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Street names & hot stats with an asterisk

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I have two things on my mind. Street names and super “hot” market stats. Then for those interested I’ve include my big monthly market update below. 

Two things:

1) Street Names: Just for fun, could a street name actually affect value? I mean, if it was really off-color, would buyers pay less because of a name? In my mind it seems iffy because I’ve never seen a name that would actually deter buyers. Yet the middle schooler in me can think of some examples that might work… Anyway, after a conversation on Twitter, here are some of the more random street names in Sacramento. What funny or odd street names have you seen?

2) Hot stats with an asterisk: Last year we experienced a REALLY dull market in many places across the country. If you remember mortgage rates ticked up and it was as if a dark cloud was looming over the housing market. I’m bringing this up because stats last year were depressed. Thus when comparing last year to more glowing or normal numbers today it can make recent price figures look really sexy. My advice? Over these next few months be aware of more sensational data due to lackluster stats from last year. Otherwise if we’re not careful we might end up thinking the market is much hotter than it actually is.

Any thoughts?

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

This post is designed to skim or digest slowly.

Summary: The numbers are “hot” this month. Prices are up to a greater extent than they’ve been most of the year, inventory is down, pendings are strong, and sales volume has been up too. Part of the reason why the numbers are so stellar is because last year’s numbers were dull, but some of the hotness stems from low mortgage rates a few months back too. In other words, strong pendings from the summer finally closed in October.

DOWNLOAD 90+ visuals: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

THE SHORT VERSION:

  • It’s been a normal fall so far
  • FHA buyers have been hungry
  • Zillow bought their first house
  • Anemic housing supply
  • Celebrity flippers are coming
  • Rent control doesn’t apply to every property
  • Market crash vs recession
  • Strong million dollar market
  • Slowing price momentum
  • Overpricing is still an issue

THE LONGER VERSION:

Here are some of the bigger topics right now:

Normal fall so far: Not all fall seasons are created equal. What I mean is some falls are duller than others, and this year so far has seemed to be a stronger season. Granted, prices are still softening like we’d expect, but it’s nothing like the painfully dull fall we had last year when some thought the market was about to take a big turn. 

Hungry first-time buyers: Last month FHA was 21% of the market in Sacramento County. It’s been over two years since we’ve seen a month with 21% of the market go FHA. For years FHA has been declining because there are conventional products that can readily compete, but so far in 2019 FHA is up 5.6% in Sacramento County.

Zillow’s first purchase in Sacramento: About a month ago Zillow entered the Sacramento market and they just closed on their first house. It was a $560,000 private sale in Carmichael. On a related note, a piece came out in Forbes this week about iBuyer models paying close to market value. Look, we need to remember the credits these companies are getting from owners are padded into the purchase price. So instead of reducing the price to account for repairs, iBuyer tech companies are keeping the price higher and getting a credit for repairs within the purchase price. This is a huge advantage because it makes it look like the price is even closer to fair market value.

Anemic housing supply: Last week the big news was sellers are spending an average of 13 years in their homes instead of 8 years. As a result we’re seeing fewer homes hit the market. This is surely in part a consequence of eight years of historically low mortgage rates. We now have millions of owners with less incentive to list because they’re sitting on a low rate with equity.

Celebrity flippers are coming on strong: A few weeks ago I couldn’t sleep and I snapped this image while watching television at 4am. This flipping program aired simultaneously on four major networks. My advice? Be careful. We all want financial freedom, but you can spend thousands of dollars on these seminars to obtain “secret” flipping knowledge you can probably get for free.

Rent control does not apply to single family homes in Sacramento: I have an exhaustive Q&A post on rent control coming soon, but for now I wanted to mention something important. Rent control in the City of Sacramento only applies to properties within city limits with two units or more that were built prior to 1995. It does NOT apply to single family homes. However, if an investor owns ten or more properties under an LLC (and a couple other scenarios), rent control can apply. Keep in mind California has some differences between Sacramento rent control. Here’s an overview of rent control in California with a video link to a lawyer talking through rent control dynamics.

Ready for the market to crash because of a recession: Some prospective buyers are waiting for a recession in hopes of the market crashing, but real estate doesn’t always crumble when a recession happens. In fact, sometimes prices even rise. Here’s a video I made to talk through the past five recessions in Sacramento. This is a huge topic right now.

Strong million dollar market stats: The million dollar market has been growing. We really are in a market of outliers where we’re seeing some of the highest prices ever (Sellers, don’t overprice because of this). For reference, the top three sales ever in East Sacramento have all sold this year.

Slowing price momentum: Overall price growth has slowed down from years ago. This isn’t a shocker because I’ve been beating this point to death for the past couple years at least. What I mean is prices are moving forward still, but it’s not the type of rapid growth we saw in early 2013.

The plague of overpricing: Sellers these days are fixated on glowing stats and they’re often thinking the market is more competitive than it actually is. It’s like sellers are saying, “The market is SO hot and I’m going to get tons of offers,” but then buyers are like, “OK, boomer” (sorry, had to fit that in). Seriously though, overpricing is an enormous problem for sellers among all ages, price ranges, and locations. My advice? Price according to similar homes that are actually getting into contract. Remember, the market in later November and December is usually the slowest time of year. If you’re priced right you’ll likely get one or two offers, but if you’re priced too high you’ll likely get zero.

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

FIVE THINGS TO TALK ABOUT:

1) SLOWER GROWTH: Price growth has been slowing. This isn’t my idea or agenda. It’s what stats are telling us. This market is still very competitive when priced correctly, but it’s not a market with hefty price appreciation.

NOTE: Two of the categories above are showing slightly more price growth in 2019 compared to last year. But remember, when looking at data for October or the past 90 days, we have to consider how dull the market was last year.

2) PRICE CYCLES: Here’s a look at the past few price cycles in various counties. This is a fascinating way to see the market. What do you notice?

3) LAST YEAR vs THIS YEAR: All year long most price metrics have been up about 2-4% each month compared to last year, but this month they were a little stronger. This is likely due to stats sagging last year during a really dull 2018 fall season. Additionally, mortgage rates went down a few months ago and we’re likely seeing some of the effect of that.

4) VOLUME SLUMP: We’ve been having a definitive sales volume slump since mid-2018, but lately volume has been stronger. In other words, sales volume has been down fifteen out of the past eighteen months. But sales volume has been up for three out of the past four months. This is something to keep on the radar. It’s not a volume meltdown, but it’s definitely been a slower year.

5) PRICES ARE SOFTENING FOR THE FALL: The market generally slowed in October, which is expected for the time of year.

NOTE: Take El Dorado County data with a grain of salt. Stats change significantly month by month. Also, if you’re in Placer, be careful about only looking to Placer data because limited sales can mean numbers jump around quite a bit from month to month.

Thanks for respecting my content: Please don’t copy my post verbatim or alter the images in any way. I will always show respect for your original work and give you full credit, so I ask for that same courtesy. Here are 5 ways to share my content.

Please enjoy more images now.

SACRAMENTO REGION (more graphs here):

SACRAMENTO COUNTY (more graphs here):

PLACER COUNTY (more graphs here):

EL DORADO COUNTY (more graphs here):

DOWNLOAD 90+ visuals: 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’s the wildest street name you’ve seen before? What market trend above stands out to you the most? Anything to add?

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Thoughts on PG&E and the housing market

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I’ve been asked quite a bit to talk about what’s happening with PG&E. It’s mind-blowing to think close to one million households have had spurts without electricity lately in California. I don’t think anyone saw this curveball coming, so let’s talk about it. Please pitch in your thoughts below too.

Here are a few things on my mind.

Prolonged vs isolated incident: Whenever something changes in a market we tend to immediately ask about the impact, but the truth is we don’t always have answers – especially at first. It’s important to remember a few power outages aren’t likely to alter the perception of sellers and buyers in a market. But if we begin to see a prolonged issue, then that’s a different story.

The market will adapt: Generators haven’t been easy to find in the Sacramento area despite all the radio ads, but at some point if power outages become prolonged the market will simply adapt and generators will become commonplace. Thus properties with some sort of system to retain power are going to be more marketable. Remember though, if a generator isn’t a permanent part of the house, it’s really personal property, so it’s not going to be included in the appraised value.

Uncertainty: People like stability and so does the housing market. A friend in a rural area recently said she doesn’t know if she can take PG&E outages for the next ten years. I feel for her and I think her sentiment captures the struggle many residents have right now of living in the tension of not knowing the future.

The market hasn’t stopped: It’s important to note the housing market hasn’t stopped. There are still properties trading hands. In fact, here’s current pendings in Placer, El Dorado, and Nevada County. I realize this isn’t the perfect image because only portions of these counties are having outages. Nonetheless, this is a quick glance to highlight the market is still moving. With that said, we’re at the beginning stage of this new issue and my sense is we’re in a stand-by period where owners and buyers are watching and waiting to see what the future holds.

Migration: Unplanned power outages could drive some residents to leave rural areas (or even suburban areas having issues). I think this is especially true for anyone who has already been flirting with the idea of leaving California. This could be the final straw. But for many rural owners they’re going to stay because they love their lifestyle (of course as long as there are solutions for keeping the power on during outages).

Solar: There’s lots of buzz about solar becoming a bigger trend in outlying areas. My advice? Just be sure the solar system is actually going to work if the power is out. And don’t make a rash decision about installing an expensive solar system if there is a more cost-effective solution too.

Insurance costs: Fire insurance has skyrocketed in outlying areas in recent time and it’s been a huge struggle. Just yesterday I had a real estate agent tell me a client was paying about $800 for an annual insurance plan and now the bill is $3,000 for the year. What a burden – especially for those with a fixed or lower income. Thus throwing in a new layer of power outages really doesn’t help boost appeal for outlying areas. Insurance is certainly a hardship, but at least it is a known factor. What is especially challenging with power outages is their frequency in the future is not known. This is where an element of uncertainty can be more stressful than insurance costs for some households.

Stories vs stats: When something new happens in a market there is a season where we have stories from the trenches of escrows and eventually these stories become stats. In my opinion right now we have limited data and we need more time to understand what the market is doing. With that said, when it comes to areas with rising insurance rates I’m noticing housing supply has ticked up at a higher rate in El Dorado County compared with the rest of the region, and sales volume has seemed to slump more in El Dorado County also. This includes the entire county of course and at some point I may parse only fire insurance areas (this is not as easy to do as it sounds). Anyway, let’s keep watching.

I hope this was helpful. I’m so sorry to friends who have been struggling with power outages. By the way, if any appraiser friends need space to plug into wifi if your power goes out, please hit me up.

Million Dollar Market: On a different note, here’s a quick rundown of the million dollar market in the Sacramento region if you’re interested.

Questions: If you live in PG&E territory, what have you been experiencing? What are you hearing from residents? What did I miss?

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That place where shiplap & murder meet

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There’s going to be a new home renovation show that focuses on murder houses. How crazy is that? It’ll be called Murder House Flip and it’s going to air in 2020. I can already imagine adding shiplap to the walls to erase a heinous history… Anyway, here are some things on my mind.

1) Not the home’s fault: Often when talking about notorious homes we hear things like, “It’s not the home’s fault” or “It’s unfair to penalize the house.” I get that, but let’s remember buyers aren’t just purchasing the home. They’re inheriting all the stories and history too. Anyone who has ever owned a home knows this is true because neighbors will definitely tell you about the previous owners and especially anything big that happened at the property. While a home is technically innocent, it doesn’t mean buyers aren’t discerning or making judgement calls about value.

2) Stigma fades: A property with a crime in its past can certainly have a diminished value, but the loss in value may not last forever. What I mean is right after a gnarly situation buyers might react quite negatively, but over time the tendency is to care less, forget, move on, or not even know what happened decades ago. It would be like saying, “A man was murdered here yesterday” compared to “A man was murdered here in 1917.” Would there be a difference in your mind? Maybe so. But for something really notorious the question becomes how long stigma can last. This is why I’m watching the John Wayne Gacy property. The original home was actually demolished, but can stigma remain with the site despite the new home?

3) No one-size-fits-all adjustment: How much does a murder affect value? There’s no one answer to satisfy all situations. It likely depends on when the murder occurred, the nature of what happened, and whether it took place inside or outside. It could also depend on the price range or location as some sub-markets are more sensitive than others. My experience locally is buyers at lower price points tend to be more forgiving about certain issues compared to higher price points (generally speaking).

4) One buyer vs the market: It’s possible a particular buyer might not care about a property’s history, but market value isn’t just about one buyer. What would most buyers pay? Last year I ran a poll about the alleged Golden State Killer’s house and asked people to consider if there would be any price impact if this home came to the market. It was a fascinating conversation with many layers, but one thing that kept coming up was the idea that one buyer might not even care. That’s true. But again, market value isn’t just about what one buyer would do. It’s like this. Imagine lining up 100 qualified and interested buyers. What would be reasonable for them to pay? That’s sort of what market value looks like.

5) Crunching numbers: I appraised a murder house recently and interviewed about ten local real estate agents who sold a murder property in the past. Here’s a blurred view of my data collection. Some agents said there wasn’t any impact to price and others would say stuff like, “It probably sold $25,000 lower.” In short, the answer wasn’t always the same, which meant I had to consider which data points were relevant for my situation. This is huge because it’s easy to find one murder house and call it a day because now we have data. But what happened with one home under $200,000 may not mean anything at the $800,000 price point. Thus some data toward the lower end of the market ended up being less relevant during my appraisal.

An episode of Murder House Flip in Sacramento: There’s going to be an episode set in Sacramento to focus on the Dorothea Puente property. If you didn’t know, she was an older woman who ran a “boarding” house in the early 80s, but instead of giving clients respite she drugged them, buried them in the backyard, and collected their social security checks. This property has sold four times in the past twenty years as seen below.

By the way, there was a documentary made about this house and the owner has even given tours. This goes to show another aspect of a famous home is monetization. In this case though the owner donated tour proceeds toward organizations working with the homeless.

Keep in mind entire books are written about this stuff and I’m only scraping the surface here. I hope it was interesting or helpful though. 

Questions: Are you going to watch this new show? What stands out to you above? Any other thoughts?

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Does the market really change every seven years?

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The market changes every seven years. And now it’s ready to take a big turn. Have you heard that? Is there really such a thing as a “seven-year rule”? Is it legitimate? Let’s talk about it.

A FEW THINGS TO CONSIDER

1) Behavior: The market doesn’t have to behave a certain way every seven years. Bottom line. Case-in-point: We’ve had almost eight years of price growth in Sacramento in the current price cycle.

2) There is a cycle: Sometimes we only hear about the market being “hot”, but there really is a rhythm over years where prices go up and down. In many locations the market tends to change every decade or so, so I get why people believe in the seven-year rule. But keep in mind some markets are more flat over time rather than super cyclical like California (big point).

3) Talking in a range: I’m not a huge fan of being dogmatic about seven years, so I prefer to hear things like, “The market tends to change every 7-10 years or so.” Of course this type of statement might be totally off in some areas of the country, but in my market I get it when people say this because of historical data.

Now to some new images…

PRICE CYCLE IMAGES: I used the Freddie Mac Price Index to tell the story of the market over four decades. I like this price metric because it goes back 40 years. I’d love to use MLS instead, but that only goes back 20 years. Anyone have a different metric suggestion?

How long were the past few UP cycles before the market turned?

CALIFORNIA
1980s:  7.9 years
1990s: 10 years
Current:  7.5 years

SACRAMENTO
1980s:  7.1 years
1990s:  8.6 years
Current:  7.7 years

How long did the past few DOWN cycles last?

CALIFORNIA
1980s:  9 months
1990s:  5.5 years
2000s:  5.6 years

SACRAMENTO
1980s:  17 months
1990s:  5.9 years
2000s:  5.9 years

NOTE: It’s tempting to try to predict this next cycle based on the past few, but be really careful with that. There is no rule that says the market always has to behave the same.

Bonus (Adjusted for Inflation): I adjusted for inflation here to help compare dollar amounts over decades (and to satisfy econ / grad student friends who prod me about this). 

OTHER CYCLE CHARTS: I have other price cycle charts based on MLS data over the past 20 years. I have charts for Sacramento, Placer, Yolo, & El Dorado County. See my big monthly market update (scroll to “price cycles”).

I hope this was interesting or helpful.

MAKE THIS GRAPH FOR YOUR MARKET?

Do you want to know how to make a price cycle graph? I made a template to help you do this. Download my template and follow the instructions in the Excel file. If you make something, please tag me online or email me. I’d love to see what your market looks like. Here’s a video tutorial. Here are a few more tutorials also.

Questions: What stands out to you in the images above? Any other thoughts about price cycles?

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