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The real estate left behind after a fire

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Last month the Town of Paradise, CA was destroyed during the Camp Fire. The flames showed no mercy as they took lives and leveled nearly 14,000 homes. The devastation is simply unreal and hard to fathom.

Today I wanted to do a Q&A about the aftermath of this fire and what’s happening in the surrounding real estate market as a result. It’s sobering to know there are tens of thousands of people trying to figure out what to do and where to live, which is why this is important to talk about. I asked Parke Noble with California Appraisals to answer some questions since he’s a sharp guy based about 15 miles from Paradise. We didn’t talk about post-disaster appraisals because a different interview covered that, but I hope you find some insight here. And for reference, the Town of Paradise is about 90 or so minutes from Sacramento.

Ryan: I guess this is a heavy start, but what was it like to witness the Camp Fire? I know Chico is about 15-20 miles away.

Parke: I live in Chico, so my direct immediate exposure to the tragedy of the Camp Fire was from a distance; I can’t begin to imagine the chaos that those who witnessed the devastation experienced. And I can’t fathom the heartbreak that they continue to experience now that access restrictions for the Town of Paradise and the communities of Magalia and Concow have been lifted. Please keep in mind that although “open”, the Town of Paradise access is intended for those directly affected.

Ryan: Do you think people are going to rebuild in Paradise? Why or why not?

Parke: With regard to rebuild options, it has been my experience that less than 50% of those who lost their home intend to rebuild. Although the reasons are numerous, the primary concern has focused on the fact that as an aged demographic many survivors have indicated that they don’t want to spend the requisite time that it’s going to take to rebuild. They’re either attempting to secure a “turn key” option in neighboring communities or moving out of area altogether. Additional factors include a lack of qualified contractors and the fact that as a ridge community another fire could possibly occur in the future. On top of this we have to remember the lack of infrastructure in Paradise; no services. There is apprehension for those that do choose to rebuild. What if the town doesn’t “come back” and you’re left with a house without infrastructure?

Ryan: We’ve been reading reports about housing inventory being depleted in Chico because of the massive amount of Camp Fire refugees. Is that true?

Parke: Single family residential inventory in Chico has been dramatically impacted since the November 8th Camp Fire. Per CRMLS data, detached single family residential active listings numbered 252 on November 7th. As of December 4th that number had dropped to 91 offerings (-36%). That number had increased to 106 active listings as of December 19th.

Ryan: What do you see happening with prices in Chico right now? Is the market as aggressive as people are making it out to be?

Parke: Prices across every market segment have experienced substantial demand and consequently higher median resale prices. The current Chico market indicates sales 5-25%+ above list price. List price average increased +10% from November to December. Sale price average has increased 9% from November to December and days to sell declined from an average of 54 days in November to 19 days in December. As an example, a listing at $485,000 sold for $612,000 in three days with multiple offers. Ongoing sales above list are the market norm right now. 

Ryan: How long do you think this type of activity can keep up in the market? 

Parke: The current Chico market dynamic is vastly different from anything experienced in the past and was virtually an immediate impact with the sudden loss of about 14,000 homes in the Camp Fire. It’s unlike the consistent, sustained price creep and gradual inflation experienced in Chico in 2006-2007. This type of sudden market hyperinflation will continue as long as demand supports the small inventory. As a side note to ask appraiser peers: How will the sales during this period of artificial inflation be handled as comparables when these current conveyances don’t qualify as standard, arm’s length transactions?

Ryan: What advice would you give to sellers and buyers in Chico?

Parke: Depending on what side of the transaction you’re on, you’re either quite happy with the value increases or extremely discouraged. As with any market anomaly, there are parties looking to capitalize. Numerous active listings saw increases in asking price after November 8th. And the increases were absorbed by a desperate market willing to bear. Any advice for a seller and/or buyer would virtually be a moot point; the entire current market is a deviation from an outlier in an anomaly…..

Ryan: How would you go about valuing a property in Paradise right now?

Parke: Valuations in Paradise will be for vacant parcels. I can’t imagine attempting to demonstrate the influences/effects of such vast devastation on those residential structures left standing. An adequate data set does not exist at this time.

Ryan: You’re a numbers guy, so what numbers (or data) do you plan to watch over time to help you understand the market?

Parke: I’ll continue to track inventory, list-to-sale ratios, sale price averages, days on market, etc. Time will be required to collect and analyze.  

Ryan: Thank you so much for doing the interview. You killed it and I appreciate your time and insight.

Parke’s Bio: Parke Noble has been serving Northern California since 1997. Experience includes appraising single family residences, multi-family residential (2-4) units, in addition to condominium, PUD, manufactured housing, proposed construction, and FHA/HUD roster work. Additional experience in narrative reports, highest and best use studies and HUD Rent Comparability Study (RCS). Service area within Butte County. Parke is a graduate of Chico State University and he is originally from Sacramento.

I hope this was helpful or interesting.

Video Market Update: I made a Sacramento market update video yesterday to walk through numbers and talk through some trends. Enjoy if you wish.

Last Post of 2018: Merry Christmas and Happy Holidays from my family to yours. I’ll be taking the next week off and I’ll see you again in 2019. On a serious note, thank you so much for enhancing my life this year. I’m truly grateful to be connected and I’m honored you came with me on this blogging journey in 2018. It was a fun ride for me, and I hope it was for you too. 

Questions: What stood out to you most about what Parke said? Anything else to add? Also, do you have suggestions for where to donate to help Paradise residents? I’d love to hear your take.

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An underrated metric & slumping volume

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There’s a stat that doesn’t get much love. It’s not sexy, nobody really writes about it in the newspapers, and most people don’t even know what it is. But it’s really important because it helps us tell how hot or cool the market is. I’m talking about the sales to list price ratio. Oops, did I lose you? I know, a topic like this sounds painful, but let’s consider why this actually matters. Then if you’re interested I have a huge local market update below to discuss slumping volume and slowing momentum. Any thoughts?

What is it? The sales price to original list price ratio is one of the best ways to gauge the temperature of the market. It’s the relationship between the final sales price and the original list price, and it’s expressed as a percentage.

If we only had one stat: We could likely get a pretty good understanding of how hot or cold a market is based on this metric alone. So without looking at price, inventory, or sales volume, if we simply saw a market had a 100% sales to original list price ratio, it tells us properties on average are selling for what they listed for. That’s a sign the market is hot or at least buyers are willing to pay what sellers are putting out there.

When we see this ratio moving up or down, it helps us get an idea of what the market is doing. For instance, over the past six months the sales price to original list price ratio has declined in Sacramento County, which tells us the gap has been growing between what sellers are asking and what they are actually getting. The most recent ratio is 96%, and that means on average properties are selling 4% lower than their original list price. That’s a powerful stat, right?

Not being anal, but ORIGINAL matters: It can make a huge difference if we’re looking at the original list price or the most recent list price.

Looking at the most recent list price makes it seem like the market isn’t cooling all that much. After all, a 99% sales to list price ratio still sounds pretty good. Yet this stat hides the real trend that properties on average are actually selling 4% lower than their original price. Thus if we’re not careful we can totally misunderstand the market despite good intentions. That’s sobering, right?

The “Bubble” years:

Right now 96% feels dull, but imagine 87%. Yikes!

Action Step: With so much talk about the market softening these days, it’s a good idea to pay attention to lots of different metrics – and especially the sales to original list price ratio. Keep in mind if the ratio isn’t available through MLS, it can always be run manually by dividing the final sales price into the original list price. For instance, all sales in Sacramento County this month totaled $512M while the original list price for all these sales totaled $533M. When I divide $512M into $533M I get 0.96 (or 96%).

I hope this was interesting or helpful.

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

Dull is a perfect word to describe this fall season. Actually really dull would be more accurate. Let’s consider some of the bigger themes happening right now in the market. 

DOWNLOAD GRAPHS FOR YOUR SOCIAL MEDIA: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy my post verbatim).

A week longer: It’s been taking about a week longer to sell this year compared to last year in the region (technically 8 days).

Prices softening: Prices normally soften during the fall season. If you don’t believe me, look at the graphs below. This year the median price is down by 6% from the height of summer in the region. This doesn’t mean every neighborhood or price range is down by that much, but there is a more defined softening present this year in many price ranges. Sellers would be wise to price according to listings that are getting into contract rather than the highest sales from spring. 

Sales volume slumping (please read): Sales volume is only down by 3% in the region this year, but the bigger stat is volume is down 11% over the past four months. This is definitely something we need to watch closely to see how it unfolds. In short, if volume rebounds to normal levels as 2019 begins, then we’ll chalk this slump up to a dull fall season like we had in 2014. If volume persists to decline though we’ll correctly call this a new direction for the market. So is this seasonal or not? I’ll tell you in a few months or so….

Momentum change: The rate of price changes has slowed lately. What I mean is in years past we’d regularly see 7-10% price increases when running stats, but over the past few months we’re starting to see only 2-6% increases instead. I talked about this last month, and the new stats show this same trend.

Ironic power exchange: There has been a power exchange lately where buyers have been gaining market share and sellers have been losing it. Of course we know sellers have struggled with being out of touch with the market as they’ve been prone to overprice. It’s been easy to point this out all year long, but ironically we’re starting to see something similar with some buyers thinking they’re completely running the show when in fact it’s not quite a full-fledged Buyers’ market.

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

BIG QUESTIONS:

1) How did the market change from last year?

2) How did the market change from October to November?

3) What’s happening with sales volume?

SACRAMENTO COUNTY VOLUME:

Key Stats:

  • November volume down 6.5%
  • 2018 volume down 1.4% (January to November)
  • Annual volume is down 2.1% (past 12 months)

SACRAMENTO REGION VOLUME:

Key Stats:

  • November volume down 12.1%
  • 2018 volume down 3.3% (January to November)
  • Annual volume is down 3.4% (past 12 months)

PLACER COUNTY VOLUME:

Key Stats:

  • November volume down 9.3%
  • 2018 volume down 5.6% (January to November)
  • Annual volume is down 6.1% (past 12 months)

4) MOMENTUM IS SLOWING:

November:

Past 90 Days:

Entire Year:

DOWNLOAD 100+ graphs: 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):

I hope that was helpful.

DOWNLOAD 100+ graphs: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: Do you ever use the sales price to list price ratio? Why or why not? What do you see happening in the market right now?

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Seven years of price increases & my blue kitchen island

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Let me get straight to it. I’m excited to share some new visuals. I’m geeking out because these new images help tell a compelling story of seven years of price increases. Whether you’re local or not, I hope you can dig these.

A FEW QUICK THINGS THIS WEEK:

1) Loan Limits: You probably heard conforming loan limits were raised for the third year in a row. This basically helps buyers continue to afford higher prices. I’m not saying that’s bad, but it would be nice if wage growth more than anything was helping people afford the market.

2) Sign the Petition for Appraisers: Last week I wrote about a move to start getting rid of appraisers. This is a big deal with huge implications for the housing market and future escrows. I co-wrote a petition through change.org and I want to ask you to please sign it. SIGN HERE.

3) Cool Graphing Link: On a lighter note, Freddie Mac launched a new graphing tool where you can make quick visuals and even compare different markets throughout the United States. Not every city is listed, but it’s worth checking out and getting lost for a few minutes.

4) My Blue Kitchen: I talked about blue being the rage in kitchens, and I guess my post inspired me. During Thanksgiving break I built a new kitchen island and we painted it blue. Woodworking is definitely a passion and it’s something I do to help keep my sanity. Anyway, this was a fun project and I wanted to share.

SEVEN YEARS ON ONE GRAPH (NEW VISUALS):

Here’s some images for four counties (Sacramento, Placer, Yolo, & El Dorado). What I like is we see price trends for seven years on one graph. It may take a moment to figure out how to digest these images, but look for changes in price and volume over time. So far people who have seen these have noted rising prices and definitely vanishing affordability. Keep in mind they don’t include most of December for 2018, and that could change the look slightly by next month. 

What do you see?

SACRAMENTO COUNTY:

SACRAMENTO REGION:

PLACER COUNTY:

EL DORADO COUNTY:

YOLO COUNTY:


SHARE THESE IMAGES: You are welcome to share any of these images in your newsletter, on social media, or on your blog, etc… See my sharing policy for details and 5 ways to share (please don’t copy my post verbatim).

I hope that was interesting or helpful.

Questions: What do think of these images? Which ones do you like best? Any suggestions for improvement? I’d love to hear your take.

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Get rid of appraisers while nobody’s looking

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Did you hear the news? There’s a proposal from the FDIC, Federal Reserve, and others to not require appraisals for some mortgages under $400,000. This is a big deal and I have some thoughts. Actually, Ken Harney in the Chicago Tribune penned a fantastic piece about this today (I was quoted too).

Dude, this will save us money: The idea is to do away with traditional appraisals so consumers can save money and the loan process can speed up. Here’s the thing though. Regarding cost, the appraisal is one of the least expensive elements in a transaction. Of course to be fair the Borrower might pay a much higher fee for the appraisal because of what Appraisal Management Companies (AMCs) charge the consumer. Regarding turn-times, if an appraisal was ordered right away that would speed things up. It also doesn’t help if an AMC offers an absurdly low fee and shops around for an appraiser willing to work for that amount.

A 60% change in a slowing market: It’s troubling to hear a proposal to increase the appraisal threshold from $250,000 to $400,000. This 60% change hurts appraisers, but let’s be real about who it is helping. This is a ploy for banks and big corporations to make money by controlling the valuation process. This rule of course doesn’t necessarily mean appraisals won’t be required in all situations, but the danger is it paves the way. More than anything though this looks like a move in the agenda to usher in an era of “evaluations” (see below).

Systems of checks and balances: Consumers are certainly not being protected here. Why are we diminishing the role of the appraiser, one of the systems of checks and balances for our financial markets? What could possibly go wrong? This seems like very convenient timing for banks too because it helps position them to operate with looser standards as the market is softening.

The people behind the rules: We have nearly 95,000 appraiser credentials across the country, so changing the rules can put lots of people out of business.

Evaluations instead of appraisals: There’s been a big push to introduce “evaluations” in lieu of appraisals. As Ken Harney writes, “Instead of a formal appraisal, these homes would receive an “evaluation” by individuals who have no appraisal licenses or certification and would not be subject to current state regulatory oversight requirements that govern appraisers. The evaluators could be an “independent bank employee” or unnamed “third part(ies).” They would, however, have to be “competent” and possess “knowledge of the market, location and type of real property being valued.”” I’m guessing these “evaluators” will be real estate agents who do BPOs, employees at banks and data firms, and probably some appraisers who need the work at $75-$100 a pop.

Hybrid appraisals: Speaking of changing the appraisal process, it’s worth mentioning there is a hybrid evaluation product where someone else does the inspection part while the appraiser does the value part. I’m not certain if all evaluations would work this way, but here’s the gist. An individual would measure the property, take photos, make notes, and then send everything to the appraiser to do the value part. I really don’t like this idea because it treats value like it’s only crunching numbers at a desk instead of seeing the fuller picture of a property. I want to see the home, walk the parcel, smell the property, observe the street, understand the layout, etc…. instead of relying on someone else’s photos and notes – especially if that person is inexperienced.

But less appraisers is good news: I realize some might be excited to have less appraisers. I get it. But here’s some honest questions. If you work in real estate or you’re purchasing or refinancing a home, what’s going to happen when less experience is infused into the valuation space? Do you think that’s going to help protect consumers? If you’re frustrated now, what are you going to be feeling in the future? Does it bother you the banks are changing the rules to their benefit?

ACTION STEP: If it’s within your power to say something, please speak up right away. Maybe ask your local and state associations to make a statement and put pressure on the FDIC, Federal Reserve, and Trump administration. Thank you for your consideration.

SIGN THE PETITION: There is now a petition, so please sign here to make your voice heard.

I hope that was interesting or helpful.

Questions: What do think of this? Is this a good move? What are any positives and negatives you see? I’d love to hear your take.

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