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Ryan Lundquist

Rapid price growth & the Gilmore Girls next door

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It’s unbelievable to see how much prices have risen lately. Today I want to share one quick visual to show you exactly what I mean. Then I have a couple photos to share based on a conversation my wife and I had about the Gilmore Girls.

BIG POINT: The median price is about $40,000 higher than it should be.

RAPID APPRECIATION: This visual helps show the median price rhythm throughout the year. Normally we see prices go up for about half the year and then they soften during the second half of the year. Well, 2020 was abnormal because there was an uncharacteristic price dip in April (beginning of the pandemic) and then prices basically went up in the fall instead of softening like they should have. In short, if we had a normal year in 2020 it looks like the median price should have been closer to $445,000 for January 2021, but it’s now $485,000 (orange line).

Crazy growth, right?

IT’S THE GILMORE GIRLS NEXT DOOR

The other day I was walking with my wife and we were admiring a brand new contemporary listing in the middle of an older neighborhood (Fair Oaks Village). Then when seeing a Craftsman home on the adjacent lot, my wife said, “Look, it’s the Gilmore Girls next door.” This made me laugh because she doesn’t work in real estate, but she clearly recognized the contrast in design.

Here is a brand new contemporary listing in an older neighborhood.

The contemporary home is located next to much older homes.

SOME QUICK TAKEAWAYS:

1) Gilmore Girls: First off, sorry if you don’t get the Gilmore Girls reference. My wife has been streaming this show over the past few years, so I know quite a bit about it (don’t judge me). Anyway, this show is about twenty years old and it took place in a fictitious town called Stars Hollow. This town is older and has many Victorian homes, which is why my wife made the comment she did. By the way, Sebastian Bach, the lead singer of Skid Row (80s hairband), was actually an actor on the Gilmore Girls.

2) Eclectic neighborhoods: Some areas are eclectic, which means it’s completely normal to have a variety of housing designs. Thus it’s acceptable to see brand new contemporary units mixed in with stuff one hundred years old. It’s like vintage and new coexist and people are good with it.

3) Contemporary vs modern: The words “modern” and “contemporary” are often used interchangeably, but there is actually a difference. Here is a Houzz article if you want to read more (and maybe still feel confused). This blog post is also worth reading and maybe a little easier to understand. In truth I was torn whether to call this home contemporary or not, but I went with contemporary because it seems to blend some styles. Let me know what you’d call it.

4) The principle of conformity: There is an idea in real estate that homes ought to generally conform to the design of surrounding units in order to maximize value. In other words, when a home is so different it could lead to a lower value because it will stand out like a sore thumb. In many cases we accept this as a market fact, but it’s really not true all the time. For instance, in Fair Oaks Village there are many different types of units and the market embraces the diversity. Also, in Midtown we see a variety of newer modern units mixed in with Victorians and buyers are okay with that. Obviously in a cookie cutter stucco box tract it could be awkward to see something else, so it’s possible in some situations to see a negative reaction to different architectural types that just don’t fit. All I’m saying is it’s easy to assume a property takes a hit to value because it’s different, but that might not always the case.

I hope that was interesting or helpful.

Questions: Does someone in your household watch Gilmore Girls? What’s happening in your area with price growth?

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Are first-time buyers targeting 2-4 unit properties?

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There’s no inventory. It’s just incredibly sparse out there. So are buyers starting to look more to 2-4 unit properties since they are struggling to get into contract with single family homes? Well, maybe so. Let me share some visuals. If you’re not local, what’s happening in your market?

FIVE THINGS TO KNOW ABOUT THE 2-4 UNIT MARKET

1) First-time buyers are pulling the trigger: Last year more first-time buyers purchased two to four units compared to previous years in the Sacramento region. Both FHA and VA loans have seen an uptick and are essentially at their highest level in recent years. Keep in mind FHA has actually been declining as a loan type in the single family market, so it’s interesting to see this uptick among multi-units. We need more time to fully understand this trend, but this could very well be an example of buyers looking to other types of properties since the single family market is struggling so heavily with few listings to purchase. 

2) Prices have increased: Here is a look at the annual median price over 18 years. The trend for multi-units follows the single family market closely as there was a huge increase, a bubble burst, and we’re now in our tenth year of price growth (with the current nominal price having surpassed 2005 prices).

3) Volume isn’t what it used to be: Just like the single family market, we’re seeing fewer sales today from the previous market height between 2003 to 2005. Moreover, last year there were 10.9% fewer multi-unit sales in the region. When the pandemic started investors pumped the brakes, but the second half of the year was much stronger. 

4) Types of financing: Here is a deeper look at the type of financing involved in two to four unit sales. In recent years conventional has been dominant and cash has been declining. This is the same trend we’re seeing in the single family market because it’s just so cheap to borrow money. Look at FHA and VA though showing an uptick overall, which is telling of a growing appetite among many first-time buyers for multi-units.

5) X-factors to consider: One thing to consider while pulling comps these days is whether tenants are paying full rent in light of an eviction moratorium in place in California. The reality is some investors may expect a price discount in light of rent not being paid. Also, it’s important to keep watching to see any effects of rent control since we’ve now had one year of rent control under our belts.

I hope that was interesting or helpful.

Questions: What are you hearing from first-time buyers? What are you seeing in the 2-4 unit market? I’d love to hear your take.

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Stale real estate headlines & buyers flocking to El Dorado County

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Real estate headlines can get stale quickly, so we have to be really aware of what we’re saying. Is it still even true? Here’s an example of what I mean.

Headlines in recent years: Rising fire insurance rates in California are causing buyers to pull back from more rural areas.

New stats that change the narrative: In El Dorado County this past year we actually saw a larger increase of sales volume WITHIN areas that have higher fire insurance. Take a look at this visual. Typically El Dorado Hills & Cameron Park don’t have fire insurance issues whereas the rest of El Dorado County does (generally speaking). In short, volume in “fire areas” grew more than areas without issues.

Off the charts: Here is a visual to show how off the charts sales volume has been in El Dorado County. There was an initial COVID dip early in the year and then a massive increase WAY beyond normal.

QUICK TAKEAWAYS:

1) The market is always changing, so we need to be sure our narrative is informed by actual data instead of headlines from last year.

2) Uncertainty about fire insurance rates clearly didn’t hold back buyers this year in El Dorado County. Part of this could stem from rates regulating and buyers getting used to higher rates, but there is no mistaking El Dorado County had enormous pandemic migration. Thus incoming buyers simply cared way more about having land and space than fire insurance rates.

3) I’ve only run stats for El Dorado County, so I’d be careful about saying fire insurance is no biggie throughout California. Moreover, this trend could change in coming years. It’s actually very difficult to parse fire stats for Placer County. If anyone has ideas for how to do that I’m open ears. I just haven’t found a way yet.

VIDEO MARKET UPDATE:

Yesterday I did a big market update at Joel Wright’s Residential Roundup event. This is 38 minutes. Enjoy if you wish or skip to the last slide with closing thoughts to focus business in 2021. Watch below (or here).

PRESENTATION TODAY: I’m speaking at a Placer County Women’s Council of Realtors event from 10-11:30am. I’ll have one hour to unpack the market and I have some fresh Placer and El Dorado stats too. Sign up here.

Thanks for being here.

Questions: What are you seeing in El Dorado County or other areas? What are you hearing about fire insurance? I’d love to hear your take.

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My new sewer line adds huge value, right?

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A new sewer line. That’s what 2020 gave my family as a parting gift before the year closed. Yep, just before Christmas we had to replace our entire line at a whopping $13,688. I know that sounds crazy expensive, but we had four separate bids and went with the most reasonable one. In part it was so pricey because we had one hundred feet of line under eighty feet of concrete. 

The good news is my house is worth $13,688 more now, right?

THE SHORT ANSWER: No.

THE LONGER ANSWER: Buyers expect things like sewer lines to be in working order, so they aren’t prone to pay a premium for a new one. Would some buyers pay a little something extra? Maybe. But I’m not holding my breath for much of a value add because buyers get more excited and swayed by the bling in a house rather than boring adult stuff like sewer pipes. After all, we don’t hear buyers say stuff like, “I want an open concept kitchen, hardwood flooring throughout, but I’m walking if the sewer line isn’t new.”

IF IT’S BROKEN: But if a sewer line is broken, that’s where it becomes more of a value issue since a traditional loan shouldn’t be able to fund without a functioning sewer line. Moreover, in most markets buyers would likely deduct for the expense and inconvenience of having to replace a line. 

CLOSING ADVICE: Sellers, don’t expect buyers to pay dollar for dollar for every repair you do. Seriously, buyers expect certain things to be present and working. This is why they’re not going to look at my house and say, “Whoa, there’s a new sewer line? Let’s offer $13,688 more.” This is just how it works. And frankly if we were the buyers there’s no way we’d be paying cost either, right?

Anyway, here’s to indoor plumbing in 2021.

Thanks for being here.

Market update at SAR: I’m doing a big market update at SAR on January 21st from 10-11:00am. Sign up here.

Questions: Have you done any similar repairs recently? Have you ever seen a sewer line increase value? I’d love to hear your take.

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