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The market is slowing (we’re not surprised)

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The market is slowing. Most who work in real estate have sensed this and felt a “disturbance in the force” so to speak (Star Wars). The signs are clear, but sellers are slow to catch on because they’re stuck on “hot” headlines. Anyway, let’s talk briefly, and then for those interested I have a big market update.

QUICK TAKEAWAYS:

1) Slowing isn’t a surprise: You know what would be odd? If the market didn’t slow down for the season. Real estate tends to be cyclical and at some point each year it’s no surprise to see prices begin a downward descent after a high-altitude spring flight.

2) Not everything is slowing: Some markets throughout the country are in a stage of softening, but that’s not true everywhere. Moreover, let’s remember different price ranges, neighborhoods,and property types could be experiencing different trends. 

3) Being an expert: For real estate professionals wanting to position themselves as market experts, it’s critical to be able to recognize the symptoms of a slowing market and to be able to communicate those to clients. It’s far too easy to speak in clichés or write in boiler plate, but the market is always changing, so let’s say something different as it does change.

4) Sellers: Are you listening?

I hope that was helpful. Feel free to use the image above as you see fit.

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

The market is slowing. I’m not saying it’s cold or declining. And this doesn’t mean it’s not competitive either. It is. But there are clear signs the market is shifting for the season. Housing inventory is increasing. It’s starting to take longer to sell. Many prices metrics softened slightly or flattened in June. We’re seeing more price reductions. The sales to list price ratio declined 1%, and even the number of multiple offers declined last month from the previous month in Sacramento County. No matter how we look at it, the market is slowing.

EARLY SLOWING: When real estate begins to slow people often freak out because it’s easy to think the market is starting to crash. Right now the stats look consistent with what we’d expect to see at t his time of year though, so I’ll keep saying this is a normal seasonal slowing unless I have a reason not to. Yet it’s interesting to see the market did begin cooling about a month early this year (that could be due to having more inventory so far in 2018).

LOTS OF INVENTORY: Housing supply in the region is up almost 20% this year compared to last year at the same time, and that makes a difference with how the market feels. Keep in mind inventory is still very low, yet this is something to watch because changes in inventory really do affect the feel and pace of the market. For any “bubble hunters” out there, be cautious about comparing this increase in housing supply with 2005 because so far the market is handling the listings that are out there (besides the overpriced ones). In 2005 housing supply literally doubled in Sacramento County in about 90 days, and sales volume dropped 40% over one year. That’s not the same thing as today.

MY FAVORITE CHART EVER: I made this visual a few days ago and I think it’s fascinating to see price changes like this. You like?

SALES VOLUME RHYTHM: Sales volume has seemed to find a rhythm lately. Before 2005 there was a huge uptick in sales, but then volume crashed when the market imploded. In recent years it looks more stable. As you can see during the first two quarters of the year the market has tended to have somewhere around 13,000 or so sales lately.

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

DOWNLOAD 57 graphs HERE: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

SACRAMENTO COUNTY (more graphs here):

SACRAMENTO REGION (more graphs here):

PLACER COUNTY (more graphs here):

DOWNLOAD 57 graphs HERE: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: In what ways if any are you seeing the market slow? What are you hearing buyers and sellers saying about the market? I’d love to hear your take.

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The problem of overpricing in real estate

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Overpricing is a problem. You’d think in such a “hot” market that it wouldn’t be an issue, but it is. I’m not trying to dog sellers, but let’s talk about some of the most common pricing mistakes right now. I hope this helps.

1) Getting married to the list price: Sometimes it’s like sellers get married to a lofty list price and become unwilling to budge – even when buyers are refusing to pay that much. It’s as if sellers get paralyzed and cannot move beyond a clearly unrealistic price. My advice? Listen to the market and budge on price as needed.

2) I need this amount to move: I’ve encountered a few sellers recently who priced based on how much money they needed to move. But the market doesn’t care about personal finances or plans. The market only cares about paying a reasonable price for the property.

3) Headlines: At times sellers hear sensational headlines like, “Values are increasing more rapidly than ever,” so they price according to a headline rather than similar sales in the neighborhood market.

4) Out of touch with picky buyers: Buyers these days tend to be more picky than ever about what they purchase, but I’m not sure sellers are really in tune with how finicky buyers are about price, location, and condition. You’d think buyers would be so desperate to get into contract and pay anything because of a housing shortage, but they’re actually quite patient in many cases because they want to wait for the right property and feel like they’re paying a fair price. My advice? Price for real buyers in the neighborhood market rather than that one mythical “unicorn” buyer who is going to pay more for some reason.

5) Sales instead of comps: The most common pricing mistake I see is pricing according to a sale down the street that really isn’t comparable. So a seller says, “I know that house is totally remodeled with a pool, but someone’s going to pay the same amount for my house.” My advice? Price according to similar homes that are actually getting into contract rather than dissimilar properties. Be careful about hijacking price per sq ft figures too.

6) The fallacy of summer: We hear that summer is the hottest real estate season, but the spring season is actually the hottest in many markets throughout the country. By the time summer rolls around the market is actually beginning to cool because it’s been hot for almost two quarters already. During summer listing volume is just about to peak for the year, and that means it starts to take longer to sell, prices often begin to soften for the season, and buyers gain more power to negotiate. My advice? Be realistic about prices today.

7) Zillow: I can’t tell you how often I’ve heard, “But Zillow says my house is worth X amount.” I know, Zillow says stuff like, “We’re only a starting point and a ballpark figure.” Yet in my experience sellers rely heavily on the Zestimate and very often treat it like a definitive ending point rather than a ballpark. Remember, Zillow doesn’t know anything about condition, upgrades, smell, etc… Sometimes Zillow nails the value, but other times it’s off by a substantial amount – even in a tract neighborhood. My advice? Take “The Big Z” with a grain of salt.

8) Other: What else are you seeing out there?

I hope this was interesting or helpful. In light of the market beginning to cool for the season, I thought scratching out these thoughts might be helpful and even save sellers some money (and heartache).

Questions: Which mistake do you see most often? Any stories or insight to share? I’d love to hear your take.

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The emerging trend of storage container homes (Q&A)

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Storage container units are all the rage on HGTV, but they’re starting to pop up in real life too. So let’s talk about them. Today I have an interview with James Roberts who handles design and engineering at TAYNR, a container home builder in Sacramento. I hope this will be insightful and interesting. Anything to add? Let’s talk in the comments.

Ryan: What got you into the storage container business?

James: I first became aware of “shipping containers” when I was a Signalman in the US NAVY. Seeing them in different commercial ports was common. After the NAVY I moved to Miami Beach where I met Sujan (Project Manager at TAYNR), and we would see shipping containers on large cargo ships, cruising in and out of the Miami Port all the time. But Denmark was the first container build I ever saw. And then London had container condos and a shopping center. Thailand, Laos, Korea Japan, Mexico, Costa Rica, Brazil all have many small pop-up businesses, single family homes and commercial buildings. During recent visits to China and Hong Kong, I saw new construction sites with 100s of containers modified for worker housing.

Ryan: What type of buildings can you make out of containers?

James: The possibilities are endless. The ISBU (Intermodal Steel Building Unit), the shipping container, is manufactured to carry heavy cargo of all kinds, to be stacked, and withstand extreme weather conditions while being transported across the seas. With that said, they are incredibly strong, and if modified correctly, they can be used for an endless amount of structures. Australia has been using containers for housing and commercial structures for 40+ years. America has recently (+/-10 years) started to use this building method for single family and multi-family homes, commercial store fronts, popup food stations, business marketing structures, etc. The worker housing units would be an excellent source for all means for temporary housing in the US. Emergency, migrant, farm, homeless, camping, etc. The list can go on.

Ryan: What is the maximum number on stories you can do?

James: They are manufactured to stack on top with the weight bearing on the four corner posts. It is common to see them free-standing 6 boxes high at the port. This is without reinforcement or anything securing them together. You can imagine that with additional engineering and structural support, this could easily be doubled, possibly tripled.

Ryan: Tell me about the accessory unit you built in Oak Park (the blue unit below).

James: Matt and Jamie Leonardo contacted me in late 2016. They bought their Oak Park home a few years before and had worked up some equity. Originally there was a non-permitted home along the back alley way that had to be torn down in order for their loan to be approved. Replacing this structure for a revenue generating dwelling was pretty much in the plan from the beginning. I do not remember where/why they decided to build with a shipping container, but we met, discussed a plan and moved forward. This home will actually be showcased on an upcoming episode of You Live In What, premiering June 29th at 9 pm on Great American Country Network (GAC), an HGTV affiliate.

Ryan: Do units get extra hot on the inside because of the steel exterior?

James: No, our units are meant to perform extremely efficient by design. By nature, corten steel will absorb the heat from the sun. This is a factor that is taken into consideration from the beginning and we have many different ways to address this. For instance, the Oak Park container home is insulated on the inside and has reflective paint on the outside. Also, a weather barrier and facade were installed on the exterior of the container to allow for a 6?+ thermal break. The roof has a 3:12 sloped standing seam roof with 3’6? eves to provide additional shade along with the insulation and weather barrier laid out inside the roofline, and it has 2 mini-split for heating and air.

Ryan: What type of units do you find most clients are asking for these days?

James: Our highest demand for individuals is an ADU (Accessory Dwelling Unit) that can be installed in existing backyards for in-law quarters, guest homes, or as a rental unit to capture additional income. The TAYNR models are designed to be “building blocks” offering both 20′ and 40′ multi-block models. 1, 2 & 3 bedroom units with 1 or 2 baths.

Ryan: How long does it take to install an ADU?

James: Foundations can be installed in 1 day, and installation of the ADU is typically 5-10 business days depending in the model size.

Ryan: Is it fairly easy to get a storage container unit permitted?

James: “Easy” is absolutely not how would describe it. However, because we have our pre-designed models and engineering understood, this does simplify our process.

Ryan: Do you know if there is a limit to how many units can be added in a backyard?

James: Any residential lot in California can have one ADU as long as the property setbacks and design review conditions can be met. So far the only issue I have run into is physical access, which TAYNR now offers an alternative modular product that can usually meet this conflict.

Ryan: Have you found some areas not willing to allow containers because of design restrictions?

James: Usually this is due to the City/County design review. Some areas require the ADU be cohesive with the existing structure. As long as budget allows, this is not an issue because we can design a facade to satisfy this point.

Ryan: So far I’m not aware of any stand-alone single family container units in Sacramento. Have you heard about any yet?

James: There currently is not a stand-alone unit in Sacramento. Stay tuned… we have one in the works.

Ryan: What are the costs like for a storage container accessory unit?

James: Models and pricing are listed on our website (here).

Ryan: Are permit fees any different for containers compared to stick-built homes?

James: No, they are not. Our builds are required to meet the same building codes and are permitted the same as a traditional build.

Ryan: Anything else you want to add?

James: One of the biggest misconceptions is that building with containers is “cheap”. This is not the case. Although there are absolute savings if the build process is followed properly. Meaning, the onsite work should be performed while the ADU is being built in the factory, so the overall start-to-finish construction is significantly reduced, saving you a lot in labor cost. 

Ryan: Thanks for doing the interview. You killed it. Everyone, please check out TAYNR’s website. All photos in this post are TAYNR projects (images are property of TAYNR).

CLOSING APPRAISAL THOUGHTS: Container homes are an emerging trend in the market, so it’s important to stay in tune with this phenomenon. I’m excited to hear TAYNR is building a stand-alone home too because that’s not something the market has seen yet. It’s worth noting one of the struggles with stand-alone container homes is the potential of financing hurdles: 1) The unit might not be large enough in size in the eyes of the lender; and 2) A lender might ask an appraiser to use container comps to show the market accepts this type of property. Well, right now there aren’t any comps (yet). But the market is craving alternative products like this, so lenders over time will hopefully adapt to this emerging trend.

Questions: What do you think of container homes? Any insight or stories to share? Loan officers, any tips on financing? I’d love to hear your take.

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