Sagging stats and increasing values (and a market update)

January stats are down, but the market feels up. That’s normal at this time of year, but it can be confusing. Let’s focus on three things to keep in mind about the beginning of the year in real estate, and then let’s unpack the market. This post is long on purpose. You can scan it quickly or pour a cup of coffee and spend some time here. If you aren’t in Sacramento, I hope you can still find some value. Do you see any parallels to your market? Any thoughts? 

39613867 - close up of weathered and textured boards on an old wooden farm door

3 things to keep in mind about the beginning of the year in real estate

1) Recent sales lag the real trend: At this time of year it’s important to remember that the most recent sales don’t necessarily tell us about the current market. It’s like a pregnancy test. You might be pregnant, but an over-the-counter test won’t tell you that for two weeks even though there has been a change in your body. Similarly, the market may have changed, but we may not see the price change in the stats for a month or two.

2) Insane appreciation: We are seeing multiple offers, but in many cases it seems the market is trying to get back to prices from the peak of summer rather than showing rapid value increases like we saw in 2013. I recently heard about a property getting into contract 5% above sales from December, but that doesn’t mean the market actually increased in value by 5% over the past month. It could simply be the market is pulling itself out of the fall seasonal lull and getting back to prices from the summer (where they were 5% higher).

3) We see the market in the pendings: If we want to see the current market we have to look at the pendings and listings. Let’s obviously give strong weight to properties that have actually sold, but we cannot ignore pendings to help us gauge the direction of prices for the current market. If we rely too heavily on sales from December and January alone, we might essentially undervalue properties because the market usually ticks up during the early part of the year (which we would see in the pendings). In other words, today’s higher pendings will close over the next 30-60 days and then show value increases on paper for March and April. But the truth is the value increases are actually happening right now. It just takes skill to be able to see the market before the change shows up in the stats. This is why have to give way more respect to pendings. I realize we don’t know the exact price of pending sales though, and that’s why we have to look at many examples of pendings rather than just one. In some markets pendings get into contract at ridiculous levels too, so we have to sift if the prices are realistic (that makes it even more tricky). If there are few listings in a neighborhood, we can look at competitive neighborhoods for more data because we don’t want to base the entire market on just one listing or pending. Let’s not forget to be in tune with where sales left off at the end of summer too.

Appraisal class: I’m teaching a 3-hour class next week on Feb 22 at SAR called How to Think Like an Appraiser. I’d love to have you come. Details here.

DOWNLOAD 77 graphs HERE: Please download all graphs in this post (and more) here as a zip file (including a one-page quick stat sheet). See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

A Market Summary: The market is always interesting in the early part of the year because we are in a place where values have changed, but we don’t see the change in the sales stats yet. So there is a disconnect between reporting slow January data and how the market feels right now. What I mean is the median price softened last month by 3%, sales volume declined by 27% from December, and it took 3 days longer to sell a house than the previous month. If we didn’t know any better we’d say the market was tanking. But let’s back up and think through this.

January sales stats aren’t often very sexy because they represent properties that went into contract in November and December. Do you remember Thanksgiving and Christmas? Yeah, you probably weren’t looking for a house, so it’s not a surprise to see sales stats sag from those months. At times the real estate community doesn’t like to admit the market shows a price lull during the fall, but a lull happens nearly every single year. So if we’re not careful we can focus on sales volume declining last month by 27% without realizing that’s normal to see every January (see graphs below). The irony is it’s easy to say we are in trouble because sales volume declined, but this January actually had its strongest month of volume in 4 years. We might also be concerned about sales showing a good 5% or so decline from the height of summer, but that’s not unusual (see graphs). Or we can freak out about sales taking longer to sell, but over the next month or two we are bound to see this stat change as it will begin to take less time to sell during the spring.

The truth is the market is beginning to heat up. Right now we have an atmosphere of multiple offers in many price ranges. Let’s remember though the market feels more aggressive than actual value increases at times. Moreover, it’s easy to let news of a “hot” real estate market or anemic housing inventory trump actual market data. Thus I would caution sellers to price according to the market instead of the headlines. Just because inventory is spare does not mean you can get whatever price you want too. I would also remind buyers that the bulk of listings don’t usually come on the market for a few months (April through August tends to be the peak).

Sacramento County:

  1. The median price softened to $305,000 (down 7% from summer).
  2. The median price is currently 8.9% above January 2016.
  3. Sales volume was stronger in January than it’s been in 4 years. We could focus on sales volume declining by 27% from December, but volume always declines from December. See the graphs below.
  4. Sales volume in January 2017 was 14% higher than last year.
  5. One year ago in January it was taking 4 days longer to sell.
  6. FHA sales volume is down 6% this year compared to 2016 (but 27% of all sales were FHA last month).
  7. Only 3% of all sales were bank-owned last month and 2.4% were short sales.
  8. The average price per sq ft was about $202 last month (about the same as December, but 8% higher than last year).
  9. The average sales price softened 1% last month and is currently $339,028. This is down 5% from the height of summer (but is 9% higher than last year).
  10. Cash sales were 15% of all sales last month.

Some of my favorite images this month:

Median price since 2013 in sacramento county

january and december

january seasonal market in sacramento

inventory in sacramento county Since 2013 - part 2 - by sacramento appraisal blog

price metrics since 2015 in sacramento county - look at all

CDOM in Sacramento County - by Sacramento Regional Appraisal Blog

inventory - January 2017 - by home appraiser blog

SACRAMENTO REGIONAL MARKET:

  1. The median price softened to $339,000 (down 8% from summer).
  2. The median price is currently 5% above January 2016.
  3. Sales volume in the region is up about 2% over the past year.
  4. Sales volume in January 2017 was 7.6% higher than last year.
  5. One year ago in January it was taking 3 days longer to sell.
  6. It took an average of 47 days to sell a home last month.
  7. FHA sales volume is down almost 7% over the past year (but still 23% of all sales were FHA last month).
  8. The average price per sq ft was about $208 last month. This is down about 1.5% from summer, but 5.7% higher than last year.
  9. The average sales price softened 2% last month and is currently $380,151. This is down about 6.5% from summer (but is 5.9% higher than last year).
  10. Cash sales were 16% of all sales last month.

Some of my favorite images this month:

median price sacramento placer yolo el dorado county

Regional Inventory - by Sacramento regional appraisal blog

days on market in placer sac el dorado yolo county by sacramento appraisal blog

inventory in sacramento regional market

sacramento region volume - FHA and conventional - by appraiser blog

PLACER COUNTY:

  1. The median price is $424,500 (down 3% from the height of summer).
  2. The median price is currently 4.8% above January 2016.
  3. Sales volume in Placer County was down almost 13% this January compared to last January. 
  4. Sales volume in January was nearly identical in volume to January 2014 and January 2015.
  5. Housing supply is down 4% from last year.
  6. It took an avg of 52 days to sell a home last month (same as Jan 2016).
  7. The average price per sq ft was about $211 last month. This is down about 2.5% from summer, but about 5% higher than last year.
  8. The average sales price softened 1% last month and is currently $467,276. This is down about 3% from summer (but is 3% higher than last year).
  9. Bank-owned sales were 2.4% of all sales last month (short sales were 1.3%).
  10. Cash sales were 19.5% of all sales last month.

Some of my favorite images this month:

Placer County price and inventory - by sacramento appraisal blog

Placer County sales volume - by sacramento appraisal blog

months of housing inventory in placer county by sacramento appraisal blog 2

days on market in placer county by sacramento appraisal blog

Placer County housing inventory - by home appraiser blog

DOWNLOAD 77 graphs HERE: Please download all graphs in this post (and more) here as a zip file (including a one-page quick stat sheet). See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Questions: Did I miss anything? What are you seeing out there? How would you describe the market? I’d love to hear your take.

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Some advice for sellers in an aggressive market

Dear Sellers,

The market feels aggressive out there and you’re probably going to get multiple offers, but let’s have some real talk. Last week I wrote an open letter to buyers, but today I want to share some perspective to help your end of the transaction. Whether you are in Sacramento or elsewhere, I hope this is useful. Any thoughts?

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Advice for sellers in an aggressive market:

1) Don’t get high on the headlines: It’s easy to read articles that say “the market is hot” and then ignore data in the neighborhood. It’s as if we see something in print and price according to the headline instead of actual sales and listings. Right now there are no shortage of articles saying “Sacramento is one of the hottest markets in the nation”, so be careful about getting distracted by the headlines.

2) Don’t aim for the unicorn: It’s easy to price for that one magical unicorn buyer who is going to pay more than anyone else for some reason, but I would advise you to price based on recent similar sales and similar listings that are actually getting into contract. I find some sellers say things like, “A cash investor from San Francisco is going to swoop in and pay top dollar for my property.” Yeah, maybe. But what might also happen is you sit on the market instead of sell because you priced for a mythical buyer instead of a real one.

3) Be careful to not treat the contract price as holy: We like to think there is something holy about a contract price as if price negotiation is finished when a contract is written, but that’s simply not true. If a buyer finds repairs are needed or if an appraisal rightly comes in lower than an inflated contract price, it may be prudent to reduce the price.

4) Remember the difference between “comps” and sales: We like to think all sales are “comps”, but there is a difference between properties that are actually comparable and ones that are simply sales. It’s easy to get distracted by a few high sales in the neighborhood, but if they are nothing like your property, then don’t give them much weight and pay the most attention to homes that are actually similar to yours. In simple terms, if your home was an apple, what have other apples sold for in the neighborhood? Don’t price your apple according to orange or banana sales.

5) Be aware of appraisals being scrutinized: If you haven’t sold a home in years, know the lending world has changed from what it used to be over ten years ago. These days lenders scrutinize appraisals like never before, so be careful about accepting an offer that is incredibly high if there is no way it is going to appraise that high. Of course if the buyer has cash to make up the difference, then you are fine. But if the buyer is strapped for cash, then the highest offer probably isn’t your best option. This is why many agents tell sellers to look for the strongest offer instead of the highest one.

6) Don’t hijack price per sq ft: One of the biggest pricing mistakes sellers make is to take a per sq ft figure from another sale down the street and use that figure to price their property. Here’s the thing though. There isn’t just one price per sq ft figure that applies to every single property in a neighborhood. For example, in East Sacramento the price per sq ft range for all sales last year was $169 to $552. So when a seller says, “Let’s use $552 to price my property,” my question would be, why not $551? Or why not $525? What about $436? Or maybe $278? We can quickly get a price that is far from reasonable if we are only looking at price per sq ft. Keep in mind smaller homes tend to have a much higher price per sq ft too (which I explain with my Starbucks cup analogy). My advice is to pay attention to price per sq ft, but don’t forget to look at actual similar sales in the neighborhood.

east sacramento price per sq ft range - sacramento appraisal blog

7) Try to be objective about your house: Buyers are going to look at your home with a microscope, which means they’ll see the wonderful things as well as the faults. Remember, it’s easy to get sentimental about your property because you have a history there, but memories can also be a mask for not seeing flaws. A seller recently told me, “My house is the most well-built one on the block” (the same builder built the entire tract). Another seller said, “My house is really unique for the neighborhood, which is why it’s worth so much more” (it was totally outdated though). Agents are trying to tell these sellers to price lower because that’s where the market is, but both these homes are likely going to be overpriced because the sellers cannot get past their own subjective views.

8) Be FHA-ready: One in four homes in Sacramento county sold with an FHA loan last year, so it’s a good idea to have your home ready for an FHA appraiser if you think your home might go FHA. Your agent can most likely bring you up to speed on some repairs that might be required or maybe look over an FHA list. Keep in mind 34% of all homes under $300,000 went FHA in 2016 in Sacramento County and the current FHA loan limit is $474,950. This is also a reminder that financed offers are closing escrow and actually far outweighing cash transactions.

9) The market isn’t the same at every price range: We like to think the market is doing the same thing in every price range and neighborhood, but that’s not true. For instance, the market under $300,000 is more aggressive than the market above $1.5M. Thus the market could be “hot” in one price range or neighborhood and cool in another. This is important to remember because all day long we read about how hot the market is in Midtown and how rents are rising there, but that same dynamic might not be present in your neighborhood.

10) Listen to your agent: In a market that feels aggressive it’s easy to ignore pricing advice from agents, so some sellers price at completely unrealistic levels. Despite values showing upward pressure in many price ranges, we are not in a market where you can command whatever price you want (even with anemic inventory). So if your agent is telling you where the market is and showing you similar sales and listings, ask yourself why you are not listening.

I hope this was helpful.

Sincerely,

Ryan

Questions: What piece of advice resonates with you? What is #11? Did I miss something? I’d love to hear your take.

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My last blog post of 2016

Almost eight years ago I started this blog, and I never imagined it would still be going after all this time. Sometimes people say, “An appraisal blog? Yeah, that sounds so uninteresting.” But I love the conversations we have each week, and in some way I hope they help us all grow in our skills and understanding. Anyway, I’m sincerely honored you take time out of your day to be here. Thank you for your insight, comments, emails, phone calls, constructive criticism, and the referrals you send my way. On behalf of the entire Lundquist family, I want to wish you Happy Holidays and Merry Christmas!!

The next two weeks: At the end of this week I’ll be taking some time to enjoy family, relax, drink ungodly amounts of coffee, lose the weight I said I was going to lose in 2016, hang out with my new nephew, and let my kids whoop me on their Xbox. I might be crazy, but this year when we visit family I’m bringing my tools so I can build my mother-in-law a bookcase. That’s either the best thing ever or maybe I’m setting myself up for a yearly tradition. Uh oh. Ultimately I hope to get refreshed in coming time and ready for 2017. This has been an amazing year, but I need a break. Can you relate? I hope you enjoy this season and I can’t wait to reconnect in early January. Thank you again for making this a tremendous year. Blessings to you and your loved ones.

pallet-trees-by-sacramento-appraisal-blog

These are some of my festive pallet trees in the front yard.

Questions: What are you going to be doing over the next week or so? Any special traditions? I’d love to hear.

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How will appraisers deal with the new water-conserving plumbing fixtures law?

The Governor doesn’t like my toilet. Or my faucet. Or my shower head. If you didn’t know, on January 1, 2017 it’s going to become law in California for residential and commercial property owners to install water-conserving plumbing fixtures if the property was built before 1994. You can read the details of the law here, but let’s consider how this might play out. I’d love to hear your take too. Any thoughts?

Question: Will home values be affected depending on whether water-conserving plumbing fixtures are present or not? How will appraisers deal with this new law?

1) Wait and see: This is one of those issues that is only theoretical right now. We are going to have to wait to see how it plays out. That’s the truth.

2) Laws & value: Just because a law exists doesn’t necessarily mean value exists. For instance, smoke detectors and carbon monoxide alarms are required by law in certain instances in California, but the lack of these items doesn’t mean the house is worth less. Is the market that sensitive where buyers would walk through and say, “I’m going to pay $25 less for this house because a smoke detector is missing in the bedroom”? I doubt it. My sense is buyers would probably pay the same amount for a house whether smoke detectors or CO alarms are there or not. I realize toilets are more costly than smoke detectors though, so that is something we have to consider.

3) Expectations of buyers & value: A key issue is whether buyers will expect water-conserving plumbing fixtures once sellers are required to begin disclosing if there are any non-compliant fixtures at a property. The truth is right now buyers really don’t expect these fixtures. Have you ever seen a contract where a buyer said, “Seller to update all plumbing fixtures or provide a credit to the buyer to cure the outdated fixtures”? Probably not. This doesn’t mean buyers aren’t willing to pay more for newer features, but only that buyers don’t tend to draw a line of demarcation for these features right now when making an offer on a house. But will they in the future because of this law? In short, if it becomes a big deal to buyers, then it needs to be a big deal for appraisers. If buyers come to a place where they expect a price discount when specific water-conserving plumbing fixtures are not present, then it is a value issue. If buyers could care less, then it really wouldn’t be prudent for appraisers to penalize a property for not having these items – even though there is a law in place.

4) The silliness of focusing on small-ticket items: Let’s be cautious about asking appraisers to analyze the value impact of a toilet that flushes 1.5 gallons vs 4 gallons. Can appraisers or anyone for that matter really be that precise? Is the market honestly that sensitive to the point where buyers would pay more or less for this minor difference? Let’s be realistic and consider many buyers would likely notice the age of the toilet rather than how much it flushes exactly. On a different level though, some buyers want/need toilets that have a more powerful flush because… well, you know. On the other hand, if the cost to replace plumbing fixtures throughout a house is going to be thousands of dollars, then that is something buyers might really care about.

5) The way lenders handle this is a big deal: The state law doesn’t require sellers to replace fixtures when selling a home, but sellers do need to disclose non-compliant fixtures. Thus when lenders read about non-compliant fixtures in a purchase contract, will they require plumbing fixtures to be updated? That is the million-dollar question. What will lenders do during a refinance too? Will they ask appraisers to identify if there are any non-compliant fixtures? That would be a bad idea since appraisers aren’t trained to identify such fixtures. If lenders are strict about applying this law, it can end up impacting how sellers prepare to sell their homes, repairs buyers request in contracts, and what lenders ask appraisers to do when these features are not present. 

I hope that was interesting or helpful.

Recent Podcast: By the way, I did a podcast a couple of weeks ago with Marguerite Crespillo. It’s always fun to talk shop. Listen below (or here).

Questions: What impact do you think this law will have on real estate (if any)? Did I miss something? Appraiser colleagues, what else would you add? I’d love to hear your take.

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