Appraisal

The problem of not listening in a slower market

September 12, 2018 By Ryan Lundquist 9 Comments

It’s not easy to listen when the market is slowing. This is true for sellers taking in pricing advice, and it’s also true for the average person reading national headlines. Let’s talk about this. Then for those interested I have a big market update. Anything to add?

Sellers not listening: All year it seems sellers have struggled to listen to pricing advice from their real estate agents. I guess I can understand because they’ve had nothing but “hot” headlines for six years. But I think there’s another issue too. Maybe we’re seeing some of the effect of sellers having more real estate data at their disposal than ever because of Zillow, Redfin, Metrolist, blogs… So right or wrong, we have sellers who now they think they know better than anyone. Whatever the case, sellers are making real mistakes out there by not listening to pricing advice and instead pricing for a much hotter market than we actually have. In case it’s useful, I wrote an article in Comstock’s magazine with some practical advice for sellers.

Listening to national headlines: There have been sensational headlines about the market beginning to crash, and it’s difficult at times to think past these headlines and be objective. Let’s remember though that headlines are designed to get clicks, and a headline may or may not mean anything for a local market. My advice? Don’t let any headline cloud your judgement of local trends.

Listening without enough context: This sounds like such a geeky point, but hang in here with me because it matters. Lots of times in real estate we end up comparing the current year with the previous year, and that’s actually a good thing. But my sense is we’re missing something if we pay too much attention to last year only and ignore prior years. In Sacramento at least it’s been a few seasons since we’ve had a dull fall, so it’s easy to forget what that feels like. Moreover, if we look at current inventory levels beginning to push a two-month housing supply, that looks huge compared to the past couple years. But if we look at inventory from 2014 when we had a dull fall season, it was hovering between 2 to 2.75 months at the time. This reminds us it’s possible to have higher inventory at this time of year without the market utterly tanking. I don’t say this to diminish the importance of rising housing supply right now, but only to highlight the need to look to a few more years of data as we interpret what is happening. After all, sometimes pulling stats is like pulling comps. If we only look at the past 90 days of sales, that might not be enough. At times we need a much wider view to really see the market. The same thing happens with real estate data. Know what I’m saying?

I hope that was helpful. Do you “hear” what I’m saying?

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

The market has been slowing. Duh, we know that. Everyone’s talking about it. Let me unpack what I mean below with some comments on some of the bigger themes right now:

Coffee vs. skimming: This post has lots of information. It’s designed to skim until you find something you want to read, or pour a cup of coffee and really spend some time digesting stuff.

BIG ISSUES IN SACRAMENTO:

Prices softening: Most price metrics in the region softened between 1-2% last month, though the median price in Sacramento County was flat. Around this time of year we normally see prices dip (as graphs show below).

Slowing momentum: We know the market is slowing for the season, but it’s also slowing down in terms of overall momentum. What I mean is in years past we’d look at stats and see price metrics were up a good 8-10% over the year, but these days they’re only up closer to 4-6% instead.

Slowing rent: Rent growth has been flattening lately, which is a good thing since rents sprinted way ahead of actual wage growth. Keep in mind this doesn’t mean rents have declined. It just seems the rent trend is flattening.

Sales volume is not crashing: One of the bigger issues to watch to know if a market is crashing is a change in sales volume. In other words, if properties stop selling, we have a big problem. Last month sales volume was down about 6% in the region and 2.6% in Sacramento County. Uh oh, is that a warning sign? Look, this is important to watch over time to know if we have a trend on our hands, but before making too much of one month of data, let’s look to the bigger picture. The truth is sales volume is actually higher so far this year in the region than last year and it’s up 1% in Sacramento County too. No mater how we look at it, volume has actually been strong. This isn’t spin, but fact. Please see my charts below. So on one hand let’s watch these next months carefully because it could be a problem if monthly sales volume does start to come in lower, but let’s also not give laser focus to a weaker August while ignoring the bigger context either.

Inventory is definitely up: It’s really noticeable to see more inventory right now. Even my non-real estate wife has said she’s seeing more listings when driving around town. Housing supply is actually up 25% compared to the same time last year, and it’s literally the first time in three years since we’ve had more than a two-month supply of homes for sale. Obviously if the rate of increase keeps climbing and the market doesn’t absorb new listings, we could have a problem on our hands. But let’s also remember when the market was very dull in the fall of 2014 we saw inventory hover between 2 to 2.75 months at the time.

Taking longer to sell: It took five days longer to sell last month compared to the month before. And this year it took 4 day longer than last year at the same time. So the market has slowed down from last year, but it’s definitely slowing from the past few months too. Sellers, did you hear that? You are losing power in this market and buyers are gaining it. My advice? Price according to listings that are actually getting into contract rather than the highest glowing sales from the spring. This week I talked with an agent about the market feeling really soft in a particular area because listings weren’t moving. But sometimes I wonder if it’s the market or just overpriced listings. From my vantage point almost every listing in the neighborhood was priced 5-10%+ too high, so it wasn’t a real shocker they weren’t selling.

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

DOWNLOAD 72 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 July to August?

3) Is sales volume really crashing right now?

4) How does the current market compare to the previous peak?

2005 vs CURRENT: A few months ago I talked about peak prices because some metrics were showing 2005 levels. But with the market softening right now prices are growing further apart from the “top” so to speak.

SACRAMENTO COUNTY (more graphs here):

SACRAMENTO REGION (more graphs here):

PLACER COUNTY (more graphs here):

I hope that was helpful.

DOWNLOAD 72 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: Do you think sellers are struggling to listen right now? What are you seeing out there in the market? I’d love to hear your take.

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Slumping volume, too many million dollar listings, & rising rates

February 22, 2018 By Ryan Lundquist 14 Comments

We love sensational real estate headlines, but here’s what tends to happen. We talk about something like it’s the biggest thing ever, it ends up being no big deal, and then we move on to the next thing. It sort of reminds me of Y2K because there was so much fear about worldwide chaos, but then nothing happened. All bark. No bite. Anyway, let’s talk about a few issues, and you decide if these are hyped-up “Y2K real estate trends” or not. Then I have a big Sacramento market update for anyone interested. Any thoughts?

Rising interest rates:

For years we’ve heard interest rates would rise, but nothing really happened. Well, now things have begun to change. It’s like Mom & Dad were threatening a punishment, but they never followed through, so we didn’t believe them…. until now. Interest rates are finally ticking up and it’s bound to make an impact on prices if the increase hits buyers in the wallet. What I mean is if buyers in mass can afford the increase, then it’s not a big deal unless buyers start showing resistance. An increase in rates won’t hit everyone the same either as buyers at the lowest price ranges will feel it the most. Keep in mind rising rates in the near future could actually lead to buyers rushing the market instead of withdrawing from it. What will happen? Nobody knows. Heck, rates are still incredibly low, and we don’t even know if they’ll continue to rise. But the Fed has been more forthright about coming rate hikes, so that’s why this feels like more than pure hype. Anyway, let’s see how this plays out and keep an eye on creative financing from lenders too.

Are there too many million dollar listings?

Headlines are talking about the high-end market softening in portions of the country. Locally I’ve heard that sentiment since inventory seems imbalanced at the top right now in the Sacramento region. It sounds alarming to think there is a year’s worth of million dollar listings, so it’s easy to conclude the high-end market is sagging. But last year at the same time we saw nearly the same number of listings. If you need to see the numbers, at the beginning of February 2017 there were 213 listings above $1M and this year there were 220 listings at the beginning of the month. It would be insanity to see twelve months of housing inventory at the lowest prices, but it’s actually fairly normal for January stats for the high-end. In short, it could be possible the million dollar market is softening, but for now let’s not use the number of listings alone as evidence.

Is sales volume slumping?

I’ve been noticing real estate headlines talking about slumping sales volume in many markets across the United States. For Sacramento County we actually had the strongest January since 2013, yet it is true that yearly volume is down 2.5%. This isn’t shocking news because nearly all of last year volume was down 1-2% depending on the month. Here’s the thing though. Sales volume in 2017 was slightly lower than 2016, but it was actually higher than 2015. This reminds us if we only look at one year of sales we might miss the bigger trend. Anyway, volume is also down in the entire region, though only by 1%. Overall it’s fair to talk about lower volume because that’s a fact, but it’s probably not fair to hype the issue too much – especially since volume is actually higher than 2015. Let’s keep watching though because it would be a huge deal if sales volume really did start to decline significantly.

Overpricing because the market is so “hot”:

In case you wanted some background noise while working, I did a Facebook Live Q&A last week with Realtor Justin Vierra and we talked about pricing for the “unicorn.” Overpricing is a real issue in today’s market. By the way, if anyone wants to do podcasts and interviews, I love that stuff. You can listen to our hour-long conversation here too in case you wanted more than just this clip.

I hope that was interesting. Anything to add?

–——-——- Big monthly market update (it’s long on purpose) ———–——-

Right now we’re in that weird place where sales stats are sagging from a slower fall season, but the market is heating up. For January stats we saw all the typical signs we’d expect to see. Sales volume declined, it took an extra day to sell, most price metrics sloughed, and inventory increased. The median price in Sacramento County actually has been fairly flat, but last week I talked about how the market really did slow down despite the flatness. Anyway, I have quite a few visuals below to help show how the market has moved in recent time.

Housing supply: Inventory is up a bit right now. It’s not much, but this January was up 6.5% in the region compared to last year at the same time. Over the past few months inventory has actually ticked up slightly, and that’s welcome news for the market. Yet before writing home to say the housing shortage is over (it’s not), let’s wait to see what happens during the spring market. I’m not overly impressed at a few months of slightly higher inventory around the slower fall months. Let’s watch the spring market, which will be the bigger test.

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

DOWNLOAD 62 graphs HERE: Please download all graphs in this post and more 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):

NOTE: I cut out a few graphs and data this month. If you miss something, let me know.

DOWNLOAD 62 graphs HERE: Please download all graphs in this post and more here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: What are you seeing out there in the market? Is the top softening? What are buyers saying about interest rates? Anything I missed? I’d love to hear your take.

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Speed bumps, neighbors, & real estate logic

October 18, 2017 By Ryan Lundquist 14 Comments

Are speed bumps a big deal for value? That’s what a friend asked me, and since she gave me permission to share her situation with a neighbor, I hoped we could chat. If someone asked you, how would you respond?

The situation: My friend said, “We live on a busy-ish street with lots of kids walking to and from school, and neighbors are talking about requesting speed bumps to slow cars down. One neighbor who is against this says, “adding speed bumps will decrease the value of a home by 20%.” What do you think of that?”

My response: I’ve got a few things on my mind.

1) Making value claims: Whenever someone makes a value claim, my market antennas go up. What is 20% based on? Is it just an arbitrary number? Or is it based on market research? A study? Does it even seem realistic? These are questions we have to ask to have an informed conversation.

2) It’s busy already: Speed bumps are usually installed because the street is busy and has traffic issues, so there might actually already be a negative impact on value because of the busy street. To be clear I’m not saying speed bumps cannot potentially negatively impact value, but let’s not forget the busy street in the first place, which could be the bigger issue for value.

3) Crunching numbers with logic: Thinking logically is actually one of the best things we can do when having value discussions with neighbors. Sometimes we just need to step back from our ideas and start talking numbers. For instance, if homes are selling for $400,000, and your neighbor is correct about a 20% reduction in value, would these homes really sell for $320,000 if speed bumps were installed? Does that sound reasonable? Does it seem logical for buyers to make a reduction that large based on what you know about the neighborhood market? Moreover, if your neighbor listed his house for sale, would the list price be anywhere close to 20% less if there were speed bumps?

4) The noise factor: To be fair your neighbor is smart to think critically about this issue because we have to consider what speed bumps will do for traffic, the feel of the street, and noise. I recall talking with a city planner once who said neighbors would complain about a busy street and request speed bumps, but after they were installed the same neighbors would complain about the noise of the bumps when cars were speeding over them. Could noise be an issue?

Anyway, that’s how I answered my friend. If you notice, I didn’t make a specific value claim on purpose because as an appraiser I can’t just make stuff up without really supporting the value I say exists. Sorry if that’s frustrating, but for me the big takeaway here is actually how important it is to sometimes step back from our ideas and think critically about value issues. At the same time I’m hoping to open up some conversation, so I would absolutely love to hear your take.

Questions: How do you think speed bumps might impact value? Big deal or no biggie? Do you think it’s possible to measure the impact of speed bumps? Why or why not? What is #5? Did I miss something?

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The rage of modern homes in real estate

August 23, 2017 By Ryan Lundquist 11 Comments

Modern homes are all the rage in real estate. I don’t know about you, but I’m seeing them pop up not only in Sacramento, but in many markets throughout the United States. So today I wanted to interview Ted DeFazio, a local real estate agent who specializes in these types of homes. I hope this will be valuable and interesting. Any thoughts?

Ryan: What is a modern home? And what is NOT a modern home?

Ted: The way I describe a modern style home would be the use of clean lines, lack of ornate detailing, open feel, in many cases vaulted ceilings, merging of indoor and outdoor spaces with a combination of large windows and doors and usually has a post and beam angled, commercial style flat or simple gable roof lines. Some homes will have a combination of all three. Carports and clerestory windows (starting beyond the header and into the roof line) are often a trademark of the modern style as well.

Ryan: So how do you describe that home with a few modern upgrades?

Ted: There are a lot of homes that would be considered contemporary and not full on modern. But I think this is all very subjective and up to interpretation. For instance, a ranch home that has had a modern style kitchen remodel with flat front cabinetry and minimalistic touches might feel modern but is it a modern home? I think the architecture from the front elevation and finishes through to the back yard would have to reflect that same style in order to be considered a true modern home. I remember a home in Granite Bay that was a mix of styles with some very modern and some very traditional details. Did it work? Sure. Was it a little confused? Yes.

Ryan: What is the difference between modern and mid-century modern?

Ted: Mid century modern would be homes built in the 1950-1970s era. Eichler style and many Carter Sparks designed (built by Streng Bros) homes fit this style to a T. They are mostly post and beam architecture and have that unique, classic style. Dramatic entry ways and striking front elevations sometimes devoid of regular height windows, carports instead of conventional garages, exposed concrete hallways, flat front cabinetry, skylights, atriums, courtyards, aluminum windows and large sliding glass doors and clerestory windows are all signatures of this style.

Ryan: Do modern homes have to be newer in age?

Ted: Modern style homes are not exclusive to a decade. There are new homes being built in a modern style today. There are some great examples in the Sierra Oaks, Wilhaggin and Downtown Sacramento neighborhoods. Some homes combine styles like say a modern craftsman or modern prairie style.

Ryan: Why do you think modern homes are showing up more and more in Sacramento and beyond?

Ted: The average buyer in Sacramento is getting more sophisticated and open to different styles of architecture. We are slowly shedding the “country bumpkin” label as a city. I think the influx of Bay Area buyers is also pushing the design landscape into a more modern feel. Is it a trend? Probably. But the farther we get away from faking Tuscan style, the better. Some people want to be different and living in modern architecture definitely makes a statement. Some buyers might have grown up in a Streng or Eichler style and want to get back to the feeling of living in one again.

There was a time when modern Streng Bros homes were difficult to sell and earned such descriptions as 70’s architecture or flat-tops. I created SacModern.com to help highlight the many modern and contemporary homes on the market. Give them a stage, in a way. And try to describe them using terms true to their respective styles. I have sold homes to many out of towners through the state who find that Sacramento as a region has a lot of cool architecture. Not only is there a great selection of modern properties but they are cheap compared to the larger metro areas the buyers are coming from.

Ryan: What do buyers of modern homes tend to look for?

Ted: Open concept living, striking architecture, outdoor privacy, creative inspiring spaces and a place to show off their vintage furniture collection. Your home can be seen as an extension of your personality. Someone that is more reserved might want a more buttoned down traditional home whereas a flamboyant or eccentric type might seek something radical or different than the norm as far as design goes.

Ryan: Any tips for valuing modern properties?

Ted: Typically, a modern home will sell for more than the traditional style home down the street with the same square footage. Maybe it’s a premium for the architecture, the special finishes or the time that went into designing the home. I usually ask the appraiser if they are familiar with the style before they meet me at the property just to make sure they understand the unique qualities. In the Bay Area, the modern neighborhoods are becoming historical areas, protected from demolition or odd style-killing remodels. Because the Bay Area usually has a ripple effect in Sacramento, this might be coming down the pipe for our area.

Ryan: Anything else you want to add?

Ted: Some of these styles do better in different areas. In El Dorado Hills for instance, modern is a tougher sell than in a more city-centric area. I find that the farther away from Downtown Sacramento you are, the harder it will be to sell modern style architecture. My Gary Way listing in Carmichael would’ve been sold a lot faster if it was closer to downtown. Is this due to the demographics that typically buy these homes? Not sure. But I have seen it quite often. Professionals and creatives alike are drawn to the modern style. These types tend to work in and around the core and see a suburban commute as a huge negative.

Ryan: Thanks so much for doing the interview. You killed it. Everyone, you can check out Ted’s website here.

Closing appraisal thoughts: My observation is many modern and mid-century modern homes carry a wider appeal, so it’s important to not just choose three ranch homes in the neighborhood for comparison. This means in many cases we might have to go out a little further and find something that is architecturally similar (and in a competitive area hopefully too). For instance, I appraised a Mid-Century Modern home in Fair Oaks recently and I pulled comps from various portions of Fair Oaks and Carmichael because of the custom nature of the property. I couldn’t just keep it nice and tight in the immediate area because the market area was simply wider for these types of properties.

Questions: What do you think of modern homes? Where are you seeing modern homes pop up? Do you think they sell for more than traditional ranch homes? I’d love to hear your take.

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