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Addicted to low rates, sending 2x4s, and a market update

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The market feels addicted to low interest rates. So what’s going to happen when rates rise? Let’s travel back to the late 70s for some insight and consider a few thoughts. Then I have a huge local market update for those interested.

A few thoughts about interest rates:

1) Addicted: We have a market that feels addicted to low rates. I guess that’s understandable since rates have been hovering around 4% for the past 6 years. On one hand it seems silly that buyers would freak out about rates near 4.5% because that’s historically low, but at the same time the market is sensitive about rate changes because we’ve become accustomed (or addicted) to low rates. Let’s remember rate changes can make a bigger difference at lower prices too because they can more readily impact affordability.

2) They used to be 18%: Some people say, “You kids are so lucky because when I bought my first house the interest rate was 18%.” There’s some truth there and let’s be in tune with history, yet prices used to be substantially lower too. You bought at 18%, but the price was $112,000.

3) Not the only factor: What interest rates do can end up impacting affordability, sales volume, housing supply, and prices. Check out a deep article by Freddie Mac to read through some of the potential changes coming. Yet let’s remember interest rates are not the only factor for housing. There are many other layers of the market that end up influencing value. We can’t forget about the job market, economy, a housing shortage, financing, creative loans, new construction, cash investors, etc… In short, interest rates are a big factor for the market, but they are not the only factor either. One more thing. Nobody knows the future. While it looks like rates are going to be increasing more, we could be saying something entirely different next year.

When rates doubled from 1977 to 1981 (from Freddie Mac):

1) Mortgage origination fell by 40%.
2) Annual single family home sales volume dropped by 36%.
3) New construction dropped by 51%.

History teaches us a huge change in rates can absolutely sway the market. Obviously an uptick from 4% to 4.5% is not the same thing as 1977, but the effect then reminds us to keep an eye on mortgage origination, sales volume, and new construction (and prices).

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

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

It’s starting to look like Spring. Prices are picking up, it took two less days to sell last month, and more listings are hitting the market. It was actually the strongest February of sales volume we’ve seen since 2013. The market has an aggressive feel with multiple offers (when properties are priced correctly), yet in some neighborhoods it almost seems like values have been a bit flat or subdued. Thus it’s a good reminder the market can feel aggressive sometimes without absolutely insane value increases. Keep in mind there are about 100 price reductions every day right now in MLS, and that means buyers are not willing to pay any price despite a housing shortage.

Sales volume is down (barely): There is lots of talk in the media about how sales volume is slumping nationally and is down 3% or more, but it’s only down 0.28% this year in the region compared to last year. It’s actually up from two years ago, which a big point in my mind. In Sacramento County sales volume is down nearly 1.5%, which is about where it’s been hovering lately. This isn’t a red flag for the market, but it would be if sales volume really started to slough. Moreover, knowing that rising interest rates can impact sales volume, this is important to watch over time.

The bottom vs. top: The bottom of the market has less inventory, more competition, and more upward pressure than the top. The highest prices above $1M have over a year’s worth of homes for sale. It’s actually fairly normal to have that much inventory at the high-end, though this month is a bit higher than the same time last year, so let’s keep watching that. Part of having so many listings at higher prices though is sellers are pricing at absurd levels that are totally disconnected from the market. It’s like everyone and their Mom wants to sell for $3M when very few sales in Sacramento fetch those types of prices.

Advice for sellers: Pay careful attention to similar properties that are actually selling in the neighborhood rather than overpriced listings. In other words, price according to the comps and listings that are getting into contract rather than listings that don’t really reflect the market. And don’t use price per sq ft to price your home either.

RENTS: I’ve been focusing more on rents and I’ll keep doing that if people like it. I have a rent folder in the download link below too (data from Yardi Matrix).  

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

DOWNLOAD 70 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 70 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: How do you think rising rates will impact the market over time (if they do keep rising of course)? Anything I missed? I’d love to hear your take.

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The waking market, pulling stats like a boss, & the year in review

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The market went to sleep for the holidays and it’s just starting to wake up. Let’s talk about that along with pulling stats like a boss. Then I have a huge market update and review for those interested. 

No sales to support higher values: In a normal January the market is in a weird spot. It’s coming out of hibernation from the holidays, and even though buyers eventually start offering higher prices, the most recent sales might not support higher contracts. In other words, sales from November and December might actually be much lower than what buyers are willing to pay in later January and February because the market has begun to awaken out of a lull. The reality is we might not see any upward value movement in sales stats until March, but the upward trend will begin to happen in January and February before we see it in the stats. Data lags the trend. I remind myself of this every year.

Getting practical: In coming time as the market presumably heats up I recommend looking for a pattern of pending sales (probably higher), watching for properties spending less time on the market, and study what prices normally do this time of year in your area. In many locations prices tend to pick up where they left off in the late summer before they faded during the fall.

Game-changing stats: Paying attention to numbers has literally changed my career, so I wanted to give some tips for how to begin pulling stats for a city, county, neighborhood… Here’s a chart you can use to track price changes and a few other key elements (DOWNLOAD here). I highly recommend carving out a few minutes each month to track some of these basics. Then of course find relevant ways to share the numbers with your clients and contacts.

Here’s a video where I talk through how to use the chart as well as mistakes to avoid. It’s about 10 minutes. Click below (or here) and watch in FULL screen:

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

Prices have been softening in Sacramento, but it hasn’t been painfully dull like some fall seasons. Overall prices in the region sloughed last month (not a surprise), it took six days longer to sell, and the year closed out with price metrics being about 8-10% higher than December 2016. The number of listings really took a nosedive last month, but that’s what happens since people don’t list in November and December unless they really have to sell. Listings should increase over the next couple months as the market heats up for the spring. I know hungry buyers feel like inventory won’t be coming, but it’ll happen.

Quick insight: Housing inventory is sparse, but one good thing is inventory seems like it went a little more sideways last year instead of declining sharply. On a positive note, the market ended with the lowest number of foreclosures and short sales in the past decade. This isn’t a shocker, but it’s still a sign of healing after the “bubble” burst more than ten years ago. Prices in 2017 increased about the same as they did the past couple years. Lastly, sales volume has been steady for a few years, and that shows the market has found a rhythm.

Recap of 2017 in Sacramento:

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

DOWNLOAD 75 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:

  1. The median price is currently $350,000. It’s about the same as last month & down 0.5% from summer.
  2. The median price is 11.1% higher than the same time last year.
  3. Sales volume in December was 5.6% lower this year than 2016. There were 1392 single family detached sales last month.
  4. It took an average of 36 days to sell a home last month (one year ago it was taking 3 days longer).
  5. The median days on market last month was 21 days.
  6. It took 3 more days to sell in Dec. compared to November (median days).
  7. FHA sales were 20.5% of all sales last month in the county.
  8. Only 0.7% of sales last month were bank-owned & 0.2% were short sales.
  9. The avg price per sq ft was about $221, which declined last month (9.6% higher than last year).
  10. The avg sales price softened about 1.5% last month and is $379,962. This is 10.5% higher than last year.
  11. Cash sales were 13% of all sales last month.

SACRAMENTO REGION (more graphs & stats here):

Sacramento Region Stats:

  1. The median price is $385,000. It softened nearly 1% last month.  
  2. The median price is 10% higher than the same time last year.
  3. Sales volume in December was down 4.7% this year. There were 2202 single family detached sales last month.
  4. It took an average of 42 days to sell a home last month (one year ago it was taking 2 days longer).
  5. The median days on market last month was 24 days, which means properties are selling really quickly.
  6. The median days on market increased by 5 days last month, which shows a slowing in the market.  
  7. FHA sales were 17.5% of all sales last month.
  8. Only 1.6% of sales last month were bank-owned & 0.9% were short sales.
  9. The avg price per sq ft was about $225, which decreased 2% last month (8.4% higher than last year).
  10. The avg sales price decreased 2.5% last month and is 9.1% higher than last year.
  11. Cash sales were 14% of all sales last month.

PLACER COUNTY (more graphs & stats here):

Placer County Stats

  1. The median price is $450,000 and decreased slightly last month.
  2. The median price is 6.1% higher than the same time last year.
  3. Sales volume in December was 3.6% lower than 2016. There were 450 single family detached sales.
  4. It took an average of 48 days to sell a home last month (one year ago it was taking 1 less day to sell).
  5. The median days on market last month was 28 days, which means properties are selling really quickly.
  6. The median days on market increased 9 days last month (don’t read too much into that). 
  7. FHA sales were 12.6% of all sales.
  8. There were only 4 bank-owned sales last month and only 7 short sales.
  9. The avg price per sq ft was $228, which softened about 3% last month (5.7% higher than last year).
  10. The avg sales price is currently $510,174. This is 8% higher than last year.
  11. Cash sales were 14.9% of all sales last month.

DOWNLOAD 75 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: What are you seeing out there in the market? Anything I missed? I’d love to hear your take.

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The rage of modern homes in real estate

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Modern homes are all the rage in real estate. I don’t know about you, but I’m seeing them pop up not only in Sacramento, but in many markets throughout the United States. So today I wanted to interview Ted DeFazio, a local real estate agent who specializes in these types of homes. I hope this will be valuable and interesting. Any thoughts?

Ryan: What is a modern home? And what is NOT a modern home?

Ted: The way I describe a modern style home would be the use of clean lines, lack of ornate detailing, open feel, in many cases vaulted ceilings, merging of indoor and outdoor spaces with a combination of large windows and doors and usually has a post and beam angled, commercial style flat or simple gable roof lines. Some homes will have a combination of all three. Carports and clerestory windows (starting beyond the header and into the roof line) are often a trademark of the modern style as well.

Ryan: So how do you describe that home with a few modern upgrades?

Ted: There are a lot of homes that would be considered contemporary and not full on modern. But I think this is all very subjective and up to interpretation. For instance, a ranch home that has had a modern style kitchen remodel with flat front cabinetry and minimalistic touches might feel modern but is it a modern home? I think the architecture from the front elevation and finishes through to the back yard would have to reflect that same style in order to be considered a true modern home. I remember a home in Granite Bay that was a mix of styles with some very modern and some very traditional details. Did it work? Sure. Was it a little confused? Yes.

Ryan: What is the difference between modern and mid-century modern?

Ted: Mid century modern would be homes built in the 1950-1970s era. Eichler style and many Carter Sparks designed (built by Streng Bros) homes fit this style to a T. They are mostly post and beam architecture and have that unique, classic style. Dramatic entry ways and striking front elevations sometimes devoid of regular height windows, carports instead of conventional garages, exposed concrete hallways, flat front cabinetry, skylights, atriums, courtyards, aluminum windows and large sliding glass doors and clerestory windows are all signatures of this style.

Ryan: Do modern homes have to be newer in age?

Ted: Modern style homes are not exclusive to a decade. There are new homes being built in a modern style today. There are some great examples in the Sierra Oaks, Wilhaggin and Downtown Sacramento neighborhoods. Some homes combine styles like say a modern craftsman or modern prairie style.

Ryan: Why do you think modern homes are showing up more and more in Sacramento and beyond?

Ted: The average buyer in Sacramento is getting more sophisticated and open to different styles of architecture. We are slowly shedding the “country bumpkin” label as a city. I think the influx of Bay Area buyers is also pushing the design landscape into a more modern feel. Is it a trend? Probably. But the farther we get away from faking Tuscan style, the better. Some people want to be different and living in modern architecture definitely makes a statement. Some buyers might have grown up in a Streng or Eichler style and want to get back to the feeling of living in one again.

There was a time when modern Streng Bros homes were difficult to sell and earned such descriptions as 70’s architecture or flat-tops. I created SacModern.com to help highlight the many modern and contemporary homes on the market. Give them a stage, in a way. And try to describe them using terms true to their respective styles. I have sold homes to many out of towners through the state who find that Sacramento as a region has a lot of cool architecture. Not only is there a great selection of modern properties but they are cheap compared to the larger metro areas the buyers are coming from.

Ryan: What do buyers of modern homes tend to look for?

Ted: Open concept living, striking architecture, outdoor privacy, creative inspiring spaces and a place to show off their vintage furniture collection. Your home can be seen as an extension of your personality. Someone that is more reserved might want a more buttoned down traditional home whereas a flamboyant or eccentric type might seek something radical or different than the norm as far as design goes.

Ryan: Any tips for valuing modern properties?

Ted: Typically, a modern home will sell for more than the traditional style home down the street with the same square footage. Maybe it’s a premium for the architecture, the special finishes or the time that went into designing the home. I usually ask the appraiser if they are familiar with the style before they meet me at the property just to make sure they understand the unique qualities. In the Bay Area, the modern neighborhoods are becoming historical areas, protected from demolition or odd style-killing remodels. Because the Bay Area usually has a ripple effect in Sacramento, this might be coming down the pipe for our area.

Ryan: Anything else you want to add?

Ted: Some of these styles do better in different areas. In El Dorado Hills for instance, modern is a tougher sell than in a more city-centric area. I find that the farther away from Downtown Sacramento you are, the harder it will be to sell modern style architecture. My Gary Way listing in Carmichael would’ve been sold a lot faster if it was closer to downtown. Is this due to the demographics that typically buy these homes? Not sure. But I have seen it quite often. Professionals and creatives alike are drawn to the modern style. These types tend to work in and around the core and see a suburban commute as a huge negative.

Ryan: Thanks so much for doing the interview. You killed it. Everyone, you can check out Ted’s website here.

Closing appraisal thoughts: My observation is many modern and mid-century modern homes carry a wider appeal, so it’s important to not just choose three ranch homes in the neighborhood for comparison. This means in many cases we might have to go out a little further and find something that is architecturally similar (and in a competitive area hopefully too). For instance, I appraised a Mid-Century Modern home in Fair Oaks recently and I pulled comps from various portions of Fair Oaks and Carmichael because of the custom nature of the property. I couldn’t just keep it nice and tight in the immediate area because the market area was simply wider for these types of properties.

Questions: What do you think of modern homes? Where are you seeing modern homes pop up? Do you think they sell for more than traditional ranch homes? I’d love to hear your take.

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When using older sales is the best option

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Let’s talk about choosing comps. I want to share an example of what I did not long ago when there were no recent sales for a unique model in a tract subdivision. Anything to add? I’d love to hear your take.

The situation: The subject property is a larger single story home with a casita. In this case the builder built only a handful of homes with a casita, so comps would be limited. If you aren’t familiar with a casita, it’s a term used to refer to an extra housing unit or detached area. I find it’s often interchanged with “in-law unit” or “accessory dwelling”, but we have to remember an accessory dwelling unit (ADU) actually needs a sleeping area, bathroom, and kitchen to be an ADU. In this case the “casita” only has a bedroom and bathroom, so while it’s tempting to call it an accessory dwelling, it’s really not because there isn’t a kitchen.

The problem: There are zero recent casita sales, so it’s not easy to readily understand what the market is willing to pay for one of these units. What do we compare the casita unit with in today’s market? How do we adjust for it?

What I did: In an ideal world I would’ve had a nearby neighborhood with casita sales, but I didn’t find anything, so I chose to study the neighborhood market by researching three casita sales in the neighborhood over the past ten years. As long as the data was good, I would use research from sales in the past to help me value a property today.

Immediately I noticed the casita sales were clearly commanding a price premium. I thought that this might be the case, but it was still good to confirm instead of assume. Keep in mind if you don’t know how to graph, that’s okay. You can see the same thing when pulling a CMA or printing out sales. Here is a tutorial though in case you want to learn to make a graph like this.

The next thing I did was to research how the casita units compared with other specific models at the time of their sale. Being that most casita homes were somewhere around 2500 sq ft (without the casita), I wanted to see how these units competed with other homes that were around that size. The beauty of having three older sales was I could find what the price adjustment was in each of those situations compared to other specific models. This would prove valuable since I had three recent 2500 sq ft sales without a casita, and I would need to make a value adjustment for the casita in today’s market.

I won’t say exactly what my adjustment was, though maybe I will in the comments.

The big point: Sometimes we have to look back in time to understand how value works. Don’t be afraid to pour through many years of sales to help establish context. Spend time answering the question, “How does a property like this fit into the market?” We can do this by scouring years of sales in the immediate neighborhood, but we might also look to the surrounding market too for competitive locations. Of course just because we research sales that are many years old does not mean we will use them in a current valuation (or a listing presentation for agents). I really don’t have a problem with using older sales when appropriate because we can always make an adjustment depending on how the market has changed over time. But let’s remember FHA wants appraisers to use comps within 12 months, so I probably couldn’t get away with using a sale from three years ago in a lender appraisal. However, I could pull in research from the past to help support the value for what the casita is worth.

I hope this was helpful or interesting.

Questions: Anything else to add? Did I miss something? When have you used older sales to help see the context of value? I’d love to hear your take.

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