Are we really back to “bubble” prices?

We’re back at the peak of the market. Well, that’s what some of the national indexes are saying. So imagine yourself in line at Starbucks and someone remarks, “I heard on CNN we are back to bubble prices.” What would you say? Let’s look at some of the “national” trends below and then kick around a few thoughts. I’d love to hear your take in the comments.

bubble-prices-image-purchased-from-123rf-sacramento-appraisal-blog

Case-Shiller National Index: This index shows the “national” market is about where it was during the peak of the index in 2006 (source).

case-shiller-national-index-by-sacramento-appraisal-blog

Freddie Mac National Price Index: This index shows the “national” market is about where it was during the peak of the index in 2007 (source). 

freddie-mac-price-index-united-states-sacramento-appraisal-blog

Freddie Mac California Price Index: The “national” index in gray shows we are back to the peak of the market, but the state index in black shows California is still about 5% below the peak (source).  

freddie-mac-price-index-california-sacramento-appraisal-blog

Freddie Mac Sacramento Price Index: The national index in gray shows we are back to the peak, but the local Sacramento index in black shows we are still a ways off (source).

freddie-mac-price-index-sacramento-sacramento-appraisal-blog

Some quick thoughts:

1) I want to buy in the national market: There is no such thing as a national market, which makes “national” indexes only so valuable (or sometimes totally useless). As Jonathan Miller says, real estate is local and we have thousands of local markets instead of one national market. Therefore we ought to be naturally cautious about national metrics (see Barry Ritholtz rip NAR’s affordability index). In short, I watch “national” indexes, but I look to the local market for the real trend.

2) Different Peak: The “national” market peaked around 2007 depending on which index you’re looking at, but Sacramento peaked in 2005. Media outlets often talk about the housing “bubble” bursting in 2007 when in fact that wasn’t true for many markets (including Sac).

3) Current Values: Many Sacramento neighborhoods are still a good 10-15%+ below the peak of the market, though some classic areas are getting very close (while other depressed areas have much further to go). I included some neighborhood graphs below for reference.

4) Condos & Land: Let’s remember not all property types trend the same way. For instance, the condo market has struggled since the housing “bubble” burst. Owner occupancy rates being too low have stalled many complexes from obtaining financing, which has stalled value increases too. Vacant land is also far below where it was at the peak because there is less new construction today and we don’t have land speculators like we did 10+ years ago. 

Specific Neighborhoods (Are we there yet?):

college-glen-7

east-sac

4-plex-carro

del-paso-manor

curtis-park

I hope this was helpful.

Questions: Are there any national metrics you pay attention to? Any you’d recommend avoiding? Did I miss something? I’d love to hear your take.

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Picky buyers, the housing crash, and a Sacramento market update

How did the previous housing crash affect buyers? In other words, how are buyers different today because of what they went through years ago? Without writing a dissertation, let’s consider a few thoughts below. Then for anyone interested, let’s take a deep look at the Sacramento market. Any thoughts?

56718353 - careful and picky choice of properties with a magnifying glass

Three ways the housing crash seems to have impacted buyers:

  1. Getting into Contract: Despite inventory being low, buyers seem to be picky about price. In other words, if the price isn’t right, they won’t make an offer (in Sacramento at least). Sellers haven’t fully embraced this yet, but it’s very real. You’d think buyers would feel desperate and offer on anything since housing inventory is sparse, but it’s simply not the case. There could be many reasons for this, but one of them is buyers are being cautious about what they offer because they don’t want to feel like they are making the mistake of overpaying like they did a decade ago. Of course prices today are much higher than they were just four years ago and buyers are willing to pay these prices. It’s just buyers are generally more cautious about overpaying. Also, keep in mind buyers are much more informed about prices because of Metrolist, Zillow, Redfin, etc…. This means buyers can often sniff out something that’s overpriced.
  2. Staying in Contract: Many real estate agents in Sacramento have been reporting contracts falling out of escrow much more often. It’s like buyers are picky about getting into contract in the first place and then they are picky about staying in contract. I’ve heard some say contracts falling apart is a sign the market is beginning to crash, but there have actually been more sales this year than last year in Sacramento. Thus the truth is more contracts are actually closing regardless of however many are falling out.
  3. Sensitive about Location & Condition: Buyers seem to be exhibiting a sensitivity to adverse locations and properties that are not in pristine condition. In other words, buyers have higher expectations about what they are buying and they aren’t overlooking the true condition of a home or paying top dollar for junk. Lenders and appraisers certainly aren’t overlooking the condition either (or at least they shouldn’t be). Also, consider how HGTV and other networks have exploded in popularity this past decade. I have to think constantly seeing the latest designs on TV (and Pinterest) only helps foster a more finicky buyer when looking for a home.

What do you think? Any further insight? Let’s talk. Please comment below.

—-—–—– And here’s my big monthly market update  ———–—–

big-monthly-market-update-post-sacramento-appraisal-blog-image-purchased-from-123rfTwo ways to read the BIG POST:

  1. Scan the talking points and graphs quickly.
  2. Grab a cup of coffee and spend time digesting what is here.

DOWNLOAD 79 graphs HERE: Please download all graphs in this post (and more) here as a zip file. Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Quick Market Summary: The market is softening just like we’d expect to see during the fall. Sometimes we talk about real estate in only hyper-positive terms as if values do nothing but increase, but that’s simply not realistic. Almost every year values soften as a part of the normal real estate cycle, and that seems to be what we’re seeing right now. It’s starting to take longer to sell, prices are down a few percent from the summer, housing inventory is up from a few months back, and sales volume is beginning to slough off. Keep in mind one year ago it was taking an average of 6 days longer to sell, which reminds us the fall market this year has been more aggressive so far. Overall single family housing feels flat and the market is very price sensitive, so sellers ought to be very cautious about pricing according to properties that are actually getting into contract in their neighborhood and price range. On a different note the 2-4 unit market has been somewhat subdued for a number of years as values have recovered much more slowly than the single family market, but it seems to be heating up as news of higher rents is spreading to investors. Let’s keep an eye on that and of course keep hoping the economy and wage growth can drive values more than low interest rates and freakishly low housing inventory. Check out specific stats and graphs below for Sacramento County, the Sacramento Region, & Placer County.

Sacramento County:

  1. The median price was $317,000 in September. It dipped 2% from the previous month, but is 9% higher than last year.
  2. The average price per sq ft was $201 last month (down 2% from the previous month, but still 7% higher than last year).
  3. There were only 25 short sales in the county last month.
  4. Sales volume was 3% higher this September compared to September 2015.
  5. It took 4 days longer to sell a house last month compared to the previous month (though one year ago it was taking 6 days longer to sell).
  6. Sales volume is up 7% this year compared to last year.
  7. FHA sales volume is down 7% this year compared to 2015 (keep in mind nearly 26% of all sales were FHA this past quarter).
  8. Cash sales are down 7.6% this year (they were only 13.6% of all sales this past quarter).
  9. Housing inventory is 5% lower than the same time last year.
  10. The average sales price at $346,000 softened by 2% last month (but is 10% higher than last year).

Some of my Favorite Graphs this Month:

median-price-since-2013-in-sacramento-county

price-metrics-since-2015-in-sacramento-county-look-at-all

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

distressed-sales-since-2009-in-sacramento-county

inventory-september-2016-by-home-appraiser-blog

fha-and-cash-sales-by-quarter-in-sacramento-county

cdom-in-sacramento-county-by-sacramento-regional-appraisal-blog

sales-volume-in-sacramento-county-since-2012

seasonal-market-in-sacramento-county-4

seasonal-market-in-sacramento-county-sales-volume-6

SACRAMENTO REGIONAL MARKET:

  1. The median price was $355,000 in September. It’s down less than 1% from the previous month, but is 9% higher than last year.
  2. The average price per sq ft was $207 last month. It went down 1.5% from the previous month, but is 7% higher than last year.
  3. It took 4 days longer to sell compared to the previous month (but 6 less days compared to September 2015).
  4. Sales volume was 3% higher this September compared to September 2015.
  5. FHA sales volume is down 7.5% this year compared to last year.
  6. Cash sales were 16% of all sales last month (FHA sales were 22%).
  7. Cash sales are down 6% this year compared to last year.
  8. Housing inventory is 9% lower than the same time last year.
  9. REOs were 2.5% and short sales were 1.3% of all sales last month.
  10. The average sales price was $393,000 in September. It softened by 1% last month but is 9% higher than last year.

Some of my Favorite Regional Graphs:

sales-volume-2015-vs-2016-in-sacramento-placer-yolo-el-dorado-county

sacramento-region-volume-fha-and-conventional-by-appraiser-blog

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

regional-market-median-price-by-home-appraiser-blog

median-price-and-inventory-in-sacramento-regional-market-2013

PLACER COUNTY:

  1. The median price was $432,000 last month, which is up 11% from last year.
  2. The average price per sq ft was $212 last month. It softened by 1.5% from the past couple months, but is 4.7% higher than last year.
  3. It took 1 day longer to sell compared to the previous month (but 5 less days compared to September 2015).
  4. Sales volume was similar this September compared to September 2015.
  5. FHA sales volume is down 15% this year compared to last year.
  6. Cash sales were nearly 16% of all sales last month (FHA sales were nearly 16% also).
  7. Cash sales are down 1.7% this year compared to last year.
  8. Housing inventory is 16% lower than the same time last year.
  9. REOs were 1.3% and short sales were 1.1% of all sales last month.
  10. The average sales price was $483,000 and is 8.5% higher than last year.

Some of my Favorite Placer County Graphs:

days-on-market-in-placer-county-by-sacramento-appraisal-blog months-of-housing-inventory-in-placer-county-by-sacramento-appraisal-blog number-of-listings-in-placer-county-2016 placer-county-housing-inventory-by-home-appraiser-blog placer-county-median-price-since-2014-part-2-by-home-appraiser-blog placer-county-sales-volume-by-sacramento-appraisal-blog

DOWNLOAD 79 graphs HERE: Please download all graphs in this post (and more) here as a zip file. Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Classes I’m teaching in Lake Tahoe: On October 21st I’ll be teaching two classes in Lake Tahoe for an Appraisal Institute Conference. This is an enormous honor and I look forward to mingling with appraisers and sharing ideas. Click here for details.

Question: Did I miss anything? Any other market insight you’d like to add? What are you seeing out there? I’d love to hear your take.

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Making the numbers say what we want (and a Sacramento market update)

We can make numbers say whatever we want. We see this all the time in the media, politics, and even in real estate. Sometimes it’s a matter of intentionally fudging the numbers, but other times we might be honest about sharing something but actually still get it totally wrong. Today I want to highlight a real life example how we can end up saying something totally different about the market depending on the numbers we’re looking at. Whether you’re local or not, I hope you can take something away from this post. Then for those interested we’ll dive into a big Sacramento market update. Any thoughts? I’d love to hear your take.

Example 1: Sales price to list price ratio:

sold-vs-list-price-percentage-in-sacramento-county

The sales vs. list price percentage is the ratio between the sales price and whatever the most recent list price was before a property got into contract. For example, imagine a property listed at $100,000, was reduced to $98,000, and then went into contract at $98,000. The sales to list price would be 100% (98/98). If we look at this metric alone and see a county average of 100%, it looks like properties are selling for whatever they’re listed for. Woohoo, the market is hot!!!

Example 2: Sales price to ORIGINAL list price ratio:

sales-price-to-original-list-price-in-sacramento-county-by-sacramento-appraisal-blog

The sales to original list price ratio is the relationship between the original list price and the final sales price. For example, imagine a property listed at $100,000 but was reduced to $98,000, and then went into contract at $96,000. The sales to list price ratio would be 96% (96/100). This metric takes into account ALL price reductions, and in my mind tells a more fuller story of the market.

KEY QUESTION: Which one above does your CMA report?

BIG POINT: If we look at the sales price to list price ratio the market seems like it’s NOT softening. But if we take a deeper look at the sales price to ORIGINAL list price ratio, we see properties on average sold for 4% less than their original list price last month. This is definitely a more telling stat because it reminds us how many properties have been overpriced lately. Remember, there were nearly 1800 sales last month, so an average 4% decline is a big stat. But it’s easy to miss that if we don’t know what to look for and end up reporting the first stat above.

—-—–—– And here’s my big monthly market update  ———–—–

big-monthly-market-update-post-sacramento-appraisal-blog-image-purchased-from-123rfTwo ways to read the BIG POST:

  1. Scan the talking points and graphs quickly.
  2. Grab a cup of coffee and spend time digesting what is here.

DOWNLOAD 70 graphs HERE: Please download all graphs in this post (and more) here as a zip file. Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Quick Market Summary: The market feels like it should at this time of year. It’s taking slightly longer to sell than it was a couple of months ago, the sales to original list price ratio has been declining, and prices are softening as the hot summer fades away. This doesn’t mean the market is dull at every price range though. In fact, the bottom of the market under $300,000 is definitely more aggressive than properties above $500,000. Right now housing inventory is 11% lower than it was the same time last year and a whopping 35% lower than it was in 2014. If you remember, two years ago the market felt extremely dull and there were about 400 price reductions every day when logging in to MLS (this year price reductions are hovering around 200 tops every day (that’s for the entire MLS coverage area)). This reminds us some fall markets are softer than others. Sales volume this year has been about the same as it was last year, though it’s important to note FHA is down 6% and cash is down over 8% so far. Celebrity house flipping seminars are coming to town frequently in Sacramento, but keep in mind only 2% of all sales in the region last month were bank-owned, which reminds us low-priced fixer deals on MLS are pretty much a thing of the past. Lastly, there has been lots of talk about the market having shifted or beginning a downturn, but right now the stats look to be showing a normal seasonal slowing. We often hear things like, “the market is starting to tank”, but unless we see a real change in the stats or hear something more definitive from the real estate community about values declining, let’s be in tune with the slowing seasonal market. In case it’s useful, here is a video tutorial I did a couple of weeks ago to walk through the slowing season and what it looked like in 2005 also.

Sacramento County:

  1. The median price is 102% higher than it was in early 2012.
  2. Sales volume was up 8.5% this August compared to August 2015.
  3. There were only 4 sales under $100K last month (single family detached).
  4. Sales volume is up about 4% this year compared to last year.
  5. Housing inventory is 11% lower than the same time last year (only 1.57 months of inventory).
  6. FHA volume is down about 6% this year compared to 2015 (though they were 26% of all sales last month).
  7. Cash sales were only 14% of all sales last month.
  8. It took an average of 26 days to sell a home last month, which is 1 day less than the previous month (and 8 less days compared to last year).
  9. REOs were only 3% of all sales last month and short sales were 2.8%.
  10. The median price increased by 1% from last month, is down 3% from two months ago, and is up nearly 12% from last year at the same time.

Some of my Favorite Graphs this Month:

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

median-price-context-in-sacramento-county

median-price-since-2013-in-sacramento-county

price-metrics-since-2015-in-sacramento-county-look-at-all

inventory-august-2016-by-home-appraiser-blog

cdom-in-sacramento-county-by-sacramento-regional-appraisal-blog

sales-volume-in-sacramento-county-since-2012

SACRAMENTO REGIONAL MARKET:

  1. The median price is 98.5% higher than it was in early 2012.
  2. It took the same time to sell last month compared to the previous month (but 8 less days compared to August 2015).
  3. Sales volume is about the same as it was last year at the same time (very slightly more this year so far)
  4. Cash sales were 15% of all sales last month.
  5. Cash sales volume is 6.4% lower this year than last year.
  6. FHA sales were 22% of all sales last month.
  7. FHA sales volume is down nearly 7% this year so far.
  8. There is 1.77 months of housing supply in the region right now, which is over 13% lower than the same time last year.
  9. The median price increased last month, but it’s down from two months ago. The median price is up nearly 9% from last year at the same time. The average sales price and average price per sq ft are both up about 8% from last year too.
  10. REOs were only 2% of all sales last month and short sales were the same.

Some of my Favorite Regional Graphs:

median-price-sacramento-placer-yolo-el-dorado-county

regional-inventory-by-sacramento-regional-appraisal-blog

sacramento-region-volume-fha-and-conventional-by-appraiser-blog

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

number-of-listings-in-sacramento-regional-market

interest-rates-inventory-median-price-in-sacramento-regional-market-by-sacramento-appraisal-blog-market

number-of-listings-in-placer-yolo-el-dorado-sacramento-by-home-appraiser-blog

PLACER COUNTY:

  1. Today’s median price is 70% higher than it was in early 2012.
  2. It took 4 more days to sell a house last month than the previous month (but 6 less days than last year at the same time).
  3. Sales volume was down less than 1% in August 2016 compared to last August and is down slightly for the year about 3%.
  4. Both FHA sales were 16% and cash sales were 19% of all sales last month.
  5. There is 2.05 months of housing supply in Placer County right now, which is down nearly 13% from the same time last year.
  6. The median price declined about 1% from the previous month, but for a better context it’s up 7% from last year at the same time.
  7. The average price per sq ft was $214 last month (was $202 last year at the same time).
  8. The average sales price was $472K last month (up about 4% from last year).
  9. Bank owned sales were only 1% of all sales last month.
  10. Short sales were 2% of sales last month.

Some of my Favorite Placer County Graphs:

placer-county-median-price-since-2014-part-2-by-home-appraiser-blog

placer-county-housing-inventory-by-home-appraiser-blog

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

number-of-listings-in-placer-county-2016

days-on-market-in-placer-county-by-sacramento-appraisal-blog

placer-county-sales-volume-by-sacramento-appraisal-blog

DOWNLOAD 70 graphs HERE: Please download all graphs in this post (and more) here as a zip file. Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

how-to-think-like-an-appraiser-class-by-ryan-lundquistAppraisal Class I’m teaching: On September 29 from 9am-12pm I’m doing my favorite class at SAR called HOW TO THINK LIKE AN APPRAISER. This is a tremendous time where we’ll talk about seeing properties like an appraiser does. We’ll look at comp selection, using price per sq ft properly, and so many issues. My goal is to help you walk away glad you came and full of actionable ideas for business. Register here.

Question: Did I miss anything? Any other market insight you’d like to add? What are you seeing out there? I’d love to hear your take.

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

If the real estate market did shift…

The new buzz word in real estate is SHIFT. Everywhere I go I hear this word, and it seems like every other article is about a coming change in the market. Thus the question becomes, how would you recognize if the market did begin to shift? What signs would you look for? Let’s kick around some ideas below and I’d love to hear your take in the comments. Any thoughts?

change sign - purchased by sacramento appraisal blog by 123rf dot com

Key points when considering a market shift:

  1. Markets go up and down: Just like the stock market, gold, or any other commodity, at some point real estate values will go up and at some point they’ll go down. Bottom line.
  2. See it first in the listings: When the market does eventually “shift”, we’ll see the change in the listings before the sales. This means properties will begin to struggle to sell at the same level as the “comps”, which will lead to price declines. This underscores the importance of paying close attention to pendings and listings to see the current market. Granted, every year someone says, “the market is declining” when the fall season begins to unfold because values begin to soften. Just be aware there is a difference between a normal seasonal softening and a definitive declining trend.
  3. Word on the street: One of the ways we’ll know the market has changed is the real estate community will feel it in the number of offers, feedback from buyers and sellers, more credits being given to buyers, etc… We can always look at stats, but there is something powerful about the word on the street from real estate insiders.
  4. The previous peak: It’s always interesting to see how close or far prices are from their high point ten years ago, but there isn’t any rule that says prices have to get back to their height for a decline to happen.
  5. Watch higher & lower prices: The market isn’t always doing the same thing at every price range or in every neighborhood. When it comes to values declining, watch the top and bottom carefully because one of them might change direction before the other. Which one?
  6. Other metrics: I included an image below to talk through some of the metrics we might watch to know the market is softening. Again, these things all tend to happen during the fall months every year, but no matter what time of year we are not likely to get to full-fledged value declines without passing through a softening stage. Be sure to watch the sales to list price ratio too (I forgot to include that in the image).
  7. The power of lenders: Values have increased these past four years, but wage growth has been more or less stagnant. This means some buyers will now begin to struggle to afford higher prices. The temptation for lenders is to develop more creative financing to help buyers keep playing the game. Does anyone else think Kenny Loggins’ Highway to the Danger Zone would be good background music for this point?
  8. Future clients: This conversation can feel stressful for those who work in real estate because a change in the market can lead to a change in clients. Yet markets always change, so that’s something we can be prepared for, right? Blockbuster Video had a lucrative operation until they didn’t adapt to the way the internet changed the DVD rental landscape. When it comes to business we can spend so much time holding on to the way things have been that like Blockbuster we don’t take steps to adapt and position ourselves to be Redbox or Netflix so to speak. Here are two questions to continually ask: Who are you clients going to be in the future? What are your clients going to need in the next few years?

Signs of a soft market

I hope this was helpful.

Questions: What is point #9? What other metrics can we watch to see the market change? Anything I left out? I’d love to hear your take.

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