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How much are buyers paying above the asking price?

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“Buyers are crazy!!! How can they be paying these prices?” That’s what we tend to hear from people who are NOT trying to buy a house right now. It seems like onlookers really don’t understand what it takes to get an offer accepted these days. But for anyone actually in the game, the truth is blatant. If you want the house you’re probably going to have to pay above the list price.

Fresh stats: Today I have some brand new stats. I’ve never broken out numbers like this before and I’m excited to share. Even if you’re not local I hope this gives perspective or ideas for how to visualize your market. 

Quick thoughts: On average properties sold four percent above their original list price last month in the Sacramento region. Or in other words, buyers on average paid $23,787 more than the original list price. Keep in mind these stats represent the average and there are many properties that went above and below this amount. There are also quite a few homes that sold at the original list price. In short, this doesn’t mean literally every buyer paid $23,787 above asking. Also, there are few sales below $300K, so take that stat with a grain of salt.

Four reasons why prices have risen so quickly:

1) Supply & demand: Prices have been increasing rapidly due to supply and demand being so lopsided. It’s no secret we have a shortage of listings and excessive demand. This has created a market that feels like chaos where the median price in April in the Sacramento region is up 11% since January. Of course rates below 3% have also played a role in supercharging the market.

2) Appraisal gap: Buyers are paying above the appraised value or bridging the “appraisal gap” so to speak (the difference between the appraised value and the contract price). In some cases appraisal waivers are also helping properties close at higher levels. 

3) Priced too low: Let’s be real. Some listings are being priced way too low and this causes properties to get bid up. I’m not minimizing how aggressive the market is. I’m just saying there are cases where listings are painfully low. 

4) More at the top: We’ve been seeing more sales at higher prices in the local market as well as across the country. Therefore when looking at lofty price stats we have to realize some of the massive growth has to do with what is selling rather than pure price appreciation.

I hope this was helpful. Thanks for being here.

Questions: What stands out to you about the stats or points? If you are a buyer, what are you experiencing out there? What did I miss?

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Mortgage rates are too low (and they need to go up)

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There are certain things that are just true. Spandex bodysuits shouldn’t be worn by most people. Mullets probably shouldn’t come back in style. And mortgage rates right now are just too low.

The truth: Mortgage rates this low have helped create a chaotic housing market and they need to go up. I tweeted this yesterday and while there was some great discussion about housing trends, literally nobody disagreed about rates. 

Image above from Freddie Mac.

Downplaying demand: Throughout the pandemic the housing narrative has tended to focus on the supply side of things by saying, “The issue is we don’t have enough listings.” I get it because we definitively need more listings and we’re absolutely feeling the effect of years of lackluster new construction. But often it seems like we’re ignoring the demand side of things because we’re so fixated on supply. The reality is one of the big reasons the market feels as aggressive as it does is because rates have juiced demand since they’ve been hovering around three percent since July 2020. On one hand it’s great to see so many buyers entering the market, but rates this low have been like a steroid to help the market feel like an auction. Having 20% price appreciation year-over-year in Sacramento and California doesn’t seem sustainable for the long haul either. On a national level Altos Research states prices are up 17% from last year.

Up and down: Recently mortgage rates started to increase and we saw a few weeks in a row with fewer purchase applications in the United States. But then rates went down again and we saw purchase applications increase. This tells us what happens with rates DOES matter for the number of buyers and if we want the market to become tamer we simply need rates to increase. This won’t solve all our problems or the housing shortage, but it would at least be a step in the right direction. Check out the Mortgage Bankers Association for weekly updates on purchase and refinance applications.

Closing thoughts: Look, there are many reasons why the market is the way it is today and it’s not all about rates. I’m just saying at some point I think we have to admit it feels pretty unhealthy to have rates this low because it’s making things too chaotic.

Q&A Video: Here’s ten minutes of Q&A I did at the end of a presentation for SAFE Credit Union. Enjoy. Or not.

NOTE: This post was in no way meant to offend anyone who wears spandex bodysuits or has a mullet. Be yourself.

Thanks for being here.

Questions: What do you think of the points above? Anything else to add?

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Tips for finding an appraiser in this crazy market

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“Help. We can’t find an appraiser to come to the property. Everyone is saying NO. What do you suggest?” I’ve been getting this question multiple times every week, so here are some thoughts.

Market update: By the way, in case you needed some background noise, here’s an hour-long market update I gave for SAFE Credit Union this week.

The problem: Appraisers have been dealing with record refinance volume and strong purchase volume – even in the midst of more appraisal waivers happening. Seriously, there has been an avalanche of work and not enough hours in the day to finish it. Unfortunately finding an appraiser to do a job quickly is about as easy as finding a contractor.

Four considerations:

1) Expectations: Everyone wants speed, but the appraisal is one of the slower parts. Sure, some appraisers could be more efficient, but keep in mind there is an incredible volume of work right now AND the system has also helped create this problem. Appraisers are being asked to write longer reports than ever and the scrutiny after the appraisal is delivered is unreal. In short, it’s important to have reasonable expectations about appraisers being busy and that today’s reports simply take longer. I’d recommend ordering the appraisal sooner too rather than waiting until the last minute.

2) Is the appraiser getting the full fee? A buyer might be paying good money for an appraisal, but how much of the fee is the appraiser getting? If you didn’t know, Appraisal Management Companies (AMCs) skim part of the appraisal fee and then advertise a lower fee to an appraiser. Sometimes the skimmed fee can be a huge chunk of what the buyer paid too. No wonder why an AMC can shop a fee for weeks and not get anyone to say YES. Here’s the question to ask the lender: How much of the buyer’s fee is the appraiser actually getting? This is hands-down the starting place if you can’t find an appraiser.

3) Rush fee = silver bullet: Money talks and if you aren’t having success, pay a rush fee. If you want to go to the front of any vendor’s line, a higher fee can often help make that happen. I don’t say this to pad my pockets as I only do private appraisals these days (so I don’t benefit from this advice). I’m just saying if you are struggling to find an appraiser for a loan, paying a rush fee can matter. How much? I have ideas, but this really comes down to your market. Feel things out and find the sweet spot until an appraiser says YES. Two weeks ago I gave this advice to a Realtor friend and the AMC said they were not allowed to charge a rush fee. I told my friend to press the issue because that didn’t sound right. Well, it turns out when a rush fee was offered and pressure was felt they found an appraiser. Also, I would ask how much of the rush fee the appraiser is getting in case the AMC is skimming that too.

4) Cherry-picking easy stuff: I do hear of appraisers passing up difficult assignments because there are too many easier ones out there. I mean, why would an appraiser endure huge scrutiny on a complex property for the same pay? If the lender you use cannot seem to attract competent appraisers willing to say YES, then either they’re going to have to solve that problem by adding more appraisers to their panel or you’re going to have to go elsewhere.

5) Other: What has worked for you? What did I miss? Any advice to give the real estate community. I welcome tips from agents, loan officers, and appraisers.

Closing thoughts: Ultimately there isn’t a one-size-fits-all formula for finding an appraiser, but hopefully some of my basic advice is helpful.

Thanks for being here.

Questions: What do you think of the points above? Anything else to add? Any stories to share?

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The housing market feels like chaos

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It feels like chaos out there. The housing market is on steroids and it’s mind-blowing to see such rapid growth lately. Today I want to unpack ten things I’m watching in today’s market. For my out-of-area readers, I’m guessing you are probably seeing the same trends. But please let me know. What is similar or different in your area?

MARKET UPDATE PRESENTATION: I’m giving a big presentation next week by Zoom for SAFE Credit Union. It’s free and you are invited to sign up here. It could be useful for background noise while working. Hope to see you there.

10 THINGS TO KNOW ABOUT THE MARKET

Skim or read in depth. The following post is organized around ten points.

1) PRICES ARE INSANE:

We’ve seen enormous price increases lately. It’s mind-blowing to see 20% increases because the market really was slowing down in recent years. Also, the median price in the region is up nearly 9% from two months ago in January.

Here’s a different way to look at prices. The orange line represents 2021. It’s an outlier market, right?

2) BUYERS MADE TWICE AS MANY OFFERS LAST MONTH:

Buyers made twice as many offers last month compared to the previous year. These figures are based on closed sales and MLS data.

3) MORE BUYERS ARE OFFERING 5-10% ABOVE THE ORIGINAL PRICE:

Here’s a look at what buyers are paying right now in relation to the original list price. One of the glowing stats is we’ve seen about five times as many buyers paying 5-10% above the original list price this year. Wild times, right? Of course only six percent of sales sold below the original list price last month too, which reminds us very few properties are overpriced. Yet nearly one in five sales sold at the original list price. I know, that almost seems like an error, but it’s really not because take a look at last year which represents what should be happening. As you can see if we were having a normal year we’d probably be seeing about half of all sales selling at the original list price. 

Takeaway: Be cautious about saying everything is selling 20% above the list price. The stats don’t support that claim.

4) HOUSING SUPPLY HAS BEEN CHOPPED IN HALF:

I feel like a broken record. Housing supply is about half of what it was last year. The truth is we have weeks of listings and months of buyers.

5) SALES VOLUME HAS BEEN UP FOR TEN MONTHS IN A ROW:

There aren’t enough listings out there to satisfy demand, but for ten months in a row buyers have been buying basically everything, which means we’ve been able to surpass numbers from last year. Some people don’t believe it when I tell them this, but it’s the truth. In short, it is not easy out there, but buyers are getting it done.

NOTE: I have images like these for Placer, El Dorado, and Sacramento County too. Send me an email if you need something.

6) MORE LISTINGS ARE FINALLY COMING:

We are starting to see more listings hit the market. It really is a normal seasonal amount so far, so it’s nothing to write home over, BUT during a pandemic anything that feels close to normal is something we covet. Granted, there are not enough listings to satisfy crazy demand yet or slow down the market, but at the least we’ve seen more lately.

Mortgage applications drop: Speaking of shopping for homes, for three weeks in a row we’ve seen mortgage applications drop. This seems to be a reflection of rising rates and prices lately and it’s one small metric to watch to get a sense of demand in the market. 

7) THE REST OF THE COUNTRY FEELS LIKE SACRAMENTO:

I love this image from Altos Research because it helps show depleted inventory is something happening across the entire country. This is a good reminder because it’s tempting for locals to blame the aggressive market on Bay Area buyers when in fact many markets feel just like this. I’m not diminishing the reality of what seems like increased Bay Area migration, but let’s not forget we’re seeing an ultra-competitive market almost everywhere due to crazy low rates and anemic housing supply during the pandemic.

8) IT’S NOT A DISTRESSED MARKET:

There is so much talk about a coming foreclosure wave, but for now it doesn’t look like there is one on the horizon as forbearance rates are heading in the right direction. We are still in the thick of the pandemic of course, so we are certainly not out of the woods. All I’m saying is I’d recommend being cautious about embracing a doom and gloom narrative because so far the stats don’t support this idea. Let’s stay tuned though. And for the record I will be the first to change my narrative if the stats change… In terms of distressed sales at the moment, we really have bottomed out. It’s hard to get too much lower than 0.39% of sales being bank-owned and 0.30% of sales being short sales.

9) HUGE GROWTH AT THE TOP:

The market is very much top heavy right now. What I mean is we’ve seen explosive growth at higher prices – especially above $1M. This is a dynamic being mirrored in many markets across the country too.

BIG TAKEAWAY: When talking about price stats being 20% higher it’s important to realize some of that growth has to do with the types of homes selling. In short, less at the bottom and more at the top naturally elevates price stats.

10) CONVENTIONAL IS MORE DOMINANT THAN CASH:

The narrative is that cash buyers are gutting the market, but it’s not technically true. Cash really isn’t king these days because it’s so cheap to borrow money. Locally we’re seeing 7 out of 10 sales go conventional. BUT cash is absolutely winning when conventional buyers can bridge the appraisal gap and offer other incentives to the seller. It’s not so easy to get an FHA offer accepted either, but at least 1 out of 10 sales were FHA last quarter.

BONUS: Here are two visuals to show what the median price looks like over the past few decades. In one visual I adjusted for inflation too (which can be an important consideration when comparing today with 2005). Here are some thoughts on how long this market can keep going.

Other visuals: Not that you needed more, but check out my social media in coming days and weeks for extra visuals and commentary. I am posting daily stuff on Facebook, Twitter, and LinkedIn. Oh, and sometimes Instagram.

Thanks for being here.

Questions: What stands out to you about the market lately? I’d love to hear your take.

If you liked this post, subscribe by email (or RSS). Thanks for being here.