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Talking real estate cycles at the dinner table

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Let’s talk about real estate cycles. Are we at the top of the market? Lots of people are wondering, so I figured I’d throw out some charts to help fuel conversation. My goal here isn’t to say YES or NO, but to focus on stats for the sake of discussion. Well, and if you need something to talk about at Thanksgiving dinner besides politics… 

CYCLE CHARTS: Here’s some charts to show the annual median price in various local counties. What do you see? Look at price changes and cycle lengths. If you’re not local, what would charts like this look like in your market?

NOTE: The market started increasing in the late 90s, but stats from then are limited. Just know the first cycle above would have been a couple of years longer.

What about the ’70s and ’80s though?

Someone in the comments wanted to see price trends in previous decades, so here’s the 70s and 80s for context from the Freddie Mac Price Index. I’d love to expand my charts above, but I don’t have quick access to mass stats to make that happen. I’ll keep my eyes open though.

THOUGHTS ON REAL ESTATE CYCLES:

1) Up and down: Sometimes we get stuck talking about real estate like it only increases in value, but that’s fiction. The reality is markets go up and down – just like relationships, the stock market, or my pants size. The truth is we see longer periods where prices increase, decline, or persist in stability.

2) The seven-year cycle: Some say the market changes every seven years, which is a nice idea, but there’s no universal rule that says the market has to behave a certain way after a specific period of time. I definitely buy into the idea of market cycles, but I’m not dogmatic about a fixed number of years.

3) Momentum change: Right now as charts show we’re seeing momentum slowing in the market. What I mean is we’re typically seeing more subdued appreciation rates over the past few years. That’s not really a surprise though as affordability is becoming more of an issue with today’s prices.

4) Other: What is point #4?

I hope that was interesting or helpful.

HAPPY THANKSGIVING: From my family to yours I wish you a very happy Thanksgiving. I’m glad we’re in this together and I appreciate our weekly conversations. Over coming days I hope you get some time off and find refreshment. I honestly hope you don’t bring up real estate cycles at the dinner table. But then again if you do, let me know how it goes….

Questions: What do you see in the charts above? What stands out to you most? I’d love to hear your take.

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Is it just me or is the market slowing?

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The market is slowing. We’ve been hearing that all over the place lately and it’s been a common clickable headline. But it’s not just hype because there’s some truth to it. Today I want to show this reality with a few visuals, mention three takeaways, and unpack a huge Sacramento market update for those interested. I hope this is helpful – whether you’re local or not.

Tighter Prices: Is the market slowing? How would you show that? Take a look at the rate of price changes in the images below and let me know what you see.

OCTOBER:

PAST 90 DAYS:

ENTIRE YEAR:

TAKEAWAYS:

1) Slowing: Prices are still up, but they’re not up by as much this year. 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 4-6% increases instead. This helps show the market as a whole is slowing.

2) Dull fall & critical thinking: Stats have begun to change more significantly these past few months since a slower feel hit the market. A few months back sales volume dipped, but now after multiple months of lower volume this is becoming a trend (at least for the fall). As we watch this unfold and see that prices are much tighter together as I showed in the charts above, let’s consider two things: 1) Price stats today are more subdued in light of a much duller fall season (duh); and 2) Last year’s fall season ended up being a little more flat than usual, so higher prices from then could be helping this year’s numbers appear a little more depressed. I know, it sounds like I’m trying to soften the idea of the market slowing, but that’s not it at all. I’m thinking critically through the numbers and explaining in part why they are the way they are. Ultimately I find myself interpreting these numbers cautiously, and I think we need to get beyond this fall to see the bigger picture of what the numbers show us and where the trend is going to go.

3) Wide & narrow view: I chose to share stats in three ways on purpose to show something important. Did you notice a difference in the price change depending on how wide or narrow the dates were – whether 30 days, 90 days, or 12 months? Basically the more data we considered, the tighter the price gap was. This is a good reminder to look at the market in different ways to try to discern the trend. It’s also a good reminder to be careful of pulling older data because sometimes that can mask a trend that is happening right now.

The future: Naturally when hearing about momentum slowing in a market it’s easy to start predicting the future as we see price gaps tighten. Many say the market is going to crash, others say it will correct by 10%, and some say it will level off and progress into a state of balance. All three of these ideas have one thing in common. They’re guesses.

I hope that was helpful.

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

Last year the fall season felt more flat than not, but this year is a different story. We are definitely having more of a dull seasonal lull that reminds us how the market felt in 2014 when the fall season was definitively soft. Here are some of the things I’m watching right now. I’d love to hear what you are seeing. Please comment below or send me an email.

Graphs for your newsletter and 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).

Adjusting to rates: Buyers have seemed to back off the market a bit lately, and we’re seeing the effect of that with lower sales volume. What’s up with this? The culprit could be increasing interest rates and a growing lack of affordability.

Balancing of power: Buyers have gained more power in recent months, though I don’t think sellers got the memo since they are still struggling with overpricing and pretending it’s an aggressive market from 2013 instead of a slower market in 2018. This doesn’t mean buyers have total control though. Keep in mind 41% of all sales last month had multiple offers, which tells us it’s not the type of market where buyers can lowball sellers and get whatever price they want.

Pricing lower this fall: Since the summer the median price has softened by 4% in Sacramento County, 5% in the region, and 7% in Placer County. This doesn’t mean every neighborhood lost 4-7% in value. These are county stats and they don’t translate into every area or price range. Keep in mind it’s normal to see a 5% or so reduction in the median price during a given fall season, but this year it wouldn’t be surprising to see a more pronounced price difference between spring and fall (we’ll see how it pans out).

The story of sales volume: In September volume was down a whopping 16% in the region, and that raised lots of eyebrows to make people wonder if the market was starting to tank. This past month sales volume was not as weak, but it was still down nearly 9% in the region and about 4% in Sacramento County. Over time we need to keep watching this trend to better understand if it’s a sign of a definitive change in the market or if it’s the byproduct of a dull fall season (or both). One thing to remember is despite a few months of gloomy sales volume recently, volume is only down 2% in 2018 in the Sacramento region.

Listings did peak: I’ve been talking about listings looking like they were peaking for the past couple months, and the stats now definitely show listings have crested for the season. This is normal for the time of year as sellers tend to pull back from the market and wait until spring to list. This is why the fall sometimes feels like a market of leftovers since many sellers are waiting until the next year.

Concessions and credits: Buyers have more options today, so they’re tending to ask sellers more often for credits, repairs, and concessions. It would be wise for sellers to listen to buyers and be aware they may need to give something to get the deal done.

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 September to October?

3) Where are we in relation to peak prices in 2005?

4) What’s happening with sales volume?

SACRAMENTO COUNTY VOLUME:

Key Stats:

  • October volume down 4%
  • 2018 volume down 1% (January to October)
  • Annual volume is down 1.9% (past 12 months)
  • Volume has been strong this year, but it’s definitely been down over the past 4-5 months.

SACRAMENTO REGION VOLUME:

Key Stats:

  • October volume down 8.8%
  • 2018 volume down 2.1% (January to October)
  • Annual volume is down 2.5% (past 12 months)
  • Volume has been strong this year overall, but it’s been down over the past 4-5 months.

PLACER COUNTY VOLUME:

Key Stats:

  • October volume down 20.6%
  • 2018 volume down 4.9% (January to October)
  • Annual volume is down 5.4% (past 12 months)

SACRAMENTO COUNTY (more graphs here):

SACRAMENTO REGION (more graphs here):

PLACER COUNTY (more graphs here):

I hope that was helpful.

DOWNLOAD 60 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 in the market right now? What are you hearing from buyers and sellers? I’d love to hear your take.

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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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Is the public trusting Zillow too much?

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I don’t have an axe to grind. I’m not angry. And I’m not worried about Zillow replacing my job. I am concerned about the public trusting Zillow way too much though, so I wanted to share an eye-opening “Zestimate” example to help create conversation. Please give it a read and let’s talk in the comments.

Here’s the Zestimate history of a single family home in Carmichael, CA. I’ve been following this property for the past two months.

1) OVERPRICED: This home was originally overpriced in MLS at $380,000 and the Zestimate happened to be $380,414 when the home listed for sale.

2) PRICE & ZESTIMATE REDUCTION: The price was reduced to $335,000 in MLS and very soon after the Zestimate was changed to $346,364. Seeing this definitely gave me pause and made me wonder how much weight Zillow’s algorithm gives to the list price. Does it usually match the list price when a property is first listed? How much do price changes affect the Zestimate? These are reasonable questions. By the way, I shared about this house on Twitter and Inman News included it in a story.

3) ZILLOW DIDN’T GIVE MUCH WEIGHT TO THE SALES PRICE: The property sold at $350,000 eventually, but then Zillow’s estimate said the property was worth $327,960 after the property recorded at $350,000. So it looks like Zillow’s algorithm did not automatically give strong weight to the actual sales price.

4) ZESTIMATE DECLINES 8% IN 30 DAYS: Despite selling at $350,000 one month ago, Zillow now says this property is worth $301,972, which is a whopping 14% less than it actually sold for last month. Moreover, in just 30 days Zillow states the value of this home has gone from $327,960 to $301,972, which is an 8% loss in value. Did the market really decline by 8% this past month?

ZILLOW’S TRENDS ARE OUT OF SYNC: I can’t speak for every property listed on Zillow, but the Zestimate history in this case is definitely out of sync with the market in Carmichael. Values are certainly softening for the season like I talked about last week, but a decline of 8% in 30 days is simply not accurate. Look at the trend line in my graph that shows the market balancing out, and then look at the Zestimate connected by dots. That’s a huge difference in direction, right? Obviously Zillow hasn’t been inside this house, so we can give grace to an algorithm not knowing the full picture of value for an individual property, but to say the market has dropped by 8% is just inaccurate (and you don’t need to go inside a house to know that).

QUICK STUFF ON MY MIND:

1) It’s not just a “ballpark” for consumers: Despite Zillow touting itself as a “ballpark” valuation or starting point for consumers, many people treat it like a definitive value. Bottom line.

2) Blind trust: I find many consumers trust Zillow without thinking too much about accuracy. I don’t say this to be insulting, but there is a deep trust with this brand right now without many questions being asked. My advice? Think critically about examples like I showed above before you trust with all your heart.

3) Pricing according to Zillow: Many sellers are growing disconnected from the real market lately and they’re prone to overprice. Having sensational real estate headlines for six years is definitely one of the reasons why this is happening, but I think some of it comes down to consumers having more information than ever about prices and value. The struggle is when sellers feel so strongly that a Zestimate is legitimate that they aren’t willing to price below it or hear pricing suggestions from others. My advice? Listen to the market around you as well as real estate professionals. Don’t get so caught up in a Zestimate that you cannot see anything else.

4) Feeling stressed: I had a friend who used to get stressed out when his Zestimate would dip. He has since passed away, but I can only imagine how he’d feel about an 8% price decline in 30 days if that’s what Zillow said about his home. He’d be freaking out, and the truth is he wouldn’t be alone because there are lots of people who think of Zillow as way more than just a “ballpark”. In short, I recommend being careful about letting a website’s value claim affect your mood or even your real estate decisions. By the way, the New York Time’s wrote a piece last week called Why Zillow Addicts Can’t Look Away.

I hope that was interesting or helpful.

SPEAKING GIGS: By the way, if you’re around, I’ll be speaking at the Appraisal Institute’s 2018 Fall Conference in San Francisco on October 19th and AppraiserFest in San Antonio on Nov 1-3. I’m also doing a real estate blogging class locally on October 11th at SAR. Just a heads-up.

Questions: What do you think of Zillow? Is the public trusting this website and brand too much? Any stories to share?

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