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The myth of the collapsing market (and a big Sacramento market update)

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Positive real estate news is sexy. It gets clicks. It makes us feel good. And we love sharing it. But what happens when the market cools? Well, it’s not always easy to digest. In fact, lots of people freak out and think the market is starting to tank when it’s actually just doing its normal thing of slowing. Today let’s talk about the danger of embracing the collapsing market myth, and then take a deep look at the slowing Sacramento market. Any thoughts?

The myth of the collapsing market: The market tends to slow down around this time of year. Just as the weather changes, so does the real estate market. The kids go back to school, sales volume usually starts to slide, inventory goes up, and prices soften. Yet despite this happening nearly every single year, we hear things like, “The market is beginning to take a big turn” or “The ‘bubble’ has finally popped.” Case-in-point, I watched a video a few weeks back from a national show that said new construction home prices in Texas were beginning to take a turn, and that the Texas market was six months ahead of everyone else. Maybe this show is correct, but my problem is the host made a huge sweeping market statement based on a VERY minor dip in prices from June to July. I suppose I could do the same in Sacramento since the median price dipped 1% last month. The truth is we’ll see many more articles like this in coming months because we tend to confuse a seasonal softening with a big market turn. It’s like we forget the market is cyclical at this time of year.

My advice? Cut through the hype and know the seasonal market wherever you are located in the United States. What does the market normally do at this time of year? What normally happens to prices, sales volume, and inventory? Understanding what a slowing season tends to look like can help us give advice to friends and clients, and we can avoid saying the market is tanking just because prices dipped last month. Of course at some point the market really could collapse, but unless we are seeing symptoms beyond a normal seasonal slowing, it’s probably okay to be cautious of a doom & gloom housing message.

I hope that was helpful or interesting. Any thoughts?

–——-——- Big monthly market update (it’s long on purpose) ———–——-

The stats have been glowing for months in Sacramento County, but last month we finally saw a dip in prices. In short, the glowing stats are now showing a slowing. But that’s not really a surprise because we all felt this slowing in the market for the past 30-60 days. It’s just we didn’t see it show up in the sales stats until now. After all, it takes a month or two to see slower pendings close escrow. Anyway, the median price dipped by about 1%, inventory increased, and most importantly it took 3 days longer to sell last month than the previous month. I know, there are still multiple offers and there is still upward pressure in some areas and price ranges. I get that. Remember, the market is slowing, but that does not mean it is dull or slow. Ultimately when looking at price metrics, the market is up anywhere from 7-9% from last year, and sales volume is about the same as last year too, which shows the market is trying to normalize. Housing inventory in the region is about 10% lower than it was last year at the same time, which reminds us that the market is still more aggressive compared to last year. Lastly, if the market was collapsing, I’d suspect we would be seeing a big change in the psyche of buyers, a big change in inventory, and a big change in sales volume. Not that the market has to tank the same way all the time, but if values were turning we’d likely expect to see something much more out-of-the-ordinary beyond all the normal seasonal stuff we’re seeing right now.

DOWNLOAD 66 graphs HERE: Please download all graphs in this post and more here as a zip file (includes a stat sheet too). See my sharing policy for 5 ways to share (please don’t copy verbatim).

SACRAMENTO COUNTY (more graphs & stats here):

SACRAMENTO COUNTY STATS:

  1. The median price is currently $348,000 and dipped 1% last month.
  2. The median price is 7.6% higher than the same time last year.
  3. Sales volume in August was 4.7% lower this year than 2016. There were 1668 single family detached sales last month.
  4. It took an average of 24 days to sell a home last month (one year ago it was taking 2 days longer).
  5. The median days on market last month was 12 days, which means properties are selling quickly.
  6. It took 3 more days to sell in August compared to July (median days).
  7. FHA sales were 22.6% of all sales last month in the county.
  8. Only 0.8% of sales last month were bank-owned & 1.5% were short sales.
  9. The avg price per sq ft was about $223, which is slightly higher than last month (8.7% higher than last year).
  10. The avg sales price decreased about 1.5% last month and is currently $378,885. This is 6.8% higher than last year.
  11. Cash sales were 12.5% of all sales last month.

SACRAMENTO REGION (more graphs & stats here):

SACRAMENTO REGION STATS:

  1. The median price is $389,900 and declined slightly last month.
  2. The median price is 9% higher than the same time last year.
  3. Sales volume in August was 0.2% higher this year than 2016. There were 2771 single family detached sales last month.
  4. It took an average of 28 days to sell a home last month (one year ago it was taking 3 days longer).
  5. The median days on market last month was 13 days, which means properties are selling really quickly.
  6. The median days on market increased by 2 days last month, which helps shows a slowing in the market.  
  7. FHA sales were 18.1% of all sales last month.
  8. Only 0.8% of sales last month were bank-owned & 1.48% were short sales.
  9. The avg price per sq ft was about $227, which is the same as last month (7.9% higher than last year).
  10. The avg sales price declined slightly last month and is currently $430,101. This is 8.6% higher than last year.
  11. Cash sales were 14% of all sales last month.

PLACER COUNTY (more graphs & stats here):

 

PLACER COUNTY STATS:

  1. The median price is currently $462,000 and increased about 2% last month (but still down from a couple months ago).
  2. The median price is 7.4% higher than the same time last year.
  3. Sales volume in August was 14% higher this year than 2016. There were 637 single family detached sales.
  4. It took an average of 30 days to sell a home last month (one year ago it was taking 10 days longer).
  5. The median days on market last month was 15 days, which means properties are selling really quickly.
  6. The median days on market increased by 3 days last month, which helps shows a slowing in the market. 
  7. FHA sales were 12.5% of all sales.
  8. There were only 2 bank-owned sales last month and only 9 short sales.
  9. The avg price per sq ft was $229, which is slightly higher than last month (7.4% higher than last year).
  10. The avg sales price increased about 0.5% last month and is currently $508.686. This is 7.7% higher than last year.
  11. Cash sales were 14.4% of all sales last month.

DOWNLOAD 66 graphs HERE: Please download all graphs in this post and more here as a zip file (includes a stat sheet too). See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: What are you seeing out there? What signs of slowing have you noticed? Did I miss anything? I’d love to hear your take.

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How do you get an appraiser to value vintage features?

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It can be nerve-wracking to have an appraiser come out. So I wasn’t surprised to receive an email from someone worried about his vintage home. Will the appraiser give value to the vintage features? How can an owner ensure the appraiser will give proper value? Let’s talk about that.

Question: How do I get an appraiser to value these vintage features?

Answer: That’s a great question. I’m not trying to be frustrating by not answering directly in the way you might wish, but the most important thing to remember here is that value is found in the market. What do buyers prefer? Are buyers paying more for homes with vintage features or are they paying more for homes that have a vintage vibe but with modern upgrades? I find sometimes in the vintage world an owner will restore a property to its original state. I get that, but just because so much time and money was spent on a restoration does not mean the market is going to pay the same amount as a house that has been remodeled with current upgrades. In some cases buyers definitely pay for older era elements, but at the same time they tend to pay more when the kitchen is modern (and not original). I don’t say this to be offensive, but only to highlight the reality that the proof of value is found in the comps. In other words, if there is more value for being totally vintage, then an appraiser ought to be able to find similar homes that show higher prices. At the same time I get your concern because it’s easy to see blue and pink tile from the 1950s and immediately ding value because it’s outdated. This is why it’s going to be important for the appraiser to be in tune with the local market and be objective by letting the market speak rather than being shaped by his/her personal preferences. To be honest I remember in my early days coming across a Mid-Century Modern home and making the mistake of assuming the original condition was worth less when in fact it was something desirable for the market. Doh!!

Restoring a house can be very expensive, so I recommend making a detailed list for the appraiser about what has been done. This can help the appraiser understand the quality and cost of the improvements. Keep in mind if restoration is a trend in the neighborhood, it might help to mention that or even share specific examples you have seen. I’m not saying to pressure the appraiser to “hit” a certain price point (please don’t), but only highlight what is happening in the neighborhood. Personally I love hearing about what’s happening in a neighborhood from someone who lives there because it’s data for me to consider. Just remember not all the money spent on a restoration or remodel will show up in the value (it always shows up on HGTV remodels though). On a practical note you can use my appraiser information sheet if you wish.

BIG POINT: Just because something is done to a house does not mean the market is willing to pay for it. When it comes to a full vintage restoration, we have to ask if that’s something the market is willing to pay for or if it’s just one owner’s passion for yesteryear. I think of restored cars as a good example of one owner dumping a ton of money into a vehicle only to have the market pay less. I’m not saying that’s the way it always works in real estate in every case, but restoring something to its original state can be very costly and the market might not absorb that cost. The proof is in the comps though. 

I hope this was interesting or helpful. Thanks Luis Sumpter for the first photo.

Questions: Have you seen the market pay more for homes that are restored to their original condition? What examples can you think of where the market did NOT pay for certain upgrades? I’d love to hear your take.

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Being okay with saying NO in real estate

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I said NO this week to an appraisal and I wanted to share about it. This might seem like a random post, and maybe it’s just a reminder for me, but I hope there are some takeaways. Any thoughts? I’d love to hear your take.

Here’s a conversation I had:

Loan Officer: Can you appraise a triplex fixer and bring a screw gun to the boarded property so you can get in? We need an “as is” value (note: picture above is not the triplex).

Me: Sorry, but I’m not willing to take a screw gun. I’m handy with tools, but that’s too much liability for me. 

Loan Officer: I understand. Can you do an “as is” drive-by appraisal instead?

Me: Honestly, it’s a huge liability to do a “drive-by” on a multi-unit property. I care about my license too. I wouldn’t know the size of each unit, condition, or even bed / bath count. Besides, you just told me it’s a fixer, which means it’s even more important to see how bad it is. I’d have to make big assumptions without knowing these things, and that’s not something I’m willing to do.

Loan Officer: Thanks. I don’t want to put you in a situation you’re not comfortable with. 

I have conversations like this quite a bit. People don’t usually have ill-intentions, and I don’t think the loan officer did either. The truth is though despite someone’s innocent request, it doesn’t mean it’s a good situation for me. 

THREE THINGS:

1) Saying NO is okay: Sometimes the most professional thing to do is say NO instead of taking on something with too much liability or embarking on a situation that might actually be unsafe. In this case I was concerned about safety because of squatters and not knowing what I might find inside a house like this. I’ve inspected quite a few boarded homes, but I don’t remove the boards or go alone to these properties. Also, what if I didn’t properly close things up? Would any future damage be my fault?

2) Developing a credible value: If we can’t get enough information to produce a credible value, it might be best to not render a value. Sometimes the most professional thing we can say is, “I’d love to help, but in order to serve you I’m going to need __________________. If that cannot happen, then I cannot give you a value.” There is nothing wrong with walking away when we don’t have enough information or a client is asking us to do something we’re not comfortable with. This happens not only to appraisers, but also to agents who are asked to do BPOs on custom homes on acreage (without seeing them or knowing anything about them). Or in other cases we get asked to give a value to something even though we don’t have any clue on the cost to cure a mold problem or some other major thing. Yes, there are times when we need to make assumptions and disclaimers. I understand that and I do it all the time in the right situations. I’m just saying if there are bigger unknowns that could radically sway value, then we might need more information instead of assumptions. 

3) Be honest about limitations: There are times when we have to say, “I’m not qualified to take this on”, “I think my colleague might be a better fit (and I can partner with him/her),” or, “I’ve never worked on a property like this before, but here are the steps I’ll take to be sure I become competent.” I know, there are people who think they can value anything. I love the passion, but everyone has limitations, and being aware of that is an okay thing. And if you didn’t get the Liam Neeson quote, it’s from the movie Taken.

Well, that’s what’s on my mind today. I hope it was useful. Who knows, maybe you’ll be inspired this week or next to say NO to something that’s really not a good fit for you. And that’s okay. Heck, it’s actually a good thing.

Questions: When have you said NO to something? Why do you say NO to certain things? What advice would you give to someone who never says NO in real estate? I’d love to hear your take.

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The rage of modern homes in real estate

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Modern homes are all the rage in real estate. I don’t know about you, but I’m seeing them pop up not only in Sacramento, but in many markets throughout the United States. So today I wanted to interview Ted DeFazio, a local real estate agent who specializes in these types of homes. I hope this will be valuable and interesting. Any thoughts?

Ryan: What is a modern home? And what is NOT a modern home?

Ted: The way I describe a modern style home would be the use of clean lines, lack of ornate detailing, open feel, in many cases vaulted ceilings, merging of indoor and outdoor spaces with a combination of large windows and doors and usually has a post and beam angled, commercial style flat or simple gable roof lines. Some homes will have a combination of all three. Carports and clerestory windows (starting beyond the header and into the roof line) are often a trademark of the modern style as well.

Ryan: So how do you describe that home with a few modern upgrades?

Ted: There are a lot of homes that would be considered contemporary and not full on modern. But I think this is all very subjective and up to interpretation. For instance, a ranch home that has had a modern style kitchen remodel with flat front cabinetry and minimalistic touches might feel modern but is it a modern home? I think the architecture from the front elevation and finishes through to the back yard would have to reflect that same style in order to be considered a true modern home. I remember a home in Granite Bay that was a mix of styles with some very modern and some very traditional details. Did it work? Sure. Was it a little confused? Yes.

Ryan: What is the difference between modern and mid-century modern?

Ted: Mid century modern would be homes built in the 1950-1970s era. Eichler style and many Carter Sparks designed (built by Streng Bros) homes fit this style to a T. They are mostly post and beam architecture and have that unique, classic style. Dramatic entry ways and striking front elevations sometimes devoid of regular height windows, carports instead of conventional garages, exposed concrete hallways, flat front cabinetry, skylights, atriums, courtyards, aluminum windows and large sliding glass doors and clerestory windows are all signatures of this style.

Ryan: Do modern homes have to be newer in age?

Ted: Modern style homes are not exclusive to a decade. There are new homes being built in a modern style today. There are some great examples in the Sierra Oaks, Wilhaggin and Downtown Sacramento neighborhoods. Some homes combine styles like say a modern craftsman or modern prairie style.

Ryan: Why do you think modern homes are showing up more and more in Sacramento and beyond?

Ted: The average buyer in Sacramento is getting more sophisticated and open to different styles of architecture. We are slowly shedding the “country bumpkin” label as a city. I think the influx of Bay Area buyers is also pushing the design landscape into a more modern feel. Is it a trend? Probably. But the farther we get away from faking Tuscan style, the better. Some people want to be different and living in modern architecture definitely makes a statement. Some buyers might have grown up in a Streng or Eichler style and want to get back to the feeling of living in one again.

There was a time when modern Streng Bros homes were difficult to sell and earned such descriptions as 70’s architecture or flat-tops. I created SacModern.com to help highlight the many modern and contemporary homes on the market. Give them a stage, in a way. And try to describe them using terms true to their respective styles. I have sold homes to many out of towners through the state who find that Sacramento as a region has a lot of cool architecture. Not only is there a great selection of modern properties but they are cheap compared to the larger metro areas the buyers are coming from.

Ryan: What do buyers of modern homes tend to look for?

Ted: Open concept living, striking architecture, outdoor privacy, creative inspiring spaces and a place to show off their vintage furniture collection. Your home can be seen as an extension of your personality. Someone that is more reserved might want a more buttoned down traditional home whereas a flamboyant or eccentric type might seek something radical or different than the norm as far as design goes.

Ryan: Any tips for valuing modern properties?

Ted: Typically, a modern home will sell for more than the traditional style home down the street with the same square footage. Maybe it’s a premium for the architecture, the special finishes or the time that went into designing the home. I usually ask the appraiser if they are familiar with the style before they meet me at the property just to make sure they understand the unique qualities. In the Bay Area, the modern neighborhoods are becoming historical areas, protected from demolition or odd style-killing remodels. Because the Bay Area usually has a ripple effect in Sacramento, this might be coming down the pipe for our area.

Ryan: Anything else you want to add?

Ted: Some of these styles do better in different areas. In El Dorado Hills for instance, modern is a tougher sell than in a more city-centric area. I find that the farther away from Downtown Sacramento you are, the harder it will be to sell modern style architecture. My Gary Way listing in Carmichael would’ve been sold a lot faster if it was closer to downtown. Is this due to the demographics that typically buy these homes? Not sure. But I have seen it quite often. Professionals and creatives alike are drawn to the modern style. These types tend to work in and around the core and see a suburban commute as a huge negative.

Ryan: Thanks so much for doing the interview. You killed it. Everyone, you can check out Ted’s website here.

Closing appraisal thoughts: My observation is many modern and mid-century modern homes carry a wider appeal, so it’s important to not just choose three ranch homes in the neighborhood for comparison. This means in many cases we might have to go out a little further and find something that is architecturally similar (and in a competitive area hopefully too). For instance, I appraised a Mid-Century Modern home in Fair Oaks recently and I pulled comps from various portions of Fair Oaks and Carmichael because of the custom nature of the property. I couldn’t just keep it nice and tight in the immediate area because the market area was simply wider for these types of properties.

Questions: What do you think of modern homes? Where are you seeing modern homes pop up? Do you think they sell for more than traditional ranch homes? I’d love to hear your take.

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