Ryan Lundquist

Photoshopping & price per sq ft in real estate

June 4, 2019 By Ryan Lundquist 21 Comments

I have a new way to explain how price per sq ft works in real estate. It’s helpful but maybe a little creepy too. No matter what, we need word pictures in real estate to explain concepts, so let’s chat.

The big idea: Using a price per sq ft figure from a different house is sort of like photoshopping someone else’s body on your own. It just might not fit.

Instagram model vs dad bod: Think about it this way. When we use a price per sq ft figure to price a home it can be like taking an Instagram model’s body and putting it on a dad bod. It just doesn’t belong or fit. The problem is we’ve imposed something entirely different on another thing, and it looks awkward. The same holds true in residential real estate when we hijack a price per sq ft figure from a dissimilar house down the street and use it to price a property. Thus if we’re not careful we can end up pricing a “dad bod” home like it was an Instagram model simply because we priced according to model metrics instead of other dad bod sales… Okay, let’s not take this analogy any further. Do you catch my drift though?

Pick your poison: This example isn’t intended to tackle all aspects of price per sq ft, but only help stir conversation. I actually use Starbucks cups and Lamborghinis too, but that’s just me. My advice? Use what works for you.

One more thing. I’m writing as a guy who is currently on a diet, so I’m definitely not poking fun at the reality of dad bods. 🙂

I hope this was helpful (and not too creepy).

Is Blackstone selling? I see Invitation Homes (Blackstone) has a handful of properties listed on the market right now. These could be non-performing assets of course, but we have to ask if they are starting to sell off some inventory too. Stay tuned.

Sign giveaway: Last week I wrote about people who are leaving the market, and I’m giving away the shabby chic signs I made on this Facebook post.

Video: Here’s a video I made to talk through the danger of abusing price per sq ft. Enjoy if you wish. It’s about six minutes.

Question: Does this example work? How do you explain how price per sq ft works in real estate? I’d love to hear your take.

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Who is coming & going? A huge question to ask in real estate

May 29, 2019 By Ryan Lundquist 31 Comments

I said goodbye to some family members this past weekend. Like many Californians they’re leaving the state. It’s probably not surprising to hear, but California lately has been having more residents leave than come. Of course other states are feeling this too because they’re now welcoming (or not) West Coast refugees. Let’s talk about this. Here are a few things on my mind.

Why are people moving? People move for lots of reasons, but affordability is a huge one. We see lots of Baby Boomers wanting to take their California cash elsewhere to retire and live the good life. We also see young families move to lower-priced areas in hopes of putting down roots and even buying a home. But it’s not just about finances. Some residents are looking for a different lifestyle, less traffic, a better job market, more space, more land, and a different business and political climate.

Cashing out at the top: In coming time I expect we’ll see more migration if sellers think the top of the price market is near. I suspect we’ll see this dynamic in the Bay Area too, though they may eye a lower-priced Sacramento instead of out-of-state.

Changing markets: Migration can change a local real estate market in the obvious way of increasing prices and tightening supply, but it can also spur new construction and commercial development. We have to remember builders sometimes even cater their product to buyers coming from out-of-town. This is why locals sometimes look at a project and say, “Who can afford this?” Well, the answer might be wealthy out-of-towners.

DATA SOURCES I’M WATCHING:

1) Local publications: I’m digesting what the Sacramento Bee, Sacramento Business Journal, and Comstock’s Magazine have to say about trends. Here’s a 2018 piece from SacBee that states locals moved most often to Reno, Las Vegas, Phoenix, Seattle, & Austin. I don’t have updated stats yet, but I’m guessing Boise might make this list at some point. Here’s a piece from SacBiz talking about general migration issues. Additionally, the Greater Sacramento Economic Council is essential since they focus heavily on Bay Area migration.

2) Word on the street: What is the real estate community saying? Where are people coming from? And where are they leaving to? These are often clues what is happening in the trenches of escrows. I saw a Realtor recently provide a workshop on how to move to Idaho too, and that’s certainly a reflection of the times (and forward thinking).

3) National publications & data: I’m paying attention to studies from Redfin, Zillow, and other organizations. I’m also keen on articles discussing US residents migrating to the middle of the country. Lots of these studies and articles of course pull data from the U.S. Census Bureau. Here is some research from the Legislative Anaylist’s Office (this is a couple years old but some of the best stuff I’ve seen).

4) Moving companies: One way to get a sense of migration patterns is to listen to moving companies. For instance, SF Gate published a piece a few months back stating more people took a one-way U-Haul trip to Sacramento and Roseville from the Bay Area than any other location last year. Newspapers tend to publish stats like this, so it’s not like you have to go read studies. Here’s a sampling of migration reports though from Atlas Van Lines, United Van Lines, and North American Moving Services.

WIN A SIGN FOR MOVING DAY

When my family moved out of town I made an “Idaho or Bust” sign so we could take pictures on moving day. It was pretty cool for photos, so I made some more signs for locals and real estate agents to give away. In the next few days or so I’ll roll out a simple contest to win a sign on my Facebook page, so be sure to check it out. I’ll keep the contest open for a week or so most likely.

APPLICATION STEP: Last but not least, it doesn’t mean much if we acknowledge a trend without doing something about it. So here are some questions. I shared these a few months back, and they are definitely relevant in this conversation.

QUESTIONS FOR REAL ESTATE PROFESSIONALS
Who are my clients going to be over the next few years?
What are my clients going to need from me?
What skills do I need to add to be ready for the future?
Who is coming to the market?
Who is leaving the market?
Who is going to be participating in the future market?
What steps do I need to take to position myself for the future?
Where can I meet future clients?

VIDEO MARKET UPDATE: Here’s a video market update including lots of cool stats on the million dollar market. Enjoy if you wish.

I hope this was helpful.

Questions: How have you seen migration patterns affect the real estate market? What are the pluses and minuses? What are you seeing happen in your area? I’d love to hear your take.

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Ch-ch-ch-change in neighborhoods

May 22, 2019 By Ryan Lundquist 8 Comments

Neighborhoods change. Sometimes they end up growing in a positive direction and other times they go downhill in a big way. Today I want to share a quick example of what I mean.

Million Dollar Sales: Here are two images to show million dollar sales in East Sacramento. Prices were definitely rising during both of these time periods, so they’re helpful for comparison. Prices declined during 2007 through 2011, so I didn’t include those years. What do you notice?

Two Observations:

1) More: Today we have more than three times the number of million dollar sales compared with the past cycle. This makes sense because prices in East Sac have generally surpassed where they were prior to the “bubble” bursting. Thus some of the growth is simply because of where prices are at today.

2) Expansion: The million dollar market used to be concentrated almost exclusively in the Fab 40s and McKinley Park area, but it’s definitely expanded into other places. Over time we’ve seen lots of old homes torn down and rehabbed, and demand for the market has also increased. There is even a newer development called Sutter Park that is already fetching million dollar pending contracts in a location that has previously not seen that price point.

THE BIG TAKEAWAY: As neighborhoods change, so can value. In other words, just because value was one way in the past doesn’t mean it will be the same today. This is why over time we tend to see pockets of value emerge where buyers are willing to pay much than they used to. On the other hand it’s possible to see neighborhood decay where demand wanes and buyers tend to look elsewhere. I’ve written about the four stages of neighborhood life before, so I won’t rehash that much, but it’s so important to stay in tune with how markets are changing. Is the neighborhood growing? Is it stable? Is it in a stage of decay? Are we seeing rebirth? These are all good questions to ask.

Luxury Market Speaking Gig: I’m giving a presentation tomorrow at a luxury market event. I’ll likely share these two images as one of my talking points. Come by the event if you wish (I think you have to register).

What’s the market going to do? I was asked on Norm Shriever’s podcast recently about what the market is going to do in Sacramento over the next few years. In my mind these are some of the bigger points in this conversation.

Questions: What stands out to you about the images above? What sort of change have you seen in markets where buyers are willing to pay more or less? I’d love to hear any stories or examples.

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Solar panels & a normalish spring market

May 15, 2019 By Ryan Lundquist 17 Comments

Every week I get asked about solar panels. Do they add value? Should I price my listing higher? Will buyers pay for it? These are big questions and there’s no quick answer. But here are some things I think through and bring up when people call. This is just over ten minutes. Then for those interested, I have a huge market update to talk through the kinda sorta normal spring market.

Solar Video: Watch the video by clicking the image above (or here).

A Podcast I did with Norm: If solar isn’t your thing and you need a podcast to listen to, I just talked with Norm Shriever about appraisals, owning islands, Zillow, my Dad bod, etc… Listen directly on YouTube if you wish.

As always, thanks for being here.

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

Spring is feeling fairly normal so far. What a difference from the doom we felt in the latter half of 2018. Let’s talk about it.

THE SHORT VERSION:

Prices are up from the fall
Prices aren’t up much from last year
There’s lots of competition if priced right
Sales volume has slumped for 11 months
There are 2,500 less sales this year
So far the spring has felt fairly normal
This post is long on purpose. Skim or pour a cup of coffee.

DOWNLOAD 80+ 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 LONGER VERSION:

Here are some of the bigger topics right now:

It feels flat around here: Prices are definitely up from the big lull we had during the fall season, but they’re not up by much compared to last year. This is why I’ve been describing the market as flat. Most price metrics in the region are up only 2-3% over the year. In the region we’re seeing prices about level with the height of last year, though in Sacramento County we’re slightly above. This could obviously vary by neighborhood.

A more normal spring: I was talking to a real estate agent today and she said, “You know, it just feels like a normal spring.” I tend to agree. Stats are showing normalcy and we’re seeing what we’d expect to see at this time of year. Prices are up, inventory is down, sales volume has ticked up from the fall, it’s taking less time to sell, and pending sales have been strong. This doesn’t mean the market is perfectly healthy, but from a stats perspective it’s been fairly normal.

2,500 less sales this year: On one hand sales volume has recovered this spring to almost normal levels, but over the past year volume is actually down 8.5% in the region. I know that doesn’t sound like much, but think about it this way. There were 2,500 less sales this year in the region compared to last year. While this isn’t the sign of a market meltdown, it’s definitely something we have to watch. At best I would say this is an off year, and at worst it’s a symptom of the market starting to change in more significant ways (which we will only know as time unfolds). In short, don’t write home over this yet, but keep an eye on it.

Zillow: Last week Zillow announced they’ll be entering the Sacramento market by the end of the year. This is huge news, but it’s really what we expected. These days there are a handful of tech companies trying to challenge the traditional real estate model by buying privately from sellers and then re-listing on the open market. There’s lots to say about this and I’ll have some posts in the future. For now I just wanted to say I find it ironic that as much as Zillow loves to tout their accuracy rate, they won’t be buying properties based on the Zestimate. Otherwise I imagine lots of overvalued owners would jump at the opportunity, right?

Low rates are the x-factor: At the end of 2018 it seemed like the market was ready to take a dive, but lower rates this year have helped bring buyers back into the market and sustain higher prices.

Real estate is like the stock market: When I say the market is slower I get a little pushback at times. The idea is, “Dude, I just had 14 offers on my house. How dare you say the market is slow!!!” Look, it’s impossible to describe every neighborhood and price range with just one statement. This is why I say the real estate market is like the stock market. While the market as a whole might be doing one thing, not every stock is experiencing that same exact trend. In the same way, not every neighborhood, price range, or property type can be explained the same way.

Do cannabis dispensaries increase residential value? I did an interview last week with CBS 13 to talk about a study that claims cannabis dispensaries increase the value of surrounding residential properties. You can click the link to hear my take. In short, it’s true that vibrant commercial sectors can help increase value. But I’ve never met a buyer who said, “I’ll pay more because of a dispensary down the street.” In my experience locally at least, many people don’t even know dispensaries are there unless they’re cannabis connoisseurs. In short, I tend to be skeptical of studies like this.

Hey girl, let’s have bubble talk: Prices are just about back to where they were fourteen years ago when the market collapsed in 2005. In fact, most price metrics in Sacramento are within 1-3% of the peak. This means with just a little more modest price growth we might be having “Hey girl, we’re back” (yes, that was a Ryan Gosling reference (sorry)).

Keep in mind the market in 2005 was much different than today and there is no such thing as a formula where the market “pops” if we reach 2005 levels. Technically speaking, current values aren’t actually anywhere near 2005 when we consider inflation. But you know, very few buyers actually think about inflation like this – unless they’re economists, grad students, real estate geeks, etc…. In case it helps, here’s a post I wrote about buyers worried about another housing bubble.

Appraisals coming in lower: I’m hearing from some contacts of appraisals coming in lower than the contract price. As the market slows, this is something we’ll likely see more frequently if properties are getting into contract at prices that cannot be supported by market data. Of course some appraisals may legitimately come in too low, and I’m not naive about that. Whatever the case, I’d advise sellers to price realistically and in some cases pick the strongest offer instead of the highest one.

Price sensitivity: Literally half of all homes last month had multiple offers in the Sacramento Region. This reminds us buyers need to bring strong offers. But sellers ought to price correctly too. Buyers are not desperate and willing to pay unrealistic prices, so I advise aiming for the market instead of that one mythical buyer who will overpay for some reason. Remember, the market is very competitive, but that doesn’t mean prices are going crazy.

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

FOUR BIG ISSUES TO WATCH:

1) SPRING GETTING HOT: The market is heating up for 2019. We’re seeing price changes, lower inventory, and increased sales volume. So prices are up from the dull fall, but they’re also flat as you can see under #4.

2) SLOWING MOMENTUM: Despite the heating, stats show the market is slowing down when we look at the rate of change by year. Looking at monthly, quarterly, and annual numbers helps give a balanced view of things.

3) SALES VOLUME SLUMP for 11 months: It’s important to look at sales volume in a few ways to get the bigger picture. Here it is by month and year.

SACRAMENTO REGION:

Key Stats:

April volume down 8.2%
Volume is down 8.5% over the past 12 months

SACRAMENTO COUNTY:

Key Stats:

April volume down 6.8%
Volume is down 7.2% over the past 12 months

PLACER COUNTY:

Key Stats:

April volume down 4.3%
Volume is down 8.9% over the past 12 months

EL DORADO COUNTY:

Key Stats:

April volume down 2.4%
Volume is down 12.5% over the past 12 months

4) LAST YEAR VS THIS YEAR: Check out the price metrics below. Can you see why I’m saying prices seem flat lately? This may not be true in every single price range or neighborhood of course, but this shows us price momentum is slowing. With that being said, it’s still okay to say the market is “hot”. It is. But I’d say competition is hotter than price appreciation.

NOTE: Take El Dorado County data with a grain of salt. Stats change significantly month by month.

Quick note on how NOT to use 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.

Now here are a bunch of images. Please enjoy.

SACRAMENTO COUNTY (more graphs here):