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bottom of market

Are buyers & sellers getting used to the pandemic?

April 22, 2020 By Ryan Lundquist 8 Comments

Quarantine. Wearing masks. Social distancing. It’s so weird that these are regular things now. The world indeed has changed over the past month and so has the housing market. Let’s talk about some new developments.

FIVE WEEKS AGO: About five weeks ago the real estate market started to have a strong reaction to the coronavirus. I look to March 12th as our day of change as that’s when things started to kick into high gear with events cancelling and sellers and buyers backing off the market.

OBSERVATIONS RIGHT NOW:

1) Pendings and listings declined heavily for a few weeks.
2) Pending contracts have begun to increase again.
3) More new listings are hitting the market.

Here’s a closer look at the numbers. These are single family detached homes without condos. I don’t include condos because they’re a different market that can water down the data. If you include them in your numbers, that’s cool.

Here is a look at new listings. There has not been a dramatic uptick, but we are seeing more new listings compared to a month ago (the first week we had sheltering in place). 

SOME CLOSING THOUGHTS:

1) Goodbye cliches, hello experts: In a market like today it forces us to place our cliches, canned statements, predictions, and positive or doomy narratives aside. We simply must look to the numbers to understand the market. When trends change it creates opportunities for experts to arise. It also creates opportunity for credibility to be destroyed by making predictions that don’t come true and getting swept up in every single sensational headline.

2) Other markets too: This dynamic of the market seeming to hit a bottom a few weeks ago is something that is happening in some other areas across the country too as reported by Mike DelPrete in his email yesterday (a must follow). I’ll talk about this more in my weekly video at the end of this week. Please know I’m not saying prices or other metrics have bottomed out. I’m only saying it looks like listings and pendings (for now) have begun to increase again.

3) The future: We still don’t know the future, so I’d exercise caution in saying definitively the market has begun a recovery or rebound and will move forward from this point onward. We need time to see how everything shakes out and we’re still living in the midst of so many unknown factors that could sway the market in many ways. The reality is what we say about the market could be different next week based on new data.

4) Getting used to the pandemic: For now it looks like buyers and sellers have started to get a little more used to this pandemic market, which is evidenced by more pending contracts and an increase of listings lately. It’s possible some of this could be attributed to real estate agents being deemed essential too. Will this continue? Is this a trend we’ll see more in coming weeks? To be determined. 

GRAPHS: I plan to make a tutorial soon on how to make a few of the graphs I’ve been posting. Appraiser colleagues, I haven’t forgotten.

I hope this was helpful.

Okay, moving on:

RESOURCES:

New market video: Here is a fresh market update video. This is 25 minutes and perfect for the background while working. Check it out below or here.

 

Interview with The Appraiser Coach: I did an interview with Dustin Harris to talk about not waiting for sales to see pandemic data. Watch below (or here).

Interview with Brad: I did a Facebook Live Q&A with Brad L’Engle last week to talk shop. Enjoy here if you wish (you don’t need Facebook to watch). 

I hope this was interesting or helpful. Thanks for being here.

Questions: What do you make of the stats above? What are you hearing in escrows from buyers and sellers? If you’re not local, what are you seeing happen in your market?

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Filed Under: Market Trends Tagged With: bottom of market, buyers and sellers, coronavirus, COVID-19, Greater Sacramento Regional Appraisal Blog, housing market, market dynamics, pandemic, pending contracts, Real Estate Market, sacramento housing market, uncertain market

Real estate trends to watch in 2018

January 2, 2018 By Ryan Lundquist 32 Comments

What’s the real estate market going to do in 2018? Let’s talk about some of the big conversation pieces emerging in Sacramento and beyond. Any thoughts? What are you watching? I’d love to hear your take.

1) Affordability: This year we’re going to have more conversations on affordability – or lack thereof. This is a big issue that’s not only covered extensively by the media, but it’s something being felt by real people – both prospective buyers and renters. According to NAR’s Housing Affordability Index, affordability has been declining.

2) More Color: Lots of design magazines and articles are talking about seeing more color in the kitchen and other parts of the house. Some say totally white kitchens are on the way out. Others anticipate seeing more avocado green on walls (hello 1970s). And brass fixtures are back in style too (hello 1980s).

3) Marijuana: This is a big year for California because recreational or “adult use” marijuana is now fully legal. Whether you are personally for or against this, it’s something we need to watch because of the potential economic and real estate impact. I’m not writing as an advocate, but I am saying let’s pay attention to commercial rents, vacancy rates, job opportunities, cash purchases, changing zoning code, land value, advertising, public perception, etc… So far the City of Sacramento has been a lone wolf in allowing commercial cannabis cultivation since surrounding cities have basically said NO thus far. In 2018 I suspect we’ll see other cities also jump on the cannabis wagon.

4) Smart homes: We are seeing incredible advances in technology for homes. It’s not just the “Echo” or “Google Home” either, but “smart” products are showing up for thermostats, shades, color-changing light bulbs, appliances, door locks, security systems, etc… The market doesn’t fully expect these features yet in every home, but there may come a day when they are normative. I actually bought a Google Home for my office last week. Did anyone else?

5) Creative financing: There is still upward pressure on values in many prices ranges and locations in light of a housing shortage, but if interest rates rise too much it could soften values (duh). This is where lenders can artificially keep prices high by offering more creative loan products to help buyers “afford” the market. Sounds healthy, right? Keep in mind we are nowhere near 2005 when money was being given to anyone with a pulse, but if lenders loosen things up too much it’s probably a good thing to be concerned.

6) Appraisal waivers: About a year ago Fannie Mae rolled out an appraisal waiver program that would not require an appraisal on certain transactions. Fast forward to today. The narrative right now from quite a few voices in the real estate community is that we need to use more alternative valuation products (without a human appraiser) for the sake of quicker turn-times, a lower cost for consumers, and a more efficient mortgage process. I know, I sound like an angry human since robots are taking over the world, but there is a deeper issue here. Messing with a system of checks and balances can be dangerous for the market. Do me a favor and re-watch The Big Short and ask yourself if there is any reason to be concerned about loosening things up when it comes to real estate valuations. I may write more on this soon.

7) Rent control: Rents have risen dramatically in many parts of the country over the past few years, so let’s expect to see attempts this year to enact rent control. Remember, what rent control does is limit how much a landlord can increase rent by putting a price ceiling on rent. There are both staunch proponents and critics of rent control, so be ready for some heated conversation if you bring this topic up online. As an FYI, in Sacramento we’ve had near 10% rent increases for three years in a row without much wage growth.

8) Republican Tax Plan: Some say the new tax plan will create less incentive for home ownership and cut values drastically whereas others say there won’t be much impact in most of the country beyond some higher-dollar pockets. The truth is the future hasn’t happened yet, so in humility we must admit we don’t yet know the extent of any impact. This is why I like what Jonathan Miller wrote, “If there is one thing the housing market doesn’t like, it is uncertainty. As it relates to housing, this new law is an “uncertainty casserole” and homebuyers and sellers will take a while, probably 1-2 years to adapt to the new world order and sales will be tempered until there is equilibrium. Prices in high-cost housing markets will clearly slip, although I don’t anticipate a severity.”

9) Disappearance of the $150,000 market: Last year I put on my prophet hat and talked about the disappearance of the $100,000 market in Sacramento. It was a safe bet to make that prediction because there is so much upward pressure at the lowest prices. This year I think we’re poised to see few homes under $150,000 by the end of the year. Remember, it’s not just the lowest prices in the market that are experiencing upward price pressure. It’s really entry-level homes in most neighborhoods – regardless of the price. Yet the median price in Sacramento has been hovering around $350,000, which literally means half the market is shopping below that price point. This alone reminds us it can be much more competitive at lower price ranges since more buyers are shopping there.

10) Alternative housing: As values have risen for single family detached homes, buyers at the lowest prices may need to consider other options such as mobile homes, tiny homes, storage container units, and lower-priced condos. Some alternative housing can feel sexy because of the lower cost and the cool vibe, but let’s remember the most expensive thing in real estate is often the land and permits. Thus it’s not always easy to build that low-cost alternative structure.

11) Increase of real estate agents: When prices are hot everyone and their Mom gets into real estate, so let’s expect to see more new agents out there. I’ve talked to a number of former loan officers wanting to get back into action too (I wonder if they know how much the game has changed since 2005). I’ve also talked with a number of agents wanting to become appraisers.

12) Housing shortage: We’ve not had much new construction over the past decade, and we’re feeling it because there aren’t enough units to satisfy demand. The good news is builders seem to be busy at work, which will help add more units in 2018. But the bad news is it takes time to build, so sprinkling in some homes and apartments here and there is not a quick way to solve a housing shortage. Moreover, one of the struggles in Sacramento is many skilled laborers left the area when the previous real estate bubble burst, so having enough workers is an issue. If anything the housing shortage seems poised to persist, though it seems like there is some relief on the way too. Also, last year housing inventory was actually slightly higher during some months compared to the previous year (though still anemic).

13) Bubble conversations: With values creeping back to their previous peak (or beyond) in some neighborhoods, it’s only natural to have conversations about “bubbles”. If you don’t believe me, show this graph to 10 people and tell me how many mention the word “bubble”. See my open letter to buyers worried about a housing bubble because this is a loaded conversation. On a side note, one thing to keep in mind is some owners who sense the top of the market is near may choose to list this year, and that can create some inventory. Just today I spoke with someone who is planning to leave California (and probably move to Idaho or Texas). This guy’s idea is that he’ll list his home in a few months in order to cash out while values are high. Does this man represent all sellers? No. But does he represent some? Yes.

I hope that was helpful or interesting.

Questions: What else do you think will be important in 2018? Did I miss something? I’d love to hear your take.

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Filed Under: Market Trends Tagged With: appraisals in Sacramento, bottom of market, cannabis, creative financing, Fannie Mae appraisal waivers, housing bubble conversations, housing shortage, marijuana, new year in real estate, real estate appraisers, real estate bubble, real estate trends, rent control, Republican tax plan, risky loans, trends in 2018

Seeing Sacramento real estate in chunks

April 8, 2014 By Ryan Lundquist 1 Comment

Let’s break down the market in chunks. It’s always nice to get a county-wide view of real estate, but today let’s unpack what is happening in specific price ranges in Sacramento County. I hope this will be helpful for you and your clients. When we can explain the market, we become a valuable resource and we earn people’s trust. By the way, be on the lookout for my big monthly post in two days.

1) How many properties are available at different price levels?

months of housing inventory by sacramento appraisal blog

Inventory in all of Sacramento County saw a decline from February to March as the Spring market is beginning to unfold. Housing inventory is just under 2.0 months now after being closer to 2.5 months last month. But what does inventory look like in various price ranges? As you can see, inventory is at its lowest between 200-300K, and that makes complete sense since a great bulk of buyers find this range hot and affordable (it had the most sales out of any price range). On the other and, inventory above 400K and upward really shows a dramatic increase, doesn’t it? This helps us see there are different markets within the market.

current listings vs sales in price ranges in Sacramento county - by sacramento home appraiser

Here is another way to look at inventory. You can see the number of sales in red and the number of listings in blue. Knowing the sales vs. listings ratio can open our eyes to understanding demand, marketing time, how to price properties or even how aggressive an offer might need to be.

2) How long are listings take to sell?

days on market for sacramento sales in march 2014 - by sacramento appraisal blog

On average listings are taking about 40 days to sell (or 45 days cumulative). This is about 20% longer than they were taking last year during the same time, but we all know it’s a much different market this year (more on that in two days).

3) What is happening with sales volume?

sacramento real estate market trend graph houses sold since 2008 by sacramento appraisal blog

Sales volume is definitely down from last year by over 20%, but March sales were “normal” since volume increased from February to March by 25%. The market usually sees this type of increase, so in this regard the market behaved normally.

cash sales vs conventional sales in sacramento county - by home appraiser blog

Why is sales volume down? In large part it’s because of cash investors exiting the market. As you can see in the graph above, cash sales in the first quarter of 2014 were about half of what they were in 2013 during the same time period. As investors, particularly institutional investors, have taken their foot off the gas pedal, the market is definitely feeling it. Last year the market was on “steroids” so to speak, but this year the market is in withdrawal mode trying to figure out how to live without the extra layer of cash to drive the market.

Share the Graphs? If you want to share one or two of the graphs above in your newsletter or in a blog post, go for it. Please link back here and see my sharing policy so we are on the same page about what I mean by “share” (thanks).

Questions: What image resonates with you the most? Why? Should I keep breaking the market down by price range? (I’m looking for feedback)

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Filed Under: Market Trends Tagged With: appraisers in Sacramento, bottom of market, cash investors, decline of cash, home appraisers, housing inventory, institutional investors, inventory, Inventory in Sacramento, low sales volume, price ranges, price trends, sales stats, top of market, trend graphs, value trends

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