One big reason why the market has felt sluggish

Why has sales volume been down? Let me give you a hint. It’s green, sometimes crisp, has presidential branding, swooped in to boost the real estate market for two years, and there has been less of it lately. Bingo. You guessed it. The decline of cash sales so far in 2014 is one of the big factors causing sluggish sales in the Sacramento market as a whole. Take a look below. Any thoughts?

cash sales in sacramento county 2013 and 2014 - by sacramento appraisal blog

Unpacking the Trends: Total sales volume is down by over 20% this year compared to last year, but let’s unpack a few numbers to really understand what is happening. When looking at all non-cash sales, volume in 2014 is only down by about 4% from where it was at the beginning of 2013. Granted, volume is down very significantly though from years prior to 2013, but let’s focus on these past two years. When looking at all cash sales, there are literally less than half as many during the beginning of 2013 compared to the beginning of 2014 (595 less cash sales to be precise). Having this many fewer cash deals effectively means the rest of the market has been adjusting to such a big change after a very aggressive season of cash buying. Escrows have seemed to take longer, there are more FHA offers, sellers are offering credits to buyers and inventory has naturally seen an uptick because of the lack of cash. In short, the market has been trying to figure out how to cope now that cash has normalized. Cash of course is not the only force driving values, but we are definitely feeling its absence this year. It’s simply a different market, don’t you think?

wright reportBy the way, some bathroom reading for you:

The Wright Report: This is the most exhaustive quarterly real estate report I know of in Sacramento. The latest edition covers the last half of 2013. I contributed a couple pages to the report and talked about how there was one real estate market last year, but two chapters. You can read the report online or visit Joel Wright’s site (You can DOWNLOAD directly from Slideshare, which is what I recommend).

Question: How is having less cash investors impacting the market?

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A few trends to watch in Sacramento’s real estate market

How is the real estate market doing? That’s actually a loaded question. I shared about median price and inventory the other day, so let’s touch on some other trends today – distressed sales, cash and FHA. Real estate has many different layers of value, so it’s important to watch the market closely to be able to speak with authority about what is happening and also be a great resource to clients.

A Market Facts Download: First off, here is an image I made that recaps some stats from 2013. Feel free to use it on your blog, Facebook or wherever. You can link back to me if you wish. Click on the image below (or here) to view and save a larger file so you can re-size as needed. Or download a PDF here.

2013-Real-Estate-Recap-Sacramento-County-530

For reference, the graphs below are based on all single family detached homes in Sacramento County. These are quarterly trend graphs, but the short stem at the end of the trend line represents the month of January. Any thoughts?

foreclosures and short sales in sacramento county by sacramento appraisal blog

The Bank-Owned Lowdown: Foreclosures have seen an uptick recently. There have definitely been more REOs hitting the market. yet at the same time the past three months have actually seen VERY few sales, so a small spike in foreclosures should be taken with a grain of salt. Assuming there are more sales in coming months, we’ll then have a better context for interpreting this trend. Short sales continue to hover around 10% of all sales. Is it just me, or have there been some really low-priced short sales lately?

fha sales in sacramento county by sacramento appraisal blog

FHA Digging Deeper: FHA purchases have continued to increase. The vanishing of cash investors over the past two quarters has hands-down given more space for FHA buyers to dig deeper roots in the market. Last year FHA offers became less attractive in the midst of so many cash and conventional offers, but this year looks to be different. If you’re not in tune with FHA appraisal guidelines and minimum property standards, spend a few minutes looking over my FHA article library to get you up to speed. By the way, the percentage of conventional buyers has also increased lately.

cash sales in sacramento county by sacramento appraisal blog

cash and fha sales under 200K in sacramento county by sacramento appraisal blog

cash and fha sales in sacramento county by sacramento appraisal blog

Waving Goodbye to Cash: There was a slight uptick with cash sales in January, but with so few sales last month (lowest amount of sales in six years) it’s best to wait two months to see if this is a developing trend or not. Overall cash has decreased by about 15% through the course of the year. The market in 2013 was dominated by cash, but we’re now in a different market.

Share the Graphs: As always, you can use these images unaltered in your newsletter, on social media sites or blog posts (just link back). See my sharing policy for more details about 5 different ways to share my content. Or if you need a quote for a blog post you’re writing, let me know.

Question: Any stories, thoughts or questions? Feel free to comment below.

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Kissing the real estate honeymoon goodbye

honeymoon in real estateThe honeymoon is over. That’s right. The real estate market in 2013 felt like a honeymoon because it was full of glittery optimism, sensational news headlines and the sweet aroma of a quick recovery. Just as a honeymoon in real life comes to an end, we all knew such rapid appreciation was not sustainable, inventory could not be that low forever and interest rates wouldn’t endlessly hover at historically low levels either. Of course this doesn’t mean the market is not still ripe for positive growth, but only that this year probably won’t feel as good as last year.

The Sacramento real estate market in 2013 was really driven in large part by massive amounts of cash buyers, abnormally low inventory and ridiculously low interest rates. Now that housing inventory and interest rates are beginning to increase, and investors are backing off, I expect the market in 2014 will be much slower and more sensitive to the local economy (so long as these trends persist and the government does not interfere).

Trends in 30 seconds or 3 minutes: Let’s take a look at some trends to get a visual picture of where we have been. You can probably scan these in 30 seconds or take a few minutes to digest them. Your call. Sacramento market trends - graph by Sacramento real estate appraiserHousing inventory decreased last month below 2 months of supply, which is understandable in light of the holidays and colder weather. Otherwise inventory has been flirting with 2.5 months. I said above that the real estate “honeymoon” is over, but keep in mind inventory is still very low, which means there is still room for some growth ahead (though I do not believe we will see the same rapid appreciation like we did last year since the market is different this time around in terms of inventory, interest rates and cash investors). The median price in December saw a slight uptick from November, but overall is still hovering around the $250,000 range as it has been for about six months. Can you see why people are saying the market is flat?Sacramento market trends - graph by Sacramento home appraiserHere is a broader picture of median price and inventory. Current values are tending to resemble values in both 2003 and 2007/2008.

Sacramento market trends numbe rof houses sold since 2008 - graph by Sacramento home appraiserSales were sparse for the second month in a row as there were only 1217 single family detached sales in Sacramento County in December. It is normal in colder months to see less sales.

Sacramento market trends unemployment and median price - graph by Sacramento home appraiser

Sacramento market trends unemployment and median price since 2008 - graph by Sacramento home appraiserThe jobless rate is thankfully going down in Sacramento County, but 8.1% is still not a pretty statistic. Can I be a resounding gong by saying we need more JOBS, JOBS & JOBS?

sacramento real estate trends - by sacramento home appraiser - 3

Here are a few important metrics on one graph. I’ll share some different versions of this graph in coming days. I like this one because it’s a reminder of how the market works. Real estate is not just about supply and demand, but a whole host of layers working together.

Cash Sales in Sacramento County - graph by Sacramento home appraiser

Cash FHA Sales in Sacramento County - graph by Sacramento home appraiser

Cash & FHA Sales under 200K in Sacramento County - graph by Sacramento home appraiser

Overall cash sales have continued to decline while FHA sales have increased. In fact, there are now more FHA sales than cash sales in Sacramento County, which hasn’t happened in almost two years. At this time last year there were multiple offers on every single property, but these days that is becoming less common. The market is ultimately normalizing as inventory increases, which is leading to buyers generally having more power to negotiate. It is still a Seller’s market, but buyers are gaining ground.

Foreclosures and Short Sales in Sacramento County - graph by Sacramento house appraiser

Foreclosures have basically hit the bottom and short sales have persisted to decline too. There has been a 1% increase in foreclosures over the past quarter. At the same time it’s also important to realize inventory and the number of sales have been really low (which can skew stats).

The Final Word: The glorious “honeymoon” of 2013 may be over, but most analysts are still projecting mild appreciation in 2014. Moreover, the Sacramento market is still in a place where there is pent-up demand, so there is still room for growth. All indicators point toward a less-rapid market this year since the fundamentals seem to be poised to deliver just that. However, anything can happen. If inventory was still at one month or dropped that low again, this would be a different post. On a related note, I still think what Blackstone and other investors do is an X-factor. If they decide to ramp up their efforts and buy a few thousand local properties again, we should get ready for a second “honeymoon” in 2014.

Question: Any thoughts, insight or stories to share? I’d love to hear your take.

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5 things to know about cash sales in Sacramento

Everyone has been saying cash investors are leaving the market in Sacramento. Yes, there has been noticeably less cash being spent lately. Here are five things to know about cash sales in Sacramento County.

  1. Half of cash sales in Sacramento County are under $200,000.
  2. Cash sales are down about 14% since Q1 2013 in the entire county.
  3. Cash sales under $200,000 have decreased by about 13% since Q1 2013.
  4. About 22% of all sales this quarter in the county have been cash purchases.
  5. Roughly 37% of all sales under $200K this quarter have been cash buyers.

cash sales under 200K in Sacramento County - by Sacramento Appraisal Blog

Right now cash sales are at a level close to when the market hit bottom in early 2012 for under $200,000 and even before for the entire county. Things have really begun to shift over the past two quarters, haven’t they?

cash investors in sacramento real estate - by Sacramento Appraisal Blog

This chart shows where cash is being spent in the Sacramento market. As you can see, the bulk of cash sales are under $200,000, but there is still a healthy dose of cash between 200-300K. These numbers of course only show the total percentage of cash sales, so it’s important to realize this doesn’t address how much competition there is in the market. For instance 73% of all sales under 100K have been cash purchases and 35% of all sales between 100-200K have been cash. This helps us see there is vastly more competition under 100K than above. Stats like this are important because they give insight into the appetite investors right now, and they can even help establish a plan for which price segments to focus on.

Questions: Any thoughts, insight or stories to share? I’d love to hear your take.

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