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first-time buyers

An open letter to homebuyers

January 29, 2020 By Ryan Lundquist 44 Comments

Dear Buyers,

Can we chat? I’ve been having SO many conversations about buying in today’s market, so I wanted to stir some thoughts and maybe offer some perspective. I hope this will be helpful.

Things to keep in mind about buying a home right now:

Starter home vs dream home: We all want that pristine HGTV flip, but we can’t expect a dream home on a starter budget. In other words, a first home might not have the best upgrades or condition and it probably won’t be found in the best neighborhood either.

Be realistic: Sellers are prone to overprice and that’s their glaring real estate “sin” so to speak, but for buyers I’d say being unrealistic about what you can buy is a big issue. The dream is to pick up a $150,000 brand new modern home in Midtown, but that’s nowhere close to reality. At times it can be sobering to see what you can honestly afford, but if you’re serious about buying it’s best to get up to speed with that. You don’t want to be like Jim Carrey in Dumb & Dumber saying, “So you’re telling me there’s a chance?” No, there’s not a chance to buy that house with your budget.

It’s okay to be picky and patient: Buyers get flack today for being patient. My sense is buyers are picky about getting into contract at the right price and staying in contract. That’s okay and I think you’re wise for being discerning rather than making a flippant decision (like many of us made in 2005). So take your time rather than being hasty. Just be sure you’re realistic that the home you want actually exists in your price range.

Waiting for the market to crash: Quite a few people say they are waiting for the market to crash. The idea is to hold out until prices are low and then swoop in for something cheap. But if a market implodes you might not be able to buy. The temptation is to talk about a crash as if it’s isolated without any effect on income, jobs, consumer confidence, credit scores, etc… But a crash in prices could mean other parts of the economy and life are plummeting too.

The last implosion: There is real concern about buying at the top of the market and I understand why buyers are hesitant. Just remember the implosion that happened last time isn’t the new formula for every future market change. On one hand it’s normal to see prices go up and down, so we can expect to see prices decline at some point because that’s what markets do. But the severe collapse during the last decade isn’t the new template for the future either.

Timing a market perfectly is hard: It sounds easy to time a market perfectly and buy at exactly the right time, but it’s not so easy to pull off in real life. In my experience most people buy because of lifestyle and being able to afford the mortgage payment rather than being technical about where we’re at in a price cycle. I don’t say this to gloss over a growing lack of affordability or frothy prices in some markets, but only to share a real issue. Your lifestyle is likely to be the trump card here. Where do you want to live? What school district do you want for your kids? Or if the market did decline, where do you want to ride it down? (my friend Mike Gobbi asks this honest question). Realize there is no right time for everyone either. I say it’s best to weigh your goals and lifestyle with current market trends. Does buying make sense for your lifestyle and wallet? If the market did go down, would you still be comfortable with the monthly mortgage payment? Those are reasonable and honest questions.

Bring a strong offer: If you are playing the market, bring a strong offer rather than lowballing. I just saw a Realtor on Facebook talking about a client who wanted to offer at 50% of the list price. Yeah, don’t do that. We all know sellers are smoking pricing crack and they need to come down from their “high” expectations, but at the same time sellers are in tune enough to sniff out offers that have no chance.

Fear of missing out & pressure: I recently spoke with a young man who just graduated college and wants to get into real estate. He asked me for advice since he was worried about missing out on the market if he didn’t buy right now. I told him: “Do what you want and be sure you can afford the mortgage. If you can though, get aggressive first about paying down student debt so you have more freedom for future real estate opportunities.” I mention this because there is often pressure to buy RIGHT NOW when in fact timing might not be right for every individual. For this recent grad, I’ll respect whatever decision he makes, but he won’t lack opportunities in the future if he doesn’t buy now.

Pulling the trigger: At some point you have to decide if buying is right for you. I’ve watched friends obsess over prices for years and become paralyzed in making a decision because they’re so worried about the future. Look, either do it or don’t. That’s entirely up to you and there’s no pressure from me. But my hope is for you to come to a place where you have confidence and peace about your decision rather than being anxious for years without any progress.

Talk to a loan officer: Some people can afford the market but they don’t realize it because they haven’t explored options with a professional. This is why the first step is talking to a reputable loan officer. Find out about different financing options and special programs that might be available. Remember, we don’t live in a world where everyone has to bring 20% to the table either.

Prophets: Everyone has ideas about the future, but nobody really knows what will happen. I’m not saying to ignore trends or red flags, but only to be humble about predicting. Also, realize many who make predictions simply move their prophecies to the next year when they don’t come true.

Other: What am I missing? Please speak up in the comments.

That’s my two cents. I hope it was helpful.

Questions: Buyers, any stories to share? Is there any helpful advice here? What are you most concerned about? What am I missing? Anything to add?

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Filed Under: Market Trends Tagged With: advice for buyers, appraisers, buying at the top of a market, first-time buyers, HGTV, House Appraiser, housing trends, market crash, patient buyers, picky buyers, real estate bubble, sacramento home appraisal blog, start home

10 quick talking points for Sacramento’s housing market

July 15, 2014 By Ryan Lundquist 2 Comments

Imagine you’re in line at Starbucks with a friend, and your friend asks you about the housing market. How would you describe what the Sacramento market is doing? It’s easy to speak in generalities about it being a good time to buy or sell, but when you get more specific, something powerful happens. You begin to sound like a pro. Check out ten quick talking points to help explain how the market is unfolding.

Two ways to read this post:

  1. Scan the highlighted text and graphs quickly.
  2. Grab a cup of coffee and spend a few minutes digesting what is here.

free graphs from sacramento appraisal blog

1)  The median price has been flat for the past couple of months:

Median price and inventory since 2011 by sacramento appraisal blog

The market over these past six months has seen a normal seasonal uptick, but values have been flattening out a bit lately. Different neighborhoods are experiencing different dynamics of course, but the overall market is more or less flat. The median price in Sacramento County is currently $270,000.

2) The number of listings has increased since January:

Active listings in Sacramento County by sacramento appraisal blog

It’s normal in real estate to see listings increase during the Spring and beginning of Summer, but it’s still good to be able to explain that the number of active listings in Sacramento County was closer to 2200 in January and is now over 3000. This means buyers have more opportunities to get into contract.

3) Inventory increased again last month and is close to 2.2 months:

inventory in sacramento county - by sacramento appraisal blog

Housing inventory increased again this past month and is now at 2.16 months of housing supply. This means there is just over two months worth of houses listed for sale on the market compared to the number of sales last month.

months of housing inventory by sacramento appraisal blog

Keep in mind two months is still very low, which means there is still quite a bit of competition to get into contract. The graph above illustrates how much inventory is in each price segment, and there is clearly stiff competition below $400K. This underscores the reality that different price segments can experience different trends in the same market.

4) Sales volume is down 14% from last year:

sales volume in Sacramento County since 2008

sales volume in June in Sacramento County since 2008

Sales volume this past quarter is down 14% compared to the same time last year, but the good news is we’ve had three strong months of sales in a row. This is an especially welcome phenomenon after a couple dismal months in the beginning of the year. There were slightly more sales in June compared to May, but not really anything to write home about.

5) FHA buyers are gaining more power:

FHA sales in Sacramento County by sacramento appraisal blog

It has been much easier for FHA buyers to get into contract these days compared to the beginning of 2013 when it was incredibly difficult. In fact, FHA sales increased by 6.4% when comparing Q2 2013 to Q2 2014. If you haven’t brushed up on FHA minimum property requirements, it may be a good time to do so since FHA is becoming more relevant again.

6) Cash sales have declined by 13% since last year:

Cash sales since 2009 in Sacramento County by sacramento appraisal blog

FHA and cash sales since 2009 in Sacramento County by sacramento appraisal blog

Cash sales are down 13% county-wide compared to where they were one year ago (down 16% from their peak). There has been a dramatic decrease of cash in the Sacramento market, and it has really made the rest of the market adjust or “normalize” so to speak. What does it look like to be a market that is not driven by cash investors from outside of Sacramento? That’s what the housing market is trying to figure out.

cash sales and volume in sacramento county - by home appraiser blog

This graph shows cash sales from January to June in both 2013 and 2014. What do you notice? Cash volume was about two times higher (47%) in 2013 compared to 2014, whereas there have been more non-cash sales this year. When you’re talking to clients about how the market has changed, this is an X-factor. In other words, if cash volume was still as high as it was last year, inventory would be incredibly low, and the market would feel much like it did in early 2013.

7) It’s taking 35 days on average to sell a house:

CDOM in Sacramento County - by Sacramento Appraisal Blog

On average it’s taking just over one month (35 days) to sell a house in Sacramento County. This trend is about the same for the entire region (37 days), but I’ll get to that on Thursday. Generally speaking, the higher the price, the longer it takes to sell. Keep in mind there were only 12 sales between $750,000 to $1M, so don’t put too much weight in that category.

8) Interest rates are still flirting with the 4% range:

interest rates by sacramento appraisal blog since 2008 interest rates by sacramento appraisal blogInterest rates took another slight dip last month, but really rates have been flirting with the lower 4s all year. What happens with interest rates will directly impact affordability, which really matters since values are much higher than they used to be. The market still feels fragile, so if rates shoot up too quickly, it could be bad news for values. It’s doubtful The Fed would increase rates aggressively right now, but who knows.

9) Today’s market is simply different than the market in 2013:

layers of the market since 2011 sacramento county - by sacramento appraisal blog layers of the market sacramento county - by sacramento appraisal blog

The real estate market has many “layers” that impact value. The keys drivers for the latest real estate boom were cash investors, historically low interest rates, and incredibly low inventory. Now the “layers” of the market have shifted though where inventory is increasing, interest rates are no longer in the 3s, and cash investors have sincerely stepped back their game. This means we have a real estate market that is much more sensitive to the health and strength of the local economy instead of being driven by rates and out-of-town investors. Key factors to watch over the next two quarters are inventory, sales volume, and interest rates.

10) REO sales are ten times lower than what they used to be:

REOs and Short Sales in Sacramento County

REOs and Short Sales Percentage and Volume in Sacramento County

Sacramento County used to feel like Foreclosureville, but the market is simply no longer distressed. Both REO and short sales are hovering at about 7% of the market. This is very low considering in the first quarter of 2009 REO sales were literally ten times what they are now.

One Last Bonus Chart:

Q2 2013 and Q2 2014 comparison in Sacramento County

Summary: Our market was on fire for 18 months after values bottomed out in early 2012, but over the past year the market has really slowed, and is ultimately trying to figure out how to be normal again. The beginning of 2014 has shown a typical seasonal uptick, but overall the market feels as if it is cooling more than not since some properties are being priced at similar levels to the most recent sales (or slightly lower in some areas). The market is competitive because inventory is still low, but at the same time it is very price sensitive. Buyers are not biting on listings that are priced too high, and they are not willing to pay top dollar for outdated homes either. In a hot market buyers tend to look past some negatives when inventory is really tight, but that’s becoming less common now. By the way, I’ll share some Placer County and regional trends in a few days.

Sharing Trends with your Clients? If you want to share graphs online or in your newsletter, please see my sharing policy. Thank you for sharing.

Questions: How else would you describe the market? I’d love to hear your take.

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

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Filed Under: Market Trends Tagged With: active listings, cash investors, FHA buyers, first-time buyers, foreclosures, Home Appraiser, House Appraiser, housing inventory, housing supply, interest rates, investment funds, less investors, Market Trends, Median Price, REO sales, Sacramento Real Estate Market, sales volume, Short Sales, trend graphs

A few trends to watch in Sacramento’s real estate market

February 6, 2014 By Ryan Lundquist 5 Comments

How is the real estate market doing? That’s actually a loaded question. I shared about median price and inventory the other day, so let’s touch on some other trends today – distressed sales, cash and FHA. Real estate has many different layers of value, so it’s important to watch the market closely to be able to speak with authority about what is happening and also be a great resource to clients.

A Market Facts Download: First off, here is an image I made that recaps some stats from 2013. Feel free to use it on your blog, Facebook or wherever. You can link back to me if you wish. Click on the image below (or here) to view and save a larger file so you can re-size as needed. Or download a PDF here.

2013-Real-Estate-Recap-Sacramento-County-530

For reference, the graphs below are based on all single family detached homes in Sacramento County. These are quarterly trend graphs, but the short stem at the end of the trend line represents the month of January. Any thoughts?

foreclosures and short sales in sacramento county by sacramento appraisal blog

The Bank-Owned Lowdown: Foreclosures have seen an uptick recently. There have definitely been more REOs hitting the market. yet at the same time the past three months have actually seen VERY few sales, so a small spike in foreclosures should be taken with a grain of salt. Assuming there are more sales in coming months, we’ll then have a better context for interpreting this trend. Short sales continue to hover around 10% of all sales. Is it just me, or have there been some really low-priced short sales lately?

fha sales in sacramento county by sacramento appraisal blog

FHA Digging Deeper: FHA purchases have continued to increase. The vanishing of cash investors over the past two quarters has hands-down given more space for FHA buyers to dig deeper roots in the market. Last year FHA offers became less attractive in the midst of so many cash and conventional offers, but this year looks to be different. If you’re not in tune with FHA appraisal guidelines and minimum property standards, spend a few minutes looking over my FHA article library to get you up to speed. By the way, the percentage of conventional buyers has also increased lately.

cash sales in sacramento county by sacramento appraisal blog

cash and fha sales under 200K in sacramento county by sacramento appraisal blog

cash and fha sales in sacramento county by sacramento appraisal blog

Waving Goodbye to Cash: There was a slight uptick with cash sales in January, but with so few sales last month (lowest amount of sales in six years) it’s best to wait two months to see if this is a developing trend or not. Overall cash has decreased by about 15% through the course of the year. The market in 2013 was dominated by cash, but we’re now in a different market.

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 about 5 different ways to share my content. Or if you need a quote for a blog post you’re writing, let me know.

Question: Any stories, thoughts or questions? Feel free to comment below.

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

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Filed Under: Market Trends Tagged With: cash, decline of cash, FHA, first-time buyers, investment funds, investors in Sacramento, investors leaving real estate, Sacramento Real Estate, Sacramento Real Estate Market, Sacramento real estate trends

The exchange of power between investors and FHA buyers

October 15, 2013 By Ryan Lundquist 3 Comments

There is a clear exchange of power that is happening right now in the Sacramento real estate market. It’s as if the king of the market (cash) has announced his abdication, and one of the heirs (FHA) has quickly begun a quest to rule the throne. As cash investors have been leaving the market, FHA buyers have been picking up their slack. Of course, conventional buyers are also co-heirs to the market throne so to speak, so we cannot forget about them. Let’s look more closely below. Feel free to use these images in your newsletter, blog or social media (just give me a link back).

cash sales under 200K vs FHA in Sacramento - by Sacramento Appraisal Blog 1

Dueling for Market Power: Maybe I’m some sort of data geek, but the graph above is exciting since it shows that cash and FHA are heading to cross paths soon. In fact, it looks like they’ll meet up in one more quarter or so as long as the current pace continues. As I mentioned yesterday, cash sales have declined 12.5% since the beginning of the year in Sacramento County, while FHA has increased 3.3% in the past few months alone (or 6.4% under $200,000). Ultimately this means investors in 2014 will presumably play less of a role in shaping the direction of value and the market. Things are a-changing.

cash investor trends in sacramento - by home appraiser - sacramento appraisal blog

Here is a video to unpack the Sacramento market. It’s only two minutes long. Enjoy and share (click HERE if you don’t see the video in your email subscription).

Need to brush up on your FHA knowledge? If you’re feeling a little rusty about understanding FHA appraisal standards, it’s time to brush up on your knowledge so you are ready for the emerging market. You can check out other FHA appraisal articles I’ve written or feel free to ask questions. Also, I am sitting on a “Lunch and Learn” panel on 10/16/2013 at the Sacramento Association of Realtors called: Zombies, Vampires & FHA (you should only be afraid of two of these). Come on out and freshen up your skills.

Question: What do you think your clients would say about the graphs? I’d love to hear your take.

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

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Filed Under: Market Trends Tagged With: cash sales in Sacramento County, cash sales since 2009 in Sacramento, cash sales under $200K, FHA Appraisal Articles, FHA buyers, first-time buyers, increasing power for buyers, less investors in Sacramento

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