What does the market expect? (a critical question to ask in real estate)

What does the market expect? That’s one of the best questions we can ask ourselves in real estate. Why? Because it helps us keep the focus on what buyers actually demand in certain neighborhoods and price ranges. In other words, what are buyers really willing to pay more or less for in a neighborhood? Being in tune with that is definitely one of the key aspects of coming up with a credible value.

Market expectations - Sacramento Appraisal Blog

Pool Example: Take a look at the table below to see how some areas and price ranges in Sacramento have far more built-in pools than others.

Market expectations pool example by Sacramento Appraisal Blog

Key Point: When built-in pools are more common in some neighborhoods and price ranges we can probably say the market expects a pool, right? This is especially true at the higher end of the price spectrum where over 70% of homes have a pool. In contrast, some areas of town have less than 1% of homes with a built-in pool, and it’s safe to say the market doesn’t expect a built-in pool in those areas. This doesn’t mean the pool is worth nothing in those places, but if anything it’s a reminder to really consider that a pool might be worth far less or more in some areas than others. While it’s tempting to always give a token $10,000 adjustment for a pool, based on the data above alone, that adjustment probably doesn’t make sense for every neighborhood because of differing expectations.

Not Just About Pools: This conversation isn’t just about built-in pools because we have to ask what the market expects for things like upgrades, square footage, condition, lot size, architectural design, bedroom count, garage spaces, landscaping, etc… As much as we’d like instant answers, there really isn’t a quick guide to understand what the market expects without immersing ourselves in comparing sales, talking with buyers and other real estate professionals, and crunching numbers.

Two Mentions: I’m honored to share a couple of recent media mentions. I was quoted in Inman SF Bay Area in “Sacramento housing boosted by Bay Area refugees” and in RealtyTrac’s June Housing News Report (PDF – pg 17-21).

Blackstone: One more thing. A recent article talked about the private equity fund Blackstone (Invitation Homes) selling off some of its homes directly to tenants. As you probably know, Blackstone purchased thousands of homes in the Sacramento market several years ago. They continue to buy today, but their purchase volume is minimal and nowhere near what it used to be. Anyway, the article states they would likely sell about 5% of their inventory this year directly to tenants. Whether that’s true for the Sacramento market or not is to be seen, but it’s worth watching closely. Keep in mind many landlords are selling straight to their tenants right now instead of listing on MLS. In short, this isn’t just a Blackstone thing.

Questions: How do you get a sense of what the market expects in a neighborhood? Any advice you’d give on how to better understand market expectations? Did I miss anything? I’d love to hear your take.

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Crystal Balls, Real Estate Trends & Black Friday

As the year fades away it’s now time for the beginning of what I call crystal ball real estate posts. What do I mean? Everyone will be speculating about what is going to happen in the 2014 market, and most posts will make very vague predictions. Since I don’t personally own a crystal ball, I’ll steer clear of some of that, yet I still want to point out some fundamentals to watch. Let’s think together below.

jobs interest rates and median sales price by sacramento appraisal blog

Watching the Layers: I keep mentioning the idea of the multi-layered real estate cake analogy. I don’t mean to be repetitive, but the gist of this analogy is that value in a real estate market is like a multi-layered cake since there are many “layers” in the market that help impact or create value. As you can see above, when “layers” like interest rates and unemployment are low, it tends to create space for values to rise. At the same time, it’s important to realize the Fed can artificially manipulate a market by lowering interest rates, which means jobs end up playing a lesser role in driving the housing market. This is definitely part of what happened with our recent real estate boom (doesn’t sound too healthy, right?).

jobs interest rates inventory and median sales price since january 2001 to 2013 by sacramento appraisal blog

Now let’s add in the extra “layer” of housing inventory. I know this is a busy graph, but spend a minute digesting what is happening here, and then I’ll make things easier on your eyes by zooming in on the trends.

jobs interest rates inventory and median sales price by sacramento appraisal blog

After years of declining values, the Sacramento market hit the bottom in the first quarter of 2012. Can you see that above? It’s important to note that as values began to increase, there was a huge drop in inventory and interest rates persisted to decline – both of which put upward pressure on home prices.

jobs interest rates inventory and median sales price since january 2011 by sacramento appraisal blog

Keys for 2014: Investors, low inventory and historically low interest rates have been the X-factor in the most recent value boom in the Sacramento area. It helps of course that the unemployment rate has been trending downward, but there is still quite a bit of healing needed for the local economy. As you can see in the graphs above, housing inventory and interest rates have begun to increase lately, which has been putting pressure on rising values. Personally I tend to think interest rates moving up a bit will matter less than what happens with inventory. Rates are still very low and their increase does make a difference with how much buyers can afford, but ultimately the market feels far more sensitive to inventory increasing. At the same time, cash purchases have been declining for two quarters, which is also helping to cool off values from an unsustainable rate of appreciation. It’s also worth mentioning that it will matter if Blackstone goes for Round 2 or not. Last year this one investment fund purchased anywhere from 1100-1500 houses (depending on whose numbers you use). They have been seemingly slowing down for the time being, but if they decide to ramp up their local focus again, it could effectively make the market more competitive by decreasing inventory.

appraisal christmas ad spoof

By the way, this is my spoof appraisal ad for Black Friday. What do you think? I posted this on my Facebook page last week for fun. My advice: Even though I want your business, don’t buy anyone an appraisal for Christmas.  🙂

Questions: Any thoughts, insight or stories to share? I’d love to hear your take.

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Blackstone’s $196,000,000 shopping spree in Sacramento

Did you ever dream of winning a shopping spree as a kid? I used to imagine myself having ten minutes to fill up a cart at Toys ‘R Us with whatever I wanted. I would’ve headed straight for the baseball cards, bikes, toy guns and sports equipment. Of course I was never lucky enough to do something like that, but I’m still holding out hope for a Home Depot or Lowes spree one of these days.

$196 Million of Local Real Estate: If you didn’t know, there was a $196 million dollar real estate shopping spree that happened in the Sacramento market over the past year or so. As reported by The Sacramento Business Journal, the private equity fund Blackstone purchased roughly 1,100 homes in the local market since January 2011 (with the bulk of these purchases being after August 2012). In all Blackstone has acquired about 21,000 properties in the United States over the past year. In the Sacramento area they’ve done business as THR California, IH2 Property West and IH3 Property West, and they’re holding their properties in hopes of making more money by creating bonds from rentals. 

housing supply and median sales price by sacramento appraisal blog blackstone

Goodbye Blackstone? Over the past months Blackstone has seemingly begun to pull back on their aggressive purchasing plan. They’re still buying properties, but as of late they’ve been laying low. Some say they are done, but at the same time their system has worked well and they can easily get things moving with IH4 in 2014 if they want. Ultimately their local presence lately has felt nothing like it was last year when they were a definite catalyst in driving up values for the rest of the market. Depending on how you look at it and whether you bought or sold this past year, it’s probably either good or bad to have had one investment fund step in to buy 1,100 properties in such a short time span. Instead of parsing the arguments on both sides though, I’d rather focus on their slowdown and simply say it looks like we are seeing Blackstone’s year of market dominance fade….. for now at least. In the mean time we can expect to continue to see conventional and FHA buyers pick up their slack while Blackstone and other cash buyers are more dormant or pull out of the market. While it’s easy to criticize Blackstone, let’s consider one last thing. If you look at the graph above, you’ll see they came in at just the right time as the real estate market hit bottom after years of decline, and they also look to be slowing down at a good time also. Maybe there is a business lesson here to consider?

Blackstone Invitation Home Signs in Sacramento

UPDATE on 11/21/2013: The Sacramento Bee posted a story that states Blackstone has purchased nearly 1,500 homes in the Sacramento area. RealtyTrac shows closer to 1100 and Tax Records is about half of what RealtyTrac shows. All things considered, it is not easy to track the actual number because different sources say different things.

Questions: Any thoughts on Blackstone as they have been slowing their pace? What store would you like to win a shopping spree at?

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A snapshot of Sacramento’s real estate market

I could tell you what’s been happening in Sacramento’s real estate market, but why not show you instead? Of course there are a handful of things to look at, which is why there are two options for reading this post:

  1. Briefly scan the graphs below in probably 30 seconds.
  2. Take a few minutes to digest the graphs and commentary.

Enjoy and let me know what you think.

Monthly Median Sales Price in Sacramento County - by Sacramento Appraisal Blog - 530 pixels

The median sales price is currently at $252,000 in Sacramento County. When we look at the average price per square foot though, the market has been very flat for four months as it has been hovering between 162 to 163. I’ve been seeing lots of current listings priced at levels more consistent with July or so, which causes me to not put too much weight in a slight increase in median price last month.

Sacramento real estate trends 2 - by sacramento appraisal blog

Here is a closer look at median sales price, inventory and interest rates. As you can see, prices have begun to stabilize as inventory and interest rates have increased. But it’s also Fall, so it’s completely normal to see a slowdown since that is usually what happens. Real Estate Broker Joel Wright did a study recently of the past 25+ years and found there is a dip 75% of the time during this season.

sacramento county inventory

This is a graph from Trendgraphix and I like the way it shows the story of inventory. When zooming in on roughly only the past year, it’s easy to see that inventory has more than doubled in recent months (whereas my graph above looks like there has only been a slight uptick lately). What does it mean that there are 2.3 months of housing supply? This means if zero new listings hit the market it would take 2.3 months for all these properties to sell. Remember, inventory is easy to find out. It’s just a matter of dividing the number of current listings by the number of sales over the past month. I actually have a brief YouTube tutorial here (or below) in case it’s of interest. It’s good to know how to make these calculations so you are not waiting around on Trendgraphix or other sources to tell you what you need to know.

absorption rate in Sacramento county

The absorption rate is basically how fast current listings are being absorbed (sold or pended) each month. It’s an inverse of the months of inventory really, so this rate declines as inventory increases. Right now the absorption rate is 44.3%, which means that 44.3% of all listings are being absorbed on a monthly basis. All you need to do to figure out the monthly absorption rate is divide the number of sales over the past month by the number of current listings.


Cash sales in Sacramento County declined by over 12.5% since early 2013, and cash sales under $200,000 are currently at 35.6% of the market (only for the first 40 days of Q4 though) compared to 50% the previous in Q2 2013.


I’ve mentioned this several times lately. Cash investors have been exiting the market, which has given opportunity for FHA buyers and conventional buyers to gain a greater hold on the market. This is good news for neighborhoods to get more owner occupants (assuming of course the owners take care of their properties).


It’s easy to vilify cash investors since many first-time buyers were beat out of the market from big investment funds flexing million dollar muscles, but it’s important to remember a few things. First, many investors entered the market when it bottomed out in early 2012. There is nothing wrong with being savvy and coming in at the right time. Don’t you wish you did that if you had the means? Second, a rapid increase of cash purchases was one of the reasons why we saw exponential appreciation in value over the past year. This is good and bad depending on how you look at it, but many home owners who needed to sell or refinance should probably be thanking investors (as well as writing a letter to The Fed for keeping rates artificially low). Lastly, in some sense I think investors have really helped revive the market over the past few years with so many flips. It’s nice to have distressed inventory purchased, rehabbed and then sold because that improves our housing stock. Granted, there are certainly drawbacks to having too many investors in the market, and I don’t think anybody is weeping since Blackstone has been pulling back on their purchasing strategy lately. All I’m saying is there have been some positives too.

foreclosures and short sales in sacramento county - by real estate appraiser blog

We have pretty much bottomed out when it comes to foreclosures. Short sales have seen a rapid decrease also. The market used to be utterly driven by distressed sales, but that’s no longer the case. Yes, distressed sales do tend to sell at lower levels still in many cases, but they are not driving the rest of the market right now. When it comes to foreclosures, there is very little room to go down. In fact, I’ve been seeing slightly more REO listings lately, which probably explains the very slight uptick in bank-owned sales over the past month. But ultimately we’ll see what the stats say after a couple more months (keep in mind banks don’t usually foreclose around Christmas too, which could halt some of the data).

Unemployment in Sacramento County through August 2013

Unemployment in Sacramento County has been trending downward for a few years, but let’s be honest, there are still far too many people looking for jobs. The unemployment rate for September 2013 was not announced on time due to employees at EDD being furloughed in light of the government shutdown (sorry to bring that up). We should see new stats in about two weeks.

Share the Graphs: As always, you can use these images unaltered in your newsletter, on social media sites or blog posts (just link back). See my sharing policy for more details.

Question: Any thoughts, insight or stories to share? I’d love to hear your take.

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