Sacramento Appraisal Blog | Real Estate Appraiser

Real estate appraisals for divorce, estate settlement, loans, property tax appeal, pre-listing and more. We cover Sacramento, Placer and Yolo County. We're professional, courteous and timely.

Bay Area migration

Who is coming & going? A huge question to ask in real estate

By 31 Comments

I said goodbye to some family members this past weekend. Like many Californians they’re leaving the state. It’s probably not surprising to hear, but California lately has been having more residents leave than come. Of course other states are feeling this too because they’re now welcoming (or not) West Coast refugees. Let’s talk about this. Here are a few things on my mind.

Why are people moving? People move for lots of reasons, but affordability is a huge one. We see lots of Baby Boomers wanting to take their California cash elsewhere to retire and live the good life. We also see young families move to lower-priced areas in hopes of putting down roots and even buying a home. But it’s not just about finances. Some residents are looking for a different lifestyle, less traffic, a better job market, more space, more land, and a different business and political climate.  

Cashing out at the top: In coming time I expect we’ll see more migration if sellers think the top of the price market is near. I suspect we’ll see this dynamic in the Bay Area too, though they may eye a lower-priced Sacramento instead of out-of-state.

Changing markets: Migration can change a local real estate market in the obvious way of increasing prices and tightening supply, but it can also spur new construction and commercial development. We have to remember builders sometimes even cater their product to buyers coming from out-of-town. This is why locals sometimes look at a project and say, “Who can afford this?” Well, the answer might be wealthy out-of-towners.

DATA SOURCES I’M WATCHING:

1) Local publications: I’m digesting what the Sacramento Bee, Sacramento Business Journal, and Comstock’s Magazine have to say about trends. Here’s a 2018 piece from SacBee that states locals moved most often to Reno, Las Vegas, Phoenix, Seattle, & Austin. I don’t have updated stats yet, but I’m guessing Boise might make this list at some point. Here’s a piece from SacBiz talking about general migration issues. Additionally, the Greater Sacramento Economic Council is essential since they focus heavily on Bay Area migration.

2) Word on the street: What is the real estate community saying? Where are people coming from? And where are they leaving to? These are often clues what is happening in the trenches of escrows. I saw a Realtor recently provide a workshop on how to move to Idaho too, and that’s certainly a reflection of the times (and forward thinking).

3) National publications & data: I’m paying attention to studies from Redfin, Zillow, and other organizations. I’m also keen on articles discussing US residents migrating to the middle of the country. Lots of these studies and articles of course pull data from the U.S. Census Bureau. Here is some research from the Legislative Anaylist’s Office (this is a couple years old but some of the best stuff I’ve seen).

4) Moving companies: One way to get a sense of migration patterns is to listen to moving companies. For instance, SF Gate published a piece a few months back stating more people took a one-way U-Haul trip to Sacramento and Roseville from the Bay Area than any other location last year. Newspapers tend to publish stats like this, so it’s not like you have to go read studies. Here’s a sampling of migration reports though from Atlas Van Lines, United Van Lines, and North American Moving Services.

WIN A SIGN FOR MOVING DAY

When my family moved out of town I made an “Idaho or Bust” sign so we could take pictures on moving day. It was pretty cool for photos, so I made some more signs for locals and real estate agents to give away. In the next few days or so I’ll roll out a simple contest to win a sign on my Facebook page, so be sure to check it out. I’ll keep the contest open for a week or so most likely.

APPLICATION STEP: Last but not least, it doesn’t mean much if we acknowledge a trend without doing something about it. So here are some questions. I shared these a few months back, and they are definitely relevant in this conversation.

QUESTIONS FOR REAL ESTATE PROFESSIONALS
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?

VIDEO MARKET UPDATE: Here’s a video market update including lots of cool stats on the million dollar market. Enjoy if you wish.

I hope this was helpful.

Questions: How have you seen migration patterns affect the real estate market? What are the pluses and minuses? What are you seeing happen in your area? I’d love to hear your take.

If you liked this post, subscribe by email (or RSS). Thanks for being here.

Fake real estate trends & rising rents

By 10 Comments

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?

If you liked this post, subscribe by email (or RSS). Thanks for being here.