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Seven years of price increases & my blue kitchen island

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Let me get straight to it. I’m excited to share some new visuals. I’m geeking out because these new images help tell a compelling story of seven years of price increases. Whether you’re local or not, I hope you can dig these.

A FEW QUICK THINGS THIS WEEK:

1) Loan Limits: You probably heard conforming loan limits were raised for the third year in a row. This basically helps buyers continue to afford higher prices. I’m not saying that’s bad, but it would be nice if wage growth more than anything was helping people afford the market.

2) Sign the Petition for Appraisers: Last week I wrote about a move to start getting rid of appraisers. This is a big deal with huge implications for the housing market and future escrows. I co-wrote a petition through change.org and I want to ask you to please sign it. SIGN HERE.

3) Cool Graphing Link: On a lighter note, Freddie Mac launched a new graphing tool where you can make quick visuals and even compare different markets throughout the United States. Not every city is listed, but it’s worth checking out and getting lost for a few minutes.

4) My Blue Kitchen: I talked about blue being the rage in kitchens, and I guess my post inspired me. During Thanksgiving break I built a new kitchen island and we painted it blue. Woodworking is definitely a passion and it’s something I do to help keep my sanity. Anyway, this was a fun project and I wanted to share.

SEVEN YEARS ON ONE GRAPH (NEW VISUALS):

Here’s some images for four counties (Sacramento, Placer, Yolo, & El Dorado). What I like is we see price trends for seven years on one graph. It may take a moment to figure out how to digest these images, but look for changes in price and volume over time. So far people who have seen these have noted rising prices and definitely vanishing affordability. Keep in mind they don’t include most of December for 2018, and that could change the look slightly by next month. 

What do you see?

SACRAMENTO COUNTY:

SACRAMENTO REGION:

PLACER COUNTY:

EL DORADO COUNTY:

YOLO COUNTY:


SHARE THESE IMAGES: You are welcome to share any of these images in your newsletter, on social media, or on your blog, etc… See my sharing policy for details and 5 ways to share (please don’t copy my post verbatim).

I hope that was interesting or helpful.

Questions: What do think of these images? Which ones do you like best? Any suggestions for improvement? I’d love to hear your take.

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Would you be ready if the market did change?

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There’s so much talk about the market changing. It’s honestly hard to escape, right? But what if the market really did shift directions? Would you be ready for it? Today I want to share some things on my mind. This might seem off-topic, but hey, I’m a guy in business thinking through stuff like this.

The big mistake many companies make is the market changes, but they don’t evolve to be relevant for the future. This is why Sears filed for bankruptcy this week since they became a place consumers just didn’t want to shop beyond maybe appliances or tools. Likewise, Blockbuster video chose to focus their business around the idea that consumers would keep wanting to rent DVDs from a physical location instead of streaming online. In other words, Blockbuster held on to a business plan that worked well for the past instead of the future.

As I pay close attention to real estate trends, I find myself asking these questions. In fact, I’ve been asking them for years to stay on top of the market and hopefully keep my doors open.

QUESTIONS TO ASK:
Who are my clients going to be over the next few years?
What are my clients going to need from me?
What skills do I need to add to be ready for the future?
Who is coming to the market?
Who is leaving the market?
Who is going to be participating in the future market?
What steps do I need to take to position myself for the future?
Where can I meet future clients?

By the way, I’m not writing this post to say the market is collapsing, but only because with so much talk about change it would be unwise to not consider this.

ACTION STEP: Don’t wait for the future to come before asking the important questions. Remember, you can be successful in any market, but you have to try to think ahead of trends and be intentional about preparing for the future.

I hope this was helpful. Back to appraisal stuff next week.

Speaking Gigs: I’ll actually be talking about some of this stuff at AI’s 2018 Fall Conference in San Francisco & AppraiserFest in San Antonio.

Questions: What did you like most about Sears or Blockbuster? Any other questions to add to my list? I’d love to hear your take.

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An open letter to buyers worried about a housing bubble

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Dear Buyers-
 
There is growing concern about another housing bubble. What will the future hold? Is now a good time to buy or should you wait? Since I’ve been getting so many bubble emails lately, I wanted to offer some perspective and give you some things to think about. I hope this helps.
 
 
Timing the market perfectly: The truth is markets go up and down, and everyone wants to sell at the top and buy at the bottom, but so few actually pull that off. In fact, most of the time when I ask people if they bought on purpose in 2012 at the bottom they say, “Nope, I just got lucky.” This reminds us timing the market isn’t as easy as it sounds.
 
Riding down the market: If the market did crash, which neighborhood do you want to ride down the market in? This is a very relevant question that I heard last year from Mike Gobbi. Remember, the equity in our homes means very little unless we are taking money out or selling.
 
No bubble formula & real estate cycles: There is no formula for how a real estate bubble has to pop. For example, the median price in Sacramento County in 2005 was $392K and we’re about 10% lower than that right now. In short, it doesn’t mean the market will “pop” if we get back up to $392K. The same thing holds true for national metrics like the Case-Shiller index. Others say there is a 7-year cycle in real estate, but let’s remember the market does not have to behave a certain way every seven years. Granted, there is something to be said about a cycle, and it does feel like we are toward the higher end of a cycle, but it’s still a guess to say how much the market might change in the future.
 
 
Spotting bubbles: It seems easy to predict a real estate bubble, but it’s actually not. Freddie Mac has a thoughtful article called “The ‘B’ Word” that might be worth a read. I know, you might be thinking, “It’s so obvious we’re in another housing bubble because of how high prices are.” I get that, and it’s not that I deny prices are inflated because I think they are. But when people talk so definitively about the future of the market, I like to ask two questions: 1) When exactly is the bubble going to pop?; and 2) What is going to cause the pop?; In my mind it’s not enough to simply say the market is going to change in the future because that’s a very soft non-specific prediction. Of course it’s going to change.
 
False prophets: There are countless examples online of people saying the market was going to start declining in 2013, 2014, 2015, 2016, 2017, and now 2018 or 2019. It’s as if the prediction keeps getting pushed back when the market doesn’t pop. That alone ought to give us pause and evoke humility in our ability to predict the future. The irony though is if a person keeps making the same prediction every year, at some point that person could be right.
 
It does feel inflated: One of the reasons why many people feel concerned about the market is because we’ve seen expansive price growth that reminds us of the way the market felt from 2003 to 2007 in many parts of the country. Thankfully we haven’t seen growth like Bitcoin that’s up 1000%+ over the past year, but home prices are still much higher than they used to be. My big concern about the past five years is price growth is due in large part to investor activity, less new construction for a decade, and historically low interest rates – as opposed to the local job market and economy (for Sacramento at least). In short, there is less room to see prices rise without more wage and economic / job growth.
 
Different than 2005: Let’s remember the climate of today’s market is different from what it was in 2005 when unqualified buyers were given loans with adjustable rate mortgages. If you’ve tried to get a loan recently, you know it’s a different ballgame because lenders scrutinize your income and assets.
 
The power of lenders: Part of looking to the future is wondering how creative lenders will get with financing. If values did begin to soften at some point, lenders could easily compensate for that by offering more creative products to help buyers artificially afford higher prices (and therefore keep prices high). Sounds healthy, right? What lenders do is going to make all the difference. 
 

So should you buy right now? Honestly, that’s a personal issue and it would be presumptuous for me to answer for you. But I do have a few questions. Are you comfortable with the mortgage payment? If the market did correct in the future, would you still be okay with the payment? Does it make sense for your lifestyle to move? What do you think of all of the issues above?

Flipper & Appraiser Conversation: Last week I was on the Six Figure Flipper podcast. Here’s an hour-long conversation about flipping homes, choosing comps, and all sorts of things.

Questions: Anything to add to the conversation? What if anything concerns you about this current market? I’d love to hear your take.

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Smoking pricing crack, era charm, & blaming appraisers

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If you’re like me, you have many things racing through your mind. When it comes to real estate there is always so much to talk about, so today I wanted to mention a few topics I’ve been thinking of over the past week. Any thoughts? I’d love to hear your take. 

Smoking Pricing Crack: Did you see that listing in Waco Texas of the property that was rehabbed by Chip & JoAnna Gaines of the reality show Fixer Upper? It was purchased for $28,000 and now it’s listed for sale at $950,000. 

I’m not located in Waco obviously, but I have a feeling someone might be smoking pricing crack on this one so to speak. A quick glance at Realtor.com for listings priced at $1M in Waco shows us there are zero other 1000 sq ft 1-bedroom homes anywhere near this level. Thus let’s remember a lofty list price doesn’t necessarily have anything to do with real value. Often times prices like this are more about publicity than anything. This is true not just in Waco, but in every market in the country. However, we still have to ask, would the market pay more for a home that was rehabbed by reality stars? Or is it just the upgrades people are paying more for rather than who installed them? (Photo credit above: Realtor.com).

Era Charm: I recently appraised a house in an older neighborhood of Sacramento and ended up bringing the value in on the lower side of the competitive range. Why? Because the house lacked era charm that buyers tend to pay more for in the neighborhood.

Instead of the home having wood siding, wood flooring, and a “charming” vibe from yesteryear, it had stucco siding, cheap laminate flooring, and it stood out in a bad way because it didn’t look the same as other homes from the curb. This might sound like I’m being subjective, but the proof of a lower value was in the comps. I found a couple “vibe-less” sales and they definitely closed at a lower price tier. I also talked with the previous Listing Agent who had the home on the market before it was withdrawn. She confirmed one of the bigger issues with why the house did not sell was the lack of era charm. This is a good reminder that value doesn’t always increase just because there are newer “upgrades.” By the way, the photo above is not the house I appraised, but it’s one in Tahoe Park that sold recently from Realtor Lola Mouras (photo credit: MLS).

Blaming Appraisers: I saw an economist on Twitter recently suggest appraisers are holding back the housing market. I’m not mentioning this to call this person out or start an argument, but I wanted to pitch in some thoughts because it’s really easy to blame appraisers.   

The truth is appraisers don’t make markets move up or down. Appraisers are more like a ruler to measure the market rather than a gas pedal or brake pedal for real estate values. In other words, we’ve seen massive value increases over the past 5 years, but that’s not because appraisers have driven the market up. Some of the big value drivers have been historically low interest rates, an influx of cash investors, and a shrinking housing inventory. Or right now in Sacramento we are seeing more price reductions, so is a slowing market being caused by appraisers? Nope. The market usually begins to slow at this time of year. This is exactly why I love the multi-layered real estate cake analogy because there is a recognition the market is influenced by many different factors or “layers” so to speak. I’m not discounting the reality that massive appraisal fraud can play in a market, but only saying we have to remember there are huge forces at play that are so much bigger than what appraisers are doing.

Well, that’s what’s on my mind today. I hope everyone had an incredible 4th of July. Let’s make it a great rest of the summer now.

Questions: Would you pay more for a Chip & Jo house? How much do you think era charm really matters in real estate? Do you think appraisers are holding back the housing market? I’d love to hear your take.

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