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Seeing the market while driving, crunching numbers, & eating tacos

April 13, 2018 By Ryan Lundquist 13 Comments

It’s not just about numbers. Look, I geek out over stats, but sometimes all we need to do is drive around town or have a few conversations to see the market. Today I wanted to share some trends I’m seeing by sharing photos I’ve taken recently. Then for those interested we’ll get into the numbers in my big monthly market update below. Anyway, let’s take a drive.

The rage of modern homes: Modern units like this are popping up in Sacramento in places that are typically close to Downtown. This small development is located in Midtown.

Flipping seminars: I’ve seen this guy on late-night TV promising to teach people how to flip homes. The problem? The market isn’t actually that great for flipping in Sacramento right now. Read about celebrity flipping seminars here.

The Prince tree: A local artist in Citrus Heights paid tribute to Prince in her front yard. I know something like this would not fly in an HOA community, but it reminds us there is maybe some room for creative expression in real estate.

Marijuana homes getting busted: There was a big raid last week where federal agents targeted 75 homes in the Sacramento region that were suspected to be “grow houses”. Remember, recreational cannabis is legal in California, but it’s never legal to have a commercial grow operation in a residential property. Anyway, I came across a different article in the SacBee that listed nine addresses of previous grow houses (golden data for appraisers).

Tearing down the neighborhood: A ranch house in Arden Park was purchased for $462,000 and torn down to build a custom home (currently pending close to $1.3M). This doesn’t happen in every neighborhood, so I’m always asking questions: What is being built? Who is buying? What is being flipped? Where is the bottom of the price market? Where is the top?

Neighborhoods that are changing: This is a colorful six-unit modern project in Oak Park off 2nd Avenue. Modern units like this are starting to pop up – especially around The Broadway Triangle.

Here’s a modern project under construction on 1st Avenue in Oak Park.

The word on the street (while eating tacos): Every few months or so I get together with a group of real estate friends to eat at Chandos (my fav taco joint). It’s not like we gather to have exclusive rigid market talk, but I always leave with some insight because our taco club has investors, a loan officer, and a Realtor / flipper. I find understanding a market is about crunching numbers, but it’s also about the word on the street. This is why I regularly ask people, “What are you seeing out there?”

I hope that was interesting or helpful. Anything to add?

And now for anyone interested in the numbers….

–——-——- Big monthly market update (it’s long on purpose) ———–——-

Spring is definitely here. Well, the market has been alive for a couple of months, but we’re now really starting to see it in the stats. The median price rose about 4% in the region last month and it’s up 9% from last year. Overall we’re seeing all the normal signs of a spring market in that it took 7 less days to sell last month, more listings are hitting the market, and sales volume is increasing for the season. Housing inventory is up slightly in the region from where it was last year and so is sales volume (though volume is down 1.5% in Sacramento County).

New recap images: I spend so much time putting together graphs, but I’ve struggled to figure out a way to quickly sum things up. Anyway, here’s a stab at a summary. Do you like these? Anything you’d change? Feedback is welcome.

A few quick things:

Not much cash actually: It’s easy to believe cash is dominating – especially from the Bay Area, but it’s really not (did you hear that sellers?). Cash sales were 15% of all sales last month in the region and in Sacramento County we actually have about 3% less cash this year so far.

Oh dang… the median price: If you didn’t know, the median price is now 6.9% lower than when the “bubble” burst in Sacramento County in 2005. I tend to see jaws drop when sharing this stat, but here are some things to keep in mind about bubble conversations. Remember, there is no formula that says our market will “pop” if we go 6.9% higher, so it’s important to not get too stuck on the previous peak. Today’s market certainly has an inflated feel, but it’s also being driven by different factors than 2005 too, so it’s not a perfect comparison to always look back to 2005. Anyway, let’s not get too side tracked, but navigating this conversation will be key in coming time for real estate professionals, and I’ve heard some sellers wanting to list too in light of how high prices are.

Zillow is going to sell homes: Yesterday HousingWire reported Zillow is going to be selling homes. There was suspicion this would happen, but The Big Z always denied it. Well, the cat’s out of the bag and I’m wondering how this will unfold. I’m also wondering if they’re going to try to chop agent fees. Let’s talk about this more as things develop. On a side note, will we have to watch listings and sales on Zillow in addition to MLS?

I could write more, but let’s get visual instead.

DOWNLOAD 61 graphs HERE: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

SACRAMENTO COUNTY (more graphs here):

SACRAMENTO REGION (more graphs here):

PLACER COUNTY (more graphs here):

DOWNLOAD 61 graphs HERE: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: What images around town remind you of what the market is doing? I’d love to hear your take.

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Can you use comps from a different neighborhood?

March 1, 2018 By Ryan Lundquist 6 Comments

One of the questions I get asked the most is, “Can I use comps from a different neighborhood?” Maybe. But then again, maybe not. Let’s talk about it, and I’ll show you what I do when making this decision. Of course there isn’t just one right way to go about this. Anything to add?

1) Compare sales over time: One of the most important steps is to compare similar properties in each neighborhood over time. If there aren’t many recent sales I have no problem going back year by year to compare older sales. That’s okay. Is there a price difference? Sometimes it’s very clear there is, so it’s probably not a good idea to use “comps” from a different neighborhood (unless I’m making a location adjustment). When looking at two areas I try to find a percentage price difference too where possible so I can say something like, “It looks like prices are 10-15% higher there.” This sounds time-consuming, but there’s no such thing as a 5-minute “comp check”, right? Nothing replaces putting in the time.

2) Let’s get visual: Here are a few visuals I made to compare two areas. Does it look like there might be a value difference? I know, you don’t know how to graph. Why not learn though? It’s an incredible skill to add to your bag of tricks. Here’s a video tutorial.

Truth: It’s easy to “cherry pick” sales from Elmhurst when in Tahoe Park or North Oak Park. Maybe it works out okay sometimes, but in other cases it could be a really bad move.

3) Word on the street: Talking with other real estate professionals about what they think can be insightful. Where are values higher? If you had a property in both areas, where would it sell for more? Of course someone’s perception might be off, but insight from other agents and appraisers can still be useful.

4) Crunch numbers: Why not run stats for both areas? Running the numbers might give us clues into how value works. If you don’t know how to pull stats, here’s a tutorial.

The numbers clearly show one neighborhood has higher prices, so I might need to give a location adjustment if I’m using a “comp” from a different area. For me I like to give location adjustments based on lining up neighborhood sales instead of stats like this, but I might still use these stats to help reinforce an adjustment I give. Let’s remember the market isn’t so mechanical to always apply the same adjustment either. Sometimes there are special properties that seem to buck the trend and ignore price differences (this is what makes value complicated). But in most cases I would be foolish to ignore stats like this and arbitrarily choose “comps” from an area with higher prices without consideration that there might be a location adjustment needed.

BIG CAUTION: If one area has smaller homes, heavy fixers, not enough data, more foreclosures, or more remodeled properties, we might draw the wrong conclusions when looking at stats if we’re not careful. In other words, we need to know how to think through the numbers rather than taking them at face value. For instance, in North Oak Park there are more fixers and some streets simply do not sell as high as others, so that might actually soften the stats a bit. I might also recommend pulling stats for the entire neighborhood as well as competitively-sized properties. This way we at least have two data sets and hopefully a little more balance. And of course do steps 1-3 above too.

I hope that was interesting or helpful.

Questions: What step do you think is most important? Did I miss anything? What else do you do or recommend? I’d love to hear your take.

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Explaining how price per sq ft doesn’t work (with a Lamborghini)

February 6, 2018 By Ryan Lundquist 21 Comments

If there’s one conversation to master in real estate, it’s explaining how price per sq ft works. Or rather how it doesn’t work. In the past I’ve used Starbucks cups and even toilet paper to explain things, but today let’s use price per pound. What do you think? Let me know.

Seller: I used price per sq ft to price my property.

Me: That’s great. Did you pick the right number?

Seller: What do you mean?

Me: Imagine your neighbor just bought a Toyota Camry for $24,000. If we do some quick math, she paid $7 per pound based on the weight of the car.

Seller: Okay.

Me: Now imagine a different neighbor wants to buy a Lamborghini. It’s been his dream since middle school, but it’s way out of his budget. Well, not any longer though since he just learned the price per pound for a vehicle is $7. He can now afford the Lambo. Pretty cool, right?

Seller: It doesn’t work that way.

Me: Exactly. Why not?

Seller: You can’t use the price per pound from a Camry to price a Lambo. Those are two completely different cars.

Me: Well said. And in the same way we can’t borrow a price per sq ft from a dissimilar property down the street and arbitrarily use it to price your house. That’s a bit like using Camry stats to price a Lambo.

———————————————————————————

UPDATED on 2/08/2018 (“Picking the right number”): Someone read this post and thought I was saying price per sq ft is a good metric to use. That’s definitely not what I’m saying. To be fair I think I can see why this person thought that because I mentioned “picking the right number” in the conversation above. I’m not suggesting there is a right number to choose, and that example question is really only a device to help move conversation forward (rather than something to be taken literally). The big point here is choosing a random price per sq ft to price a property is a really bad idea. I suggest actually paying attention to similar sales more than anything. Does that make sense? I hope so.

This car example isn’t intended to tackle all aspects of price per sq ft. It’s simply a way to start conversation. Read more on price per sq ft here.

Mastering this conversation: I highly recommend for real estate professionals to master this conversation. If you don’t like the car example, that’s fine. My sense is it’s critical though to have a few examples at hand to quickly explain how price per sq ft works (and doesn’t work). Why? Because when sellers overprice it’s often because they’re hung up price per sq ft.

I hope this was interesting or helpful.

Questions: Does this work? Why do some sellers and real estate professionals get hung up on price per sq ft? Did I miss something?

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Fanny packs, pendings, and a slower market

November 16, 2017 By Ryan Lundquist 12 Comments

I guess I never thought I’d talk about fanny packs on my blog, but here goes. This is either a new high or low depending on your perspective, but I want to share an important concept to consider – especially during a slower market. Then for anyone interested I have a big market update for Sacramento. Any thoughts?

Fanny pack analogy: Imagine spotting a guy wearing a fanny pack. You might think, “Sweet, I haven’t seen one since the early 90s.” The truth is if we only saw one dude sporting a pouch, we’d probably just think this person is trapped in the 80s and 90s (like Uncle Rico back in ’82). After all, one guy’s fashion statement doesn’t mean it’s a trend for everyone. But if we started seeing more and more people wearing fanny packs everywhere we went, then it’s probably a fashion trend. The same thing happens with pendings. If we only have one pending at a much higher level than anything else in the market area, it’s probably an outlier more than anything. It might be an isolated incident that’s totally disconnected from the market (like one guy wearing a fanny pack) rather than a real indicator of value (a trend). But if we saw a group of pendings shifting higher or lower, then that’s probably a trend.

The big point: Sometimes we get so distracted by the bling of one high listing or pending that we fail to see the bigger picture of value in a neighborhood. It’s like we develop tunnel vision and get locked into one outlier rather than looking at everything else that is similar AND trending lower. Sellers in particular struggle with this during the fall because they sometimes only see the highest prices from the spring rather than current listings and pendings that might be generating slightly lower prices because the market has softened. Or it’s easy to see that one overpriced listing down the street and expect to fetch a similar lofty price rather than recognizing that zero properties are getting into contract that high. Thus let’s be cautious not to stake all the weight of value on one “lone ranger” pending or listing while ignoring all other data. Otherwise it’s sort of like seeing one guy wearing a fanny pack and calling it a trend…

Disclaimer: This post was in no way meant to offend anyone who used to wear, currently wears, or will wear a fanny pack. 🙂

–——-——- Big monthly market update (it’s long on purpose) ———–——-

The market has continued to soften, though it’s not really all that soft. Inventory is up, price reductions have increased, sales volume has been dropping, it took three days longer to sell last month in the region, and price metrics are down about 1% from the height of summer. Overall the market is clearly slowing down for the season, though it’s not painfully dull like it was in 2013 or 2014 during the fall. This is a key to understand because when saying values are “softening” some interpret that to mean the market is really slow or crashing. But that’s not what I’m saying.

Big Point: We have a housing shortage, but that’s not a trump card to stop a slower seasonal trend.

Let’s get technical. Many price stats last month actually showed an increase in value by about 1%. What the? Does this mean the market increased? I thought you just told me the market is slowing? Let’s remember that sales from October really tell us more about properties that got into contract in August and September before they actually closed escrow in October. Thus that 1% uptick really happened in the market a couple of months ago rather than in October. In other words we’ll see the real trend of the market for October when the pendings from October close in November and December. This is so important because let’s not make a big deal about the market technically showing an increase because the uptick didn’t technically happen last month. Know what I’m saying? If we want to see the current market we have to look at the sales, but we cannot forget to give strong weight to the listings and pendings. Are properties taking longer to sell? Are there more listings hitting the market? Are properties starting to generate less offers or offers at lower prices? What are buyers, sellers, and the real estate community saying about the market?

A huge soft stat: Every year the median price and average sales price in Sacramento County tend to soften by about 5%. This doesn’t necessarily mean values decline by 5% in every neighborhood or price range, but it does mean we can expect price softening in most areas during the fall season.

By the way, here’s an article I wrote for Comstock’s magazine this month about some of the different layers of the Sacramento market right now.

I could go on, but let’s get visual.

DOWNLOAD 62 graphs HERE: Please download all graphs in this post and more here as a zip file (includes a stat sheet too). See my sharing policy for 5 ways to share (please don’t copy verbatim).

SACRAMENTO COUNTY (more graphs & stats here):

SACRAMENTO COUNTY STATS:

The median price is currently $349,450. It’s up slightly from last month but down 1% from summer.
The median price is 9.2% higher than the same time last year.
Sales volume in October was 5.4% lower this year than 2016. There were 1456 single family detached sales last month.
It took an average of 29 days to sell a home last month (one year ago it was taking 4 days longer).
The median days on market last month was 15 days.
It took 1 more day to sell in October compared to September (median days).
FHA sales were 19.9% of all sales last month in the county.
Only 0.7% of sales last month were bank-owned & 0.7% were short sales.
The avg price per sq ft was about $221, which is about 1% lower than last month (9% higher than last year).
The avg sales price increased about 1% last month and is currently $386,000. This is 9.4% higher than last year.
Cash sales were 12.2% of all sales last month.

SACRAMENTO REGION (more graphs & stats here):

SACRAMENTO REGION STATS:

The median price is $392,000. It increased about 2% last month, but it’s down 1% from summer.
The median price is 9.8% higher than the same time last year.
Sales volume in October was nearly the same as October 2016. There were 2380 single family detached sales last month.
It took an average of 34 days to sell a home last month (one year ago it was taking 3 days longer).
The median days on market last month was 18 days, which means properties are selling really quickly.
The median days on market increased by 3 days last month, which shows a slowing in the market.
FHA sales were 16.5% of all sales last month.
Only 0.8% of sales last month were bank-owned & 0.8% were short sales.
The avg price per sq ft was about $227, which is down slightly from last month (9% higher than last year).
The avg sales price increased about 1% last month and down about 1.5% from summer (but up 9.4% higher than last year.
Cash sales were 15% of all sales last month.

PLACER COUNTY (more graphs & stats here):

PLACER COUNTY STATS:

The median price is currently $455,000 and increased about 1% last month.
The median price is 3.8% higher than the same time last year.
Sales volume in October was 10% higher than 2016. There were 533 single family detached sales.
It took an average of 37 days to sell a home last month (one year ago it was taking 4 days longer).
The median days on market last month was 22 days, which means properties are selling really quickly.
The median days on market increased by 4 days last month, which shows a slowing in the market.
FHA sales were 9.5% of all sales.
There were only 4 bank-owned sales last month and only 4 short sales.
The avg price per sq ft was $232, which is slightly higher than last month (9.2% higher than last year).
The avg sales price is currently $511,121. This is 6.4% higher than last year.
Cash sales were 18% of all sales last month.

DOWNLOAD 62 graphs HERE: Please download all graphs in this post and more here as a zip file (includes a stat sheet too). See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: On a serious note, did you wear a fanny pack back in the day? Anything else you’re seeing in the market? I’d love to hear your take.

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