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Fake real estate trends & rising rents

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Let’s talk about fake news. No, not anything political. Let’s consider a couple of examples where it’s easy to misunderstand trends and then report fake real estate news. Then let’s look at how rent increases are fueling the 2-4 unit market. Anything to add? I’d love to hear your take.

Part I: This is Part I of my big monthly market update. Part II will come next week. If you need a few graphs now for marketing, send me an email. This post is long on purpose. Scroll or read in depth.

1) FAKE NEWS: The market is starting to turn because sales volume is down.

TRUTH: Sales volume declined by 21% last month in Sacramento County. That sounds dramatic, right? Should we be concerned? Is the market shifting? Nope. It’s actually normal to see volume drop like this between December and January. I circled January in red below as proof. This January was actually the strongest we’ve seen since 2013.

2) FAKE NEWS: The market is flat and didn’t have a price lull during the fall.

TRUTH: The median price has been flat in Sacramento County for six months, and normally it softens by about 5% during the fall, but that didn’t happen this year. So it’s easy to say that the market is so “hot” that prices didn’t dip, but that’s not true. Here’s the thing. Sometimes the median price ends up being a bit more flat despite the market showing a legitimate cooling. Besides, if we step back and look at the average sales price and average price per sq ft, both declined during the fall. Moreover, the median price in the region also declined. The moral of the story? Don’t put all your eggs in the median price basket.

3) *FAKE NEWS: Bay Area residents are buying EVERYTHING in Sacramento.

Truth: Bay Area folks are getting lots of attention and they should since there are over 20,000 new Bay Area residents migrating to Sacramento each year according to the Greater Sacramento Economic Council and Mercury News. That’s jaw-dropping to hear, but let’s pause and consider a few things.

* WHAT I AM NOT SAYING (update): I am not saying Bay Area buyers are not a factor in our market. They are. Bottom line. All I am saying is they are not buying everything. Thus it can be misleading news to perpetuate the idea that our market is being utterly gutted by Bay Area residents. As we have conversation about Bay Area buyers, let’s consider some of the points below. I find these fascinating for the sake of our conversation. Moreover, when we are talking about trends, let’s look to not only how the market feels, but actual stats too where possible.

A) Bay Area cash is not gutting Sacramento. Only 15% of all sales were cash in the region last year. Cash used to be about 30% during the “Blackstone” days.

B) Nearly 20% of sales in the region last year were FHA, which tells us first-time buyers are winning in this market – not just loaded Bay Area residents. 

C) There are 20,000 new residents every year from the Bay Area, but there are only about 28,000 single family detached home sales in Sacramento per year. This tells us not everyone who moves here is actually buying. Of course if Bay Area buyers are picking up the slack of locals not buying, then that’s another story. If anyone has data to suggest that is the case, do share. For now though let’s admit not everyone who moves here is getting a mortgage.

D) I might be more bullish on thinking the Bay Area is dominating the purchase market, but having more than twenty thousands residents migrate to live in Sacramento is definitely putting pressure on rents. According to Yardis Matrix, rents are up 8.5% this year, and that translates to renters paying an average of $105 more each month for rent (or $1,260 more over the course of the entire year). Yikes.

4) NOT FAKE NEWS: Rising rents are heating up the 2-4 unit market.

TRUTH: An investor told me the other day, “Sacramento’s hot rental market is now the worst kept secret in the nation”. Such a headline quote (thanks Eliot). He is 100% correct because news of rising rents has seemed to permeate the marketplace lately. For years after the housing collapse prices seemed more subdued, but lately it’s been eye-opening to see how much demand there is for the 2-4 unit market. Yet many units hitting the market actually have below-market rents because the rents have not been raised in many years. This is why most of the time it seems like I cannot fully trust rental data in MLS because it reflects older rental contracts from years ago rather than the market today.

What the? There are also some lofty sales that leave us asking, “What the? It sold for how much?” I thought this recently when seeing a triplex sell for 1.8M in Midtown and a 4-plex at $850,000 in Curtis Park. A “lone-ranger” outlier sale might reflect the “hot” market in some senses, though remember a high sale could also be a trophy property, have a subdividable lot, or maybe a buyer overpaid in light of needing to do a 1031-exchange.

I hope this was helpful or interesting.

Questions: What do you think of the “fake” real estate news above? How much of an impact are Bay Area buyers really making? What are you seeing in the rental market? Did I miss something?

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Fanny packs, pendings, and a slower market

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I guess I never thought I’d talk about fanny packs on my blog, but here goes. This is either a new high or low depending on your perspective, but I want to share an important concept to consider – especially during a slower market. Then for anyone interested I have a big market update for Sacramento. Any thoughts?

Fanny pack analogy: Imagine spotting a guy wearing a fanny pack. You might think, “Sweet, I haven’t seen one since the early 90s.” The truth is if we only saw one dude sporting a pouch, we’d probably just think this person is trapped in the 80s and 90s (like Uncle Rico back in ’82). After all, one guy’s fashion statement doesn’t mean it’s a trend for everyone. But if we started seeing more and more people wearing fanny packs everywhere we went, then it’s probably a fashion trend. The same thing happens with pendings. If we only have one pending at a much higher level than anything else in the market area, it’s probably an outlier more than anything. It might be an isolated incident that’s totally disconnected from the market (like one guy wearing a fanny pack) rather than a real indicator of value (a trend). But if we saw a group of pendings shifting higher or lower, then that’s probably a trend.

The big point: Sometimes we get so distracted by the bling of one high listing or pending that we fail to see the bigger picture of value in a neighborhood. It’s like we develop tunnel vision and get locked into one outlier rather than looking at everything else that is similar AND trending lower. Sellers in particular struggle with this during the fall because they sometimes only see the highest prices from the spring rather than current listings and pendings that might be generating slightly lower prices because the market has softened. Or it’s easy to see that one overpriced listing down the street and expect to fetch a similar lofty price rather than recognizing that zero properties are getting into contract that high. Thus let’s be cautious not to stake all the weight of value on one “lone ranger” pending or listing while ignoring all other data. Otherwise it’s sort of like seeing one guy wearing a fanny pack and calling it a trend…

Disclaimer: This post was in no way meant to offend anyone who used to wear, currently wears, or will wear a fanny pack.  🙂

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

The market has continued to soften, though it’s not really all that soft. Inventory is up, price reductions have increased, sales volume has been dropping, it took three days longer to sell last month in the region, and price metrics are down about 1% from the height of summer. Overall the market is clearly slowing down for the season, though it’s not painfully dull like it was in 2013 or 2014 during the fall. This is a key to understand because when saying values are “softening” some interpret that to mean the market is really slow or crashing. But that’s not what I’m saying.

Big Point: We have a housing shortage, but that’s not a trump card to stop a slower seasonal trend.

Let’s get technical. Many price stats last month actually showed an increase in value by about 1%. What the? Does this mean the market increased? I thought you just told me the market is slowing? Let’s remember that sales from October really tell us more about properties that got into contract in August and September before they actually closed escrow in October. Thus that 1% uptick really happened in the market a couple of months ago rather than in October. In other words we’ll see the real trend of the market for October when the pendings from October close in November and December. This is so important because let’s not make a big deal about the market technically showing an increase because the uptick didn’t technically happen last month. Know what I’m saying? If we want to see the current market we have to look at the sales, but we cannot forget to give strong weight to the listings and pendings. Are properties taking longer to sell? Are there more listings hitting the market? Are properties starting to generate less offers or offers at lower prices? What are buyers, sellers, and the real estate community saying about the market?

A huge soft stat: Every year the median price and average sales price in Sacramento County tend to soften by about 5%. This doesn’t necessarily mean values decline by 5% in every neighborhood or price range, but it does mean we can expect price softening in most areas during the fall season.

By the way, here’s an article I wrote for Comstock’s magazine this month about some of the different layers of the Sacramento market right now.

I could go on, but let’s get visual.

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

SACRAMENTO COUNTY (more graphs & stats here):

SACRAMENTO COUNTY STATS:

  1. The median price is currently $349,450. It’s up slightly from last month but down 1% from summer.
  2. The median price is 9.2% higher than the same time last year.
  3. Sales volume in October was 5.4% lower this year than 2016. There were 1456 single family detached sales last month.
  4. It took an average of 29 days to sell a home last month (one year ago it was taking 4 days longer).
  5. The median days on market last month was 15 days.
  6. It took 1 more day to sell in October compared to September (median days).
  7. FHA sales were 19.9% of all sales last month in the county.
  8. Only 0.7% of sales last month were bank-owned & 0.7% were short sales.
  9. The avg price per sq ft was about $221, which is about 1% lower than last month (9% higher than last year).
  10. The avg sales price increased about 1% last month and is currently $386,000. This is 9.4% higher than last year.
  11. Cash sales were 12.2% of all sales last month.

SACRAMENTO REGION (more graphs & stats here):

SACRAMENTO REGION STATS:

  1. The median price is $392,000. It increased about 2% last month, but it’s down 1% from summer.  
  2. The median price is 9.8% higher than the same time last year.
  3. Sales volume in October was nearly the same as October 2016. There were 2380 single family detached sales last month.
  4. It took an average of 34 days to sell a home last month (one year ago it was taking 3 days longer).
  5. The median days on market last month was 18 days, which means properties are selling really quickly.
  6. The median days on market increased by 3 days last month, which shows a slowing in the market.  
  7. FHA sales were 16.5% of all sales last month.
  8. Only 0.8% of sales last month were bank-owned & 0.8% were short sales.
  9. The avg price per sq ft was about $227, which is down slightly from last month (9% higher than last year).
  10. The avg sales price increased about 1% last month and down about 1.5% from summer (but up 9.4% higher than last year.
  11. Cash sales were 15% of all sales last month.

PLACER COUNTY (more graphs & stats here):

PLACER COUNTY STATS:

  1. The median price is currently $455,000 and increased about 1% last month.
  2. The median price is 3.8% higher than the same time last year.
  3. Sales volume in October was 10% higher than 2016. There were 533 single family detached sales.
  4. It took an average of 37 days to sell a home last month (one year ago it was taking 4 days longer).
  5. The median days on market last month was 22 days, which means properties are selling really quickly.
  6. The median days on market increased by 4 days last month, which shows a slowing in the market. 
  7. FHA sales were 9.5% of all sales.
  8. There were only 4 bank-owned sales last month and only 4 short sales.
  9. The avg price per sq ft was $232, which is slightly higher than last month (9.2% higher than last year).
  10. The avg sales price is currently $511,121. This is 6.4% higher than last year.
  11. Cash sales were 18% of all sales last month.

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

Questions: On a serious note, did you wear a fanny pack back in the day? Anything else you’re seeing in the market? I’d love to hear your take.

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The myth of the collapsing market (and a big Sacramento market update)

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Positive real estate news is sexy. It gets clicks. It makes us feel good. And we love sharing it. But what happens when the market cools? Well, it’s not always easy to digest. In fact, lots of people freak out and think the market is starting to tank when it’s actually just doing its normal thing of slowing. Today let’s talk about the danger of embracing the collapsing market myth, and then take a deep look at the slowing Sacramento market. Any thoughts?

The myth of the collapsing market: The market tends to slow down around this time of year. Just as the weather changes, so does the real estate market. The kids go back to school, sales volume usually starts to slide, inventory goes up, and prices soften. Yet despite this happening nearly every single year, we hear things like, “The market is beginning to take a big turn” or “The ‘bubble’ has finally popped.” Case-in-point, I watched a video a few weeks back from a national show that said new construction home prices in Texas were beginning to take a turn, and that the Texas market was six months ahead of everyone else. Maybe this show is correct, but my problem is the host made a huge sweeping market statement based on a VERY minor dip in prices from June to July. I suppose I could do the same in Sacramento since the median price dipped 1% last month. The truth is we’ll see many more articles like this in coming months because we tend to confuse a seasonal softening with a big market turn. It’s like we forget the market is cyclical at this time of year.

My advice? Cut through the hype and know the seasonal market wherever you are located in the United States. What does the market normally do at this time of year? What normally happens to prices, sales volume, and inventory? Understanding what a slowing season tends to look like can help us give advice to friends and clients, and we can avoid saying the market is tanking just because prices dipped last month. Of course at some point the market really could collapse, but unless we are seeing symptoms beyond a normal seasonal slowing, it’s probably okay to be cautious of a doom & gloom housing message.

I hope that was helpful or interesting. Any thoughts?

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

The stats have been glowing for months in Sacramento County, but last month we finally saw a dip in prices. In short, the glowing stats are now showing a slowing. But that’s not really a surprise because we all felt this slowing in the market for the past 30-60 days. It’s just we didn’t see it show up in the sales stats until now. After all, it takes a month or two to see slower pendings close escrow. Anyway, the median price dipped by about 1%, inventory increased, and most importantly it took 3 days longer to sell last month than the previous month. I know, there are still multiple offers and there is still upward pressure in some areas and price ranges. I get that. Remember, the market is slowing, but that does not mean it is dull or slow. Ultimately when looking at price metrics, the market is up anywhere from 7-9% from last year, and sales volume is about the same as last year too, which shows the market is trying to normalize. Housing inventory in the region is about 10% lower than it was last year at the same time, which reminds us that the market is still more aggressive compared to last year. Lastly, if the market was collapsing, I’d suspect we would be seeing a big change in the psyche of buyers, a big change in inventory, and a big change in sales volume. Not that the market has to tank the same way all the time, but if values were turning we’d likely expect to see something much more out-of-the-ordinary beyond all the normal seasonal stuff we’re seeing right now.

DOWNLOAD 66 graphs HERE: Please download all graphs in this post and more here as a zip file (includes a stat sheet too). See my sharing policy for 5 ways to share (please don’t copy verbatim).

SACRAMENTO COUNTY (more graphs & stats here):

SACRAMENTO COUNTY STATS:

  1. The median price is currently $348,000 and dipped 1% last month.
  2. The median price is 7.6% higher than the same time last year.
  3. Sales volume in August was 4.7% lower this year than 2016. There were 1668 single family detached sales last month.
  4. It took an average of 24 days to sell a home last month (one year ago it was taking 2 days longer).
  5. The median days on market last month was 12 days, which means properties are selling quickly.
  6. It took 3 more days to sell in August compared to July (median days).
  7. FHA sales were 22.6% of all sales last month in the county.
  8. Only 0.8% of sales last month were bank-owned & 1.5% were short sales.
  9. The avg price per sq ft was about $223, which is slightly higher than last month (8.7% higher than last year).
  10. The avg sales price decreased about 1.5% last month and is currently $378,885. This is 6.8% higher than last year.
  11. Cash sales were 12.5% of all sales last month.

SACRAMENTO REGION (more graphs & stats here):

SACRAMENTO REGION STATS:

  1. The median price is $389,900 and declined slightly last month.
  2. The median price is 9% higher than the same time last year.
  3. Sales volume in August was 0.2% higher this year than 2016. There were 2771 single family detached sales last month.
  4. It took an average of 28 days to sell a home last month (one year ago it was taking 3 days longer).
  5. The median days on market last month was 13 days, which means properties are selling really quickly.
  6. The median days on market increased by 2 days last month, which helps shows a slowing in the market.  
  7. FHA sales were 18.1% of all sales last month.
  8. Only 0.8% of sales last month were bank-owned & 1.48% were short sales.
  9. The avg price per sq ft was about $227, which is the same as last month (7.9% higher than last year).
  10. The avg sales price declined slightly last month and is currently $430,101. This is 8.6% higher than last year.
  11. Cash sales were 14% of all sales last month.

PLACER COUNTY (more graphs & stats here):

 

PLACER COUNTY STATS:

  1. The median price is currently $462,000 and increased about 2% last month (but still down from a couple months ago).
  2. The median price is 7.4% higher than the same time last year.
  3. Sales volume in August was 14% higher this year than 2016. There were 637 single family detached sales.
  4. It took an average of 30 days to sell a home last month (one year ago it was taking 10 days longer).
  5. The median days on market last month was 15 days, which means properties are selling really quickly.
  6. The median days on market increased by 3 days last month, which helps shows a slowing in the market. 
  7. FHA sales were 12.5% of all sales.
  8. There were only 2 bank-owned sales last month and only 9 short sales.
  9. The avg price per sq ft was $229, which is slightly higher than last month (7.4% higher than last year).
  10. The avg sales price increased about 0.5% last month and is currently $508.686. This is 7.7% higher than last year.
  11. Cash sales were 14.4% of all sales last month.

DOWNLOAD 66 graphs HERE: Please download all graphs in this post and more here as a zip file (includes a stat sheet too). See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: What are you seeing out there? What signs of slowing have you noticed? Did I miss anything? I’d love to hear your take.

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Smoking pricing crack, era charm, & blaming appraisers

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If you’re like me, you have many things racing through your mind. When it comes to real estate there is always so much to talk about, so today I wanted to mention a few topics I’ve been thinking of over the past week. Any thoughts? I’d love to hear your take. 

Smoking Pricing Crack: Did you see that listing in Waco Texas of the property that was rehabbed by Chip & JoAnna Gaines of the reality show Fixer Upper? It was purchased for $28,000 and now it’s listed for sale at $950,000. 

I’m not located in Waco obviously, but I have a feeling someone might be smoking pricing crack on this one so to speak. A quick glance at Realtor.com for listings priced at $1M in Waco shows us there are zero other 1000 sq ft 1-bedroom homes anywhere near this level. Thus let’s remember a lofty list price doesn’t necessarily have anything to do with real value. Often times prices like this are more about publicity than anything. This is true not just in Waco, but in every market in the country. However, we still have to ask, would the market pay more for a home that was rehabbed by reality stars? Or is it just the upgrades people are paying more for rather than who installed them? (Photo credit above: Realtor.com).

Era Charm: I recently appraised a house in an older neighborhood of Sacramento and ended up bringing the value in on the lower side of the competitive range. Why? Because the house lacked era charm that buyers tend to pay more for in the neighborhood.

Instead of the home having wood siding, wood flooring, and a “charming” vibe from yesteryear, it had stucco siding, cheap laminate flooring, and it stood out in a bad way because it didn’t look the same as other homes from the curb. This might sound like I’m being subjective, but the proof of a lower value was in the comps. I found a couple “vibe-less” sales and they definitely closed at a lower price tier. I also talked with the previous Listing Agent who had the home on the market before it was withdrawn. She confirmed one of the bigger issues with why the house did not sell was the lack of era charm. This is a good reminder that value doesn’t always increase just because there are newer “upgrades.” By the way, the photo above is not the house I appraised, but it’s one in Tahoe Park that sold recently from Realtor Lola Mouras (photo credit: MLS).

Blaming Appraisers: I saw an economist on Twitter recently suggest appraisers are holding back the housing market. I’m not mentioning this to call this person out or start an argument, but I wanted to pitch in some thoughts because it’s really easy to blame appraisers.   

The truth is appraisers don’t make markets move up or down. Appraisers are more like a ruler to measure the market rather than a gas pedal or brake pedal for real estate values. In other words, we’ve seen massive value increases over the past 5 years, but that’s not because appraisers have driven the market up. Some of the big value drivers have been historically low interest rates, an influx of cash investors, and a shrinking housing inventory. Or right now in Sacramento we are seeing more price reductions, so is a slowing market being caused by appraisers? Nope. The market usually begins to slow at this time of year. This is exactly why I love the multi-layered real estate cake analogy because there is a recognition the market is influenced by many different factors or “layers” so to speak. I’m not discounting the reality that massive appraisal fraud can play in a market, but only saying we have to remember there are huge forces at play that are so much bigger than what appraisers are doing.

Well, that’s what’s on my mind today. I hope everyone had an incredible 4th of July. Let’s make it a great rest of the summer now.

Questions: Would you pay more for a Chip & Jo house? How much do you think era charm really matters in real estate? Do you think appraisers are holding back the housing market? I’d love to hear your take.

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