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Would you be ready if the market did change?

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There’s so much talk about the market changing. It’s honestly hard to escape, right? But what if the market really did shift directions? Would you be ready for it? Today I want to share some things on my mind. This might seem off-topic, but hey, I’m a guy in business thinking through stuff like this.

The big mistake many companies make is the market changes, but they don’t evolve to be relevant for the future. This is why Sears filed for bankruptcy this week since they became a place consumers just didn’t want to shop beyond maybe appliances or tools. Likewise, Blockbuster video chose to focus their business around the idea that consumers would keep wanting to rent DVDs from a physical location instead of streaming online. In other words, Blockbuster held on to a business plan that worked well for the past instead of the future.

As I pay close attention to real estate trends, I find myself asking these questions. In fact, I’ve been asking them for years to stay on top of the market and hopefully keep my doors open.

QUESTIONS TO ASK:
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?

By the way, I’m not writing this post to say the market is collapsing, but only because with so much talk about change it would be unwise to not consider this.

ACTION STEP: Don’t wait for the future to come before asking the important questions. Remember, you can be successful in any market, but you have to try to think ahead of trends and be intentional about preparing for the future.

I hope this was helpful. Back to appraisal stuff next week.

Speaking Gigs: I’ll actually be talking about some of this stuff at AI’s 2018 Fall Conference in San Francisco & AppraiserFest in San Antonio.

Questions: What did you like most about Sears or Blockbuster? Any other questions to add to my list? I’d love to hear your take.

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Slumping volume & rising inventory

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Volume is down and inventory is up. Is that a problem? It sounds like a question for a high school Economics class, but here we are talking. Today I want to kick around two quick thoughts and then dive deeply into trends. I hope this helps – whether you’re local or not. Anything to add?

Here are the two big ideas to talk through right now.

This could be a problem: If sales volume continues to slump and inventory rises without buyers absorbing new listings, it could be a sign the market is changing in a big way. No matter how we look at it sales volume has been down lately in Sacramento. This was the weakest September since 2007 as volume was 14% lower than last year, and quarterly volume was down about 6% too. But keep in mind overall the year as a whole has actually seen strong volume, so it’s not like sales have fallen off the face of the earth (but it’s a concern we’re seeing the numbers change over the past few months). Housing inventory is also up and we haven’t seen it this high since 2014.

This could also be a dull fall: Despite the numbers seeming gloomy right now, they’re actually really consistent with what the market showed in 2014 when we had an extremely dull fall season. In fact, quarterly volume that year was down 6% and September volume was weak too. Does that sound familiar? Also, we have a nearly identical level of inventory right now compared to then too. I don’t say this to sugar coat any red flags in the market, but only to give pause and say what we’re seeing right now could simply be a very dull fall season.

We need more time: The truth is we need time to see how the market will pan out. For now we live in the tension of not knowing the future and interpreting trends for the present. My advice? Watch closely, be careful of hyped headlines, and be sure to take a wider view of the market too (let’s not forget 2014).

I hope that was helpful.

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

Prices actually went up last month. What the? Yes, the market is softening, but prices saw an uptick from August to September. That might seem confusing since we’re talking about the market cooling, but it highlights exactly what I’ve been talking about lately in that you don’t often see a market changing by looking at prices. You see change first in the listings and sales volume – and then prices eventually. This is exactly what’s happening right now. 

Normal fall stuff: Last month it took longer to sell, the number of listings increased, and we saw a dip in sales volume. This is what we’d expect to see at this time of year, though the dip in volume was definitely sharp, which is something we’ll watch over time to see if it’s a byproduct of a dull fall or the start of a bigger trend. Beyond volume being down 6% this quarter, all the metrics look fairly normal for the fall. Well, they look normal for a dull fall season, that is.

Momentum slowing: Beyond a seasonal slowing we’re also seeing momentum slowing. I explain it here in a presentation I gave yesterday.

Interest rates rising: One of the reasons why we’re seeing volume slough could be due to interest rates rising. Earlier in the year it seemed buyers ran to the market in light of news of rising rates, but right now it doesn’t seem like buyers have their running shoes on any longer.

Buyers have more power, but not all power: The market is shifting to favor buyers, though sellers still have lots of power. Some buyers hear about a softening market and think they can make lowball offers, but that’s just not realistic. For instance, last month 40% of all sales had multiple offers in the region. That tells us the market isn’t dead despite softening. Buyers, did you hear that? Enjoy your newfound power, but you still have to bring strong reasonable offers.

Listings may have peaked: Overall housing inventory is up as I mentioned above, but it looks like the number of listings is starting to crest for the year. I’ve been watching listings closely over the past few weeks and it seems like they maybe peaked. We’ll know for sure in a month or so. This is exactly what we’d expect to see happen around this time of year, but it maybe seems like more welcome news right now. Let’s keep watching to know for sure.

Being technical about weak volume and inventory: Here’s the thing, we saw a very weak sales volume in September, and it ended up really impacting inventory levels. In fact, when looking at graphs the trend line shot up dramatically last month (see below). But technically what happened was the sales that normally would’ve sold were basically piled on to the number of listings instead, and that’s making the housing supply figure look much more dramatic. Ultimately the number of listings isn’t all that abnormal for the time of year, though if sales continue to dry up over time, then it becomes a much bigger deal to have even this number of “normal” listings.

Pricing lower this fall: Right now at the least it looks like we’re poised to have a dull fall like we had in 2014. These past couple of fall seasons the market simply felt a little more flat, but this year I expect we’ll see a more pronounced price difference between sales in the spring and the fall. Remember, if listings aren’t attracting offers, it’s because the market is no longer biting at that level. What is similar and getting into contract? That’s the big question, and when a fall season is more dull it’s important to be realistic about the need to potentially price lower. In other words, it’s probably not going to be enough to price a property 1% below the height of spring and expect a flood of buyers. Remember, it doesn’t matter what other listings are priced at if they’re not selling. The only thing that matters is what is actually getting into contract. That’s where we see the market.

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

DOWNLOAD 63 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).

BIG QUESTIONS:

1) How did the market change from last year?

2) How did the market change from August to September?

3) What’s happening with inventory?

4) What’s happening with sales volume?

SACRAMENTO COUNTY VOLUME:

Key Stats:

  • September volume down 14%
  • 2018 volume down 1% (January to September)
  • Annual volume down 2% (past 12 months)
  • Volume has been strong this year, but it’s definitely down lately.

SACRAMENTO REGION VOLUME:

Key Stats:

  • September volume down 16%
  • 2018 volume down 1.4% (January to September)
  • Annual volume down 1.8% (past 12 months)
  • Volume has been strong this year, but it’s definitely down lately.

PLACER COUNTY VOLUME:

Key Stats:

  • September volume down 19%
  • 2018 volume down 3% (January to September)
  • Annual volume down 3% (past 12 months)
  • Volume has been strong this year, but it’s definitely down lately.

SACRAMENTO COUNTY (more graphs here):

SACRAMENTO REGION (more graphs here):

PLACER COUNTY (more graphs here):

I hope that was helpful.

DOWNLOAD 63 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: What do you see happening with volume and inventory right now? What are you hearing from buyers and sellers? I’d love to hear your take.

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Loud tile, fake trends, & staying grounded

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I’ve been seeing lots of vibrant tile like this lately. Have you? Do you like it or not? Let me know, and let’s also talk about fake trends and market hype.

Strong opinions: Last week when sharing a picture of this tile on social media, I heard some strong opinions ranging from, “Dude, that is the coolest thing ever” to “Wow, that is just plain ugly.” Some said it was really stylish, but they were concerned it wouldn’t age well. Another person remarked it was like a pattern from the 70s all over again (without the green). Haha.

The reality is vibrant tile has been showing up for the past couple years. Here’s some examples in higher-end flips by Olivia Barrett.

On Twitter @Nashramento shared an image of tile in her Family Room. She said the tile would’ve been too busy for the floor, but not on the wall.

Big point: There’s a variety of opinions on loud tile, but here’s the truth. The market doesn’t care what I think about this tile, and if you’re not a buyer it doesn’t care if you like it either. This doesn’t mean we don’t get to have opinions, but from a real estate sales perspective the ONLY thing that is relevant is whether buyers right now prefer the tile or not.

Moving beyond tile: We have some pretty big headlines right now, and just like the tile above, there are lots of opinions about what the market is doing.

FAKE TRENDS: Quick, here’s some fake trends with legit-looking graphs.

Okay, you either loved the fake trends or you think I’m ridiculous. For me they’re great for conversation – especially in the midst of so many market opinions.

TIPS FOR STAYING GROUNDED IN THIS SLOWING MARKET:

1) Read the article: Some people are only reading headlines instead of the article. Right or wrong, that’s how it is. This becomes a problem if actual stats aren’t as sensational as the headline.

2) Interpret the article: Here’s the question. Is the claim in the headline supported by data? I like hearing opinions, but it doesn’t matter if someone feels like the market is doing something. What do the numbers say? Keep in mind national data could show a different trend than local data too.

3) Listen to many voices: It’s good to get a wide variety of thoughts about the market from more than just one person or data source.

4) Be in touch with what a seasonal slowing looks like: Sorry to beat the dead horse on this point, but we need to be in tune with what normally happens in a slower seasonal market to help us understand trends and spot anything abnormal. My advice? At the beginning of each month ask yourself what is normal. What regularly happens in the given month to prices, sales volume, inventory, days on market, the number of listings, etc…? By the way, here’s my normal vs tanking video if you missed it.

I hope that was interesting or helpful.

Appraiserfest: One last note, I’m going to San Antonio, Texas for Appraiserfest on November 1-3, and I’d love to see you there. I’m very excited to meet people I’ve been talking to online for years, and I’m pumped to get to speak also. My topic is on becoming an expert in your market. I get 90 minutes on stage, but I hope to have lots of time over a few days to sit down to share ideas too. 

Questions: What do you think of the tile? Any tips for staying ground in this market in the midst of so much hype? I’d love to hear your take.

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6 ways buyers have changed since the housing bubble

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There’s lots of focus on how home prices have changed since the previous “bubble”, but let’s talk about how buyers have changed. Here’s some observations. What else have you noticed?

1) More picky: During the previous housing “bubble” buyers seemed so desperate to purchase that they pulled the trigger on about anything, but they’re much more discerning these days. Of course let’s remember underwriting has changed dramatically though too. In the past many properties flew through the loan process without hardly any scrutiny, but lenders today are incredibly strict, which has certainly propelled a more picky feeling in the market.

2) More patient: Despite a housing shortage buyers aren’t willing to pull the trigger on junk. They’re simply more patient for the right house and they want to make an informed purchase (and even feel like they’re getting a good deal where possible too).

3) More informed: Just as the “bubble” began to pop we had companies like Zillow and Redfin coming to the forefront. Well, now they are household names and buyers are basically obsessed. Seriously, buyers scour these sites day and night, and they know about every single new listing, price reduction, and sale. This doesn’t mean buyers don’t make value mistakes still, but it does mean they are more informed than EVER about prices. At the same time, guess who is not looking at Zillow as much? Sellers. This is a huge issue because it means sellers are not as in tune with the market these days, which means they’re prone to overprice.

4) Financial mistakes: Buyers remember the pain of financial turmoil in the past, so they’re sensitive to repeating mistakes. For instance, I talked with a buyer considering purchasing the highest-priced listing in a neighborhood, but he’s concerned we’re at the top of the market. This buyer asked, “If a buy right now and the market turns, would it be possible I’d have to hold on to the house for 10 years before values come back?”

5) Higher expectations about condition: These days buyers have higher expectations about homes being in good condition. In other words they are much more picky about properties that are not in “move-in” shape or upgraded. Wait, there aren’t granite counters? What the? There could be many reasons for this, but I think heightened investor flipping activity played a huge role. In a fairly short period of time investors had a gluttonous real estate feast by purchasing an avalanche of bank-owned homes, rehabbing them, and selling them. This helped quickly upgrade the housing stock, and also widen the price gap in some areas. What I mean is values used to be very tight together as you can see in the graph below, but now the price spectrum is simply wider since buyers are willing to pay more for rehabbed homes in today’s market. I’m not saying this dynamic is in every neighborhood, but I definitely see it in quite a few areas.

6) Less cash-out refinances: Everyone and their Mom had a boat before the “bubble” burst because people were using their house like an ATM to buy toys. Well, today we don’t have that dynamic (image from Leonard Kiefer). Home owners are clearly cashing out less, which makes them sound financially wise, but let’s realize lending guidelines have changed to make it more difficult to ATM your house. Moreover, many owners are sitting on 3% interest rates, so why the heck would they trade pulling out cash for a much higher rate?

NOTE: I updated this post with “more informed” above after Peter left a stellar comment (thanks). This is such a big point. I can’t believe I didn’t mention it while writing this, but it didn’t come to mind at the moment. The irony is I’ve been talking about this in other posts and in person so much lately. Ha. Well, it’s fixed now.

I hope that was interesting or helpful.

MARKET UPDATE VIDEO: A few days back I did a screencast to talk through trends. Lots of people are wondering if the market is tanking or softening, so I wanted to pitch in two cents. Well, the video is actually 20 minutes (there’s lots to say). Anyway, give it a view if you’d like here (or below).

SPEAKING GIGS: If you’re around, I’m doing a blogging class on October 11th at SAR. I’ll be speaking at the AI’s 2018 Fall Conference in San Francisco on October 19th and AppraiserFest in San Antonio on Nov 1-3.

Questions: What else do you think has changed about buyers since the “bubble” burst? Any stories to share? I’d love to hear your take.

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