an email.

Graphs for your newsletter and social media: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy my post verbatim).

Adjusting to rates: Buyers have seemed to back off the market a bit lately, and we’re seeing the effect of that with lower sales volume. What’s up with this? The culprit could be increasing interest rates and a growing lack of affordability.

Balancing of power: Buyers have gained more power in recent months, though I don’t think sellers got the memo since they are still struggling with overpricing and pretending it’s an aggressive market from 2013 instead of a slower market in 2018. This doesn’t mean buyers have total control though. Keep in mind 41% of all sales last month had multiple offers, which tells us it’s not the type of market where buyers can lowball sellers and get whatever price they want.

Pricing lower this fall: Since the summer the median price has softened by 4% in Sacramento County, 5% in the region, and 7% in Placer County. This doesn’t mean every neighborhood lost 4-7% in value. These are county stats and they don’t translate into every area or price range. Keep in mind it’s normal to see a 5% or so reduction in the median price during a given fall season, but this year it wouldn’t be surprising to see a more pronounced price difference between spring and fall (we’ll see how it pans out).

The story of sales volume: In September volume was down a whopping 16% in the region, and that raised lots of eyebrows to make people wonder if the market was starting to tank. This past month sales volume was not as weak, but it was still down nearly 9% in the region and about 4% in Sacramento County. Over time we need to keep watching this trend to better understand if it’s a sign of a definitive change in the market or if it’s the byproduct of a dull fall season (or both). One thing to remember is despite a few months of gloomy sales volume recently, volume is only down 2% in 2018 in the Sacramento region.

Listings did peak: I’ve been talking about listings looking like they were peaking for the past couple months, and the stats now definitely show listings have crested for the season. This is normal for the time of year as sellers tend to pull back from the market and wait until spring to list. This is why the fall sometimes feels like a market of leftovers since many sellers are waiting until the next year.

Concessions and credits: Buyers have more options today, so they’re tending to ask sellers more often for credits, repairs, and concessions. It would be wise for sellers to listen to buyers and be aware they may need to give something to get the deal done.

I could write more, but let’s get visual instead.

BIG QUESTIONS:

1) How did the market change from last year?

2) How did the market change from September to October?

3) Where are we in relation to peak prices in 2005?

4) What’s happening with sales volume?

SACRAMENTO COUNTY VOLUME:

Key Stats:

  • October volume down 4%
  • 2018 volume down 1% (January to October)
  • Annual volume is down 1.9% (past 12 months)
  • Volume has been strong this year, but it’s definitely been down over the past 4-5 months.

SACRAMENTO REGION VOLUME:

Key Stats:

  • October volume down 8.8%
  • 2018 volume down 2.1% (January to October)
  • Annual volume is down 2.5% (past 12 months)
  • Volume has been strong this year overall, but it’s been down over the past 4-5 months.

PLACER COUNTY VOLUME:

Key Stats:

  • October volume down 20.6%
  • 2018 volume down 4.9% (January to October)
  • Annual volume is down 5.4% (past 12 months)

SACRAMENTO COUNTY (more graphs here):

SACRAMENTO REGION (more graphs here):

PLACER COUNTY (more graphs here):

I hope that was helpful.

DOWNLOAD 60 graphs HERE: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: What do you see happening in the market right now? What are you hearing from buyers and sellers? I’d love to hear your take.

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A hair stylist says we’re not in a bubble…

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Everywhere I go people are talking about housing. So it wasn’t a surprise to have a market conversation with a hair stylist while flying to Texas last week. We talked about real estate bubbles and mullets. Anyway, here’s a few quick takeaways and some thoughts after attending an amazing conference called AppraiserFest. 

Of course I shared this conversation on Twitter:

TAKEAWAYS:

1) Opinions: Everyone has an opinion about what the market is doing or will do in the future. These days when I meet people I tend to ask them what they think is happening, and I’m always grateful and fascinated to hear responses. The truth is I like to hear opinions, but the bigger issue is an opinion without influence from local data isn’t that meaningful, whether it’s from a hair stylist, economist, or real estate professional.

2) Local data: The only thing that really matters right now is local data. What do the stats say the market is doing? What is the word on the street? What are we hearing from sellers and buyers? What is normal and not normal for a slower fall season? More than ever we need to pay attention and sometimes sift through the hype of doom & gloom real estate headlines too. This market presents us an opportunity to be objective, honest about not knowing the future exactly, and creative to find ways to describe what the market is doing. On a side note I’ll have my big monthly market update posted next week.

3) Mullets: Speaking of mullets, six years ago I helped coin the term “parcel mullet” to explain the phenomenon of having a short lawn in the front and a long lawn in the back. Either you think that’s hilarious or now you know I’m immature.

REAL ESTATE “ISLANDS”

I just got back from a conference called AppraiserFest. It was incredible to hang with nearly 300 other appraisers for a few days in San Antonio. I was honored to speak too. Anyway, here’s a couple of things on my mind that I wanted to share as an encouragement to real estate professionals.

1) Islands: It’s easy in real estate to go about things alone or be an “island” so to speak. But growing professionally and learning often involves intentionally being around people who will help us grow. I know this seems basic, but often appraisers are solo artists and completely isolated. That’s not a good thing, and it’s one reason why it was so powerful to see appraisers come together.

2) Finding people: With so much talk about the market changing, it’s critical to be surrounded by people who are accurately interpreting the market and helping us think through issues. My encouragement is to find others to help you think out of the box when it comes to real estate trends (and being successful in any market). I realize that’s a bit vague, but it’s something that needs to happen. As a side note I read Jonathan Miller’s Housing Notes every Friday without fail, and that’s one practical thing I do to help keep my mind sharp. For me Jonathan is one of those people who speaks into my life from afar and I’m better for it. That’s one reason why it was a real pleasure to meet him in person this past week.

I hope that was interesting or helpful.

Market update video: Here’s a video I did with Realtor Doug Reynolds a couple weeks ago to talk through the fall market. Check it out if you’d like. If you want to do something like this too, let me know.

NOTE about this video: Someone asked me how much I charge to share a video with an agent like the one above. In short, I will NEVER do that. I shared this because I was in the video and the content is worth digesting. I did this video for free with Doug and that’s what I do with everyone. I have a couple more video shoots on the docket and I may share those eventually too, but only if they actually fit with what I’m saying. If a video doesn’t add value or fit within what I’m trying to say, then it won’t get shared. Make sense? Hopefully so.

Questions: In what places are you having real estate conversations lately? What voices are you listening to right now that are helping you grow and think through the market?

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Is a blue kitchen all the rage or too much?

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A blue kitchen? I recently saw a loud kitchen and I hoped we could talk about it. Is this the new trend? Do buyers crave color? Here’s some photos, a quick interview with the investor behind this, and some takeaways.

This home is in an older area near Downtown Sacramento.

I’ve been seeing more shelves in kitchens lately too. Have you?

What do you think of that hood and vent?

The bathroom also has blue. Notice the loud tile too?

Q&A with Slavic Avetisov (owner / investor):

Why did you go with blue? The reason I went with blue was because I wanted something really trendy, something out of a magazine. I figured there is no better place to do it than near downtown. I’ve sold two other homes in the area to Bay Area buyers, so I figured if my buyers for this house were from the Bay Area they would like the blue. So I went with my gut and against everyone’s opinion, including my wife (she wasn’t liking the blue idea). But after I did she said it wasn’t bad.

Are there any other colors we need to look out for? As far as colors, hard to say. Personally if I find another house in the area, I might do green, like army green (black and green). I have to feel the house though. It depends on the feel of the house as well as market demand. I read up on blue before doing it, and all those architectural digest magazines were writing how a blue bathroom would add 5k to sell off your house. But you can’t just paint it blue and call it a day. Everything had to be properly put together.

What sort of feedback did you get about the cabinets? It wasn’t on the market long enough to get feedback (had a quick full price offer). However, I was looking at a house in the neighborhood to flip, and the sales agent was running my ear off about my house until I told her that I did it. She replied by saying she’s been telling everyone about it. As far as comments in regards to not having enough kitchen space, my thoughts were: 1) Bay Area buyers are used to being in a small apartment or a room rental so they won’t have lots of stuff; 2) People that want to live in that area, downtown, midtown etc… aren’t going to be doing much cooking, but more going out. That’s why I proceeded with open shelves on top & no cabinets. The brick and the exhaust hood vent pipe gave it a loft feeling. I think the butcher block complimented the house age and gave the blue a tone down & a good feel rather than granite or quartz.

TAKEAWAYS:

1) The color trend: I’ve seen a shade of blue in three different kitchens recently. Design magazines earlier this year were talking about seeing more color in the kitchen. Were they right?

2) Location: Certain upgrades and types of architecture work well in some areas and not in others. I suppose the shade of blue matters too. Anyway, a trendy area might favor a colorful kitchen, but a 55+ community might completely reject it. At the end of the day location means everything.

3) The market doesn’t care if we like it: The market doesn’t care if we personally like something or not. This is why we need to remain objective when valuing properties. What will the market pay? That’s the only relevant question.

UPDATE: Props to the multiple real estate agents who emailed me photos of a blue kitchen in a model home in the Folsom Ranch neighborhood. The blue trend is alive.

A closing blended example:

This is quite the mishmash, right? Either you love it or hate it. Is it okay to blend architectural styles? Is it beautiful or a travesty? A friend on Twitter said, “Wow, the elusive Rustic Modern Dutch Colonial.” Thank you to a colleague in Boston for letting me use this photo (he didn’t want to be identified).

The point: From a value perspective the only thing that matters here is what buyers are willing to pay.

NEW FALL VIDEO: Last week I made a quick video to talk through the fall season (inventory, sales volume, price, and days on market). Enjoy if you wish.

Questions: What do you think of blue kitchens? Could blue be worth more? What’s the big takeaway here in your mind? I’d love to hear your take.

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