Greater Sacramento appraisal blog

Home prices are insane (so is the rental market)

May 12, 2021 By Ryan Lundquist 17 Comments

Prices growth has been insane lately and that’s pretty much how the rental market feels too. Let’s talk about this and a few other things. Enjoy.

NOTE: Scroll down for the big market update

Three Things:

1) THE ASTERISK IN THE ROOM:

Home price stats are truly crazy right now across the country. It’s mind-blowing to see prices up 15-20% from one year ago, but there’s also an asterisk. Last year stats were starting to sag during the beginning of the pandemic due to buyers backing off the market. So when we compare today’s ultra hot numbers with last year’s lackluster figures it’s important to account for these sagging stats when talking about the market. I know, that sounds super anal, but it’s important.

2) THE RENTAL MARKET IS NUTS:

In the real estate space we often get so lost in talking about home prices that we simply don’t talk enough about rents. Here are a few things on my mind:

A) Lots of rentals: In California about 45% of homes are not owner occupied. That’s nearly one out of every two homes (duh, thanks bro). This is good to remember as we often focus on buyers and sellers while ignoring the other half of the population. And in case you wondered, the most recently published homeownership rate in the United States is 65.6% as of Q4 2020.

B) Hefty rent growth: Rents have seen a dramatic increase lately in many markets across the country and that’s something to watch. My advice? If you work in real estate, talk to local property managers and find some big data companies to follow. In the Sacramento region, for instance, Yardi Matrix reports 8% rent growth from one year ago.

(props to Steven Thomas for the idea on the nuts image)

C) Feeling the rental shortage big-time: The rental market is extremely tight as we are feeling over a decade of not enough new construction in the midst of population growth. Thus when trying to rent we are seeing multiple rental offers on almost every listing and some would-be tenants are even trying to get creative by offering incentives to the landlord such as a year’s worth of rent at one time. Of course some sellers are wondering, “Where am I going to find a place to buy or even rent?” Also, every time I log on Facebook I see another real estate agent post saying, “I have a client who needs a rental in (insert city) up to (insert dollar amount).” Ultimately we often focus so heavily on having a shortage of properties for buyers to buy, but the rental market is suffering from a lack of available units too.

3) WHEN POLITICIANS SHARE HOUSING DATA:

Okay, I have an important non-partisan take involving a viral real estate example. Here goes. This week two mayoral candidates in New York were asked if they knew what the median price was in Brooklyn, and they said $100,000, which was $800,000 too low. Look, one guy said he misunderstood the question and there’s grace for being imperfect if that’s what happened. But here’s the bottom line regardless of political affiliation. If you’re running for office you’re going to look out-of-touch if you’re off by that much. And then you’re going to get dragged online by people who definitely know the cost of housing.

My unsolicited advice? If you’re trying to get elected, you need to be in touch with home and rent prices enough to understand what constituents are dealing with right now. Or if you’re just trying to win a debate, at least be prepared to answer this question with stats from this century. Look, most citizens don’t expect candidates to be real estate experts, but there is an expectation of having enough understanding to shape policy in the midst of a glaring housing shortage. That’s the big issue. If you don’t even know the numbers, how can we expect you to create policy to deal with the issues? By the way, if you don’t know where to look for data, find a local Realtor association in your county or state – or scour online for professionals and data firms who know their stuff.

NOTE: I almost never mention politics, but this is such a vivid example to show the importance of accurate housing data. Moreover, we’re in a severe housing shortage and our politicians need to up their game, so I’m good with speaking up in a non-partisan way. Please no red or blue comments.

Anything to add?

———————- (skim or digest slowly) ———————–

BIG MARKET UPDATE

For those interested, here’s a big Sacramento market update:

THE SHORT VERSION:

Here is a highlight reel to talk through some of the bigger themes right now. In short, the stats are sensational and we’ve seen rapid appreciation in recent months. See comments below on slowing down though….

LONGER VERSION (SORT OF):

The good news is I finally had my second vaccine shot, but the bad news is I lost two days of work this week because I felt awful (yeah, it was Moderna). In short, my market update is going to be a little on the brief side today in terms of having fewer images. Please check my social channels in coming weeks for stats. I can’t wait to share more on Facebook, Twitter, and LinkedIn. Oh, and sometimes Instagram.

SUBTLE SLOWING? Price stats have been on fire lately and they’re poised to continue being hot, though I’m starting to hear things like, “I’m getting 8 offers instead of 12” or “My buyers are having a slightly easier time getting into contract.” This makes sense as we have a few hundred extra listings on any given day now compared to a few months ago (we still don’t have enough listings).

In short, the market typically starts showing seasonal slowing around this time of year, so let’s watch for typical signs of slowing in the midst of a market that still feels like an auction. Look, I’m not saying the housing trend is slow or dull, so please save your hate mail. All I’m saying is in the midst of glowing stats let’s keep our antennas up and look for a change in the stats or sentiment among buyers.

What are you seeing out there?

NOTE: I included 90 days of sales for El Dorado County and Yolo County because both areas have few monthly sales. In short, if you use only one month of data stats are going to bounce ALL over the place and not be meaningful. These are both brand new visuals though. I’m thinking about doing them every month if I get enough positive feedback.

Thanks for being here.

SHARING POLICY: I welcome you to share some of these images on your social channels or in a newsletter. In case it helps, here are 6 ways to share my content (not copy verbatim). Thanks.

Questions: What are you seeing out there in the rental market? What about the resale market? What would you say to those politicians? I’d love to hear your take.

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The housing market nobody predicted

January 12, 2021 By Ryan Lundquist 10 Comments

Nobody predicted 2020. Who would’ve thought during a pandemic we’d see such an explosive year in real estate? The expectation was that the market would start to tank, but we saw the exact opposite. It’s not just Sacramento either because many areas of the country experienced this same dynamic. Anyway, enjoy some brand new visuals if you wish. Thanks for being here.

THE SHORT VERSION:

Here is a highlight reel to talk through some of the bigger themes this year. In short, the stats are stunning.

What stands out to you?

THE LONGER VERSION (organized by county):

1) Sacramento Region
2) Sacramento County
3) Placer County
4) El Dorado County
5) Yolo County
6) Bonus visuals

I welcome you to share some of these images on your social or in a newsletter. Please use this stuff. In case it helps, here are 5 ways to share my content (not copy verbatim). Thanks.

1) SACRAMENTO REGION:

2) SACRAMENTO COUNTY:

3) PLACER COUNTY:

4) EL DORADO COUNTY:

5) YOLO COUNTY:

6) BONUS VISUALS:

Here are some extra regional graphs to show how various counties are moving together.

Other visuals: Not that you needed more, but check out my social media in coming days and weeks for extra visuals. I am posting daily stuff on Facebook, Twitter, and LinkedIn. Oh, and sometimes Instagram.

Thanks for being here.

Questions: What stands out to you most about 2020 real estate? Any stories to share? I’d love to hear your take.

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Can it count in the square footage?

October 20, 2020 By Ryan Lundquist 31 Comments

Can you include it in the square footage? I get questions like this almost every week. Is it okay to count an accessory dwelling in the living area? What about a pool house? How about a man cave or she shed? Let’s talk about this.

The straight dope: It’s tempting to lump something else in the backyard into the square footage, but that’s not appropriate per ANSI measuring standards. Basically if you have to walk outside of the house into something else that is not directly accessible to the house, we’re really dealing with something that isn’t considered to be a part of the main house. So we call that something else a studio, casita, accessory unit, pool house, she shed, or whatever. It’s just not the main house, which is why it’s not included within the square footage.

New video: I made a video to talk through some things to watch in the fall market. Enjoy if you wish (or watch here).

An Example: If you have a house at 2,500 sq ft and an accessory unit at 1,200 sq ft, it isn’t a 3,700 sq ft house. No, this is fundamentally a 2,500 sq ft house with something else. Could it be worth the same amount as a 3,700 sq ft house? Maybe. But if we only compare this type of home with other 3,700 sq ft units, we haven’t really proved what a 2,500 sq ft house with a 1,200 sq ft accessory unit is worth. The best comps will be other homes with accessory dwellings, right? Heck, maybe it’s worth even more. But we’ll never know unless we find the right comps to tell the story of value. The quick “comps” are all 3,700 sq ft, but those might not be the best representations of value.

The problem: If a property is priced based on a lumped square footage, what happens when the appraiser gets out there and needs to use smaller-sized comps that are consistent with the actual size of the main house? Is there going to be a difference in value?

The truth: It’s not an easy pill to swallow when the appraiser doesn’t include the extra space in the square footage, but just because it doesn’t count in the square footage doesn’t mean it doesn’t count in the value.

But they’re lumped together in MLS: I know, this happens all the time. A property will be sold with a lumped square footage of the main house and the pool house. We even see this happen at times in Tax Records. Let’s remember a few things: 1) The way a property is marketed doesn’t change what a property is; 2) As a non-lawyer I wonder if there is increased liability for representing a home at a larger size than it is (hopefully there is an asterisk that clarifies what the square footage represents); 3) The appraiser is very likely going to treat the two areas differently instead of lumping them together.

My advice? Instead of quickly pulling larger “comps” right away, try to isolate features such as a pool house, accessory dwelling, or outbuilding to determine what they’re worth in addition to the value of the main house. In other words, what is the main house plus the extra thing in the backyard worth? That’s the math market equation we have to figure out and it can be done by pouring through lots of data. Finding a few examples of homes that have sold with that feature is the ideal so we can try to discover what that feature commanded in terms of value. Sometimes we might even look through years of sales too. Remember we might not use really old sales as comps, but we can certainly use them for research.

Resources:
Q&A on accessory dwellings
Tips for valuing ADUs
Using older sales is sometimes the best option
Can a basement be considered square footage?

Anyway, I hope that was interesting or helpful. Thanks for being here.

Questions: Any stories to share? What follow-up questions or insight do you have? Did I miss anything?

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Crazy contracts & condos are less popular

September 22, 2020 By Ryan Lundquist 17 Comments

I have two things on my mind today. Let’s talk about condos and then some of the crazy contracts we’re seeing happen right now. Then I have lots of visuals for those who are interested.

CONDOS ARE NOT ALL THE RAGE:

It looks like condos aren’t so popular these days. During the pandemic buyers have been saying no thanks and instead focusing on homes with more space. No matter how you look at it there are fewer condo sales happening, and that’s telling. If you’re not local, what’s happening in your area?

MARKET NOT COLD: One thing I want to clarify is just because condos haven’t been as popular doesn’t mean the condo market is dull or cold. Inventory is still sparse among condos, so don’t expect to get the deal of a century. In fact, there is not an oversupply of listings among condos at this time. Inventory is really tight.

CRAZY CONTRACTS:

It’s common these days to see the appraisal contingency removed and many buyers are even offering to pay above the appraised value (if it comes in lower than the contract price). Anyway, I’ve been getting lots of questions about this, so here are some thoughts:

1) Value is not found in the contract: The reality is value is found in the comps – not the contract. Technically the terms in the contract shouldn’t matter because the only thing that counts is comparable data. Of course I realize some appraisers are swayed by the contract, and that’s unfortunate. Ultimately if you find yourself worried about the terms, I’d recommend focusing instead on communicating well with the appraiser because the comps are the bigger factor.

2) Offering above the appraisal: When I see a contract that states the buyer will pay above the appraised value by a certain amount if the appraisal comes in lower, the practical part of me wonders if the buyer actually thinks it’s not worth what was offered. But since my job is to be objective, my curiosity about the buyer doesn’t mean anything for the appraisal. The bottom line is I cannot let that influence my perception of market value. Besides, offering to pay more might not be about the buyer’s perception of value at all. Instead it could be a strategy to get an offer accepted. And most of all, the comps are what matters – not what an individual buyer thinks about value.

3) Hiding information: I was asked recently if it would be OK to only give the appraiser the purchase contract without an addendum that had further terms. Look, I’m not a lawyer or broker, but from my perspective I’d ask that you please give the appraiser the entire contract instead of holding something back for whatever reason. In my mind when this happens it seems like the goal is to try to influence the outcome of the appraisal, and that doesn’t smell right. Let’s keep it transparent.

Anyway, this is a loaded topic. Lots of emotions. What are your thoughts? Any stories to share? Please do so in the comments.

MARKET UPDATE VIDEO: Here’s my latest market update where I unpack glowing rebound stats. Watch below (or here).