10 things to know about low housing inventory

Inventory is low. Really low. That’s one of the big stories right now in real estate, so I wanted to spend some time kicking around some thoughts. Let’s take a look at ten things to know about housing supply in Sacramento. If you aren’t local, I hope you can still find some value. Do you see any parallels to your market? Any thoughts? 

DOWNLOAD 50 graphs HERE: Please download new market graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

10 THINGS TO KNOW ABOUT LOW HOUSING INVENTORY

1) Housing inventory is clearly on a declining trend.

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

Housing supply has been vanishing over the past few years in light of greater buyer demand, sellers sitting instead of selling, less new construction, increasing sales volume, and other reasons.

2) Housing supply is really sparse (except at the top).

inventory - March 2017 - by home appraiser blog

Housing supply was low last year, but this year it’s 15-20% lower. Having less listings means it’s really competitive for buyers – especially under $400,000. However, inventory is not low at every price range as there are far more listings at the top. Before freaking out though, this is actually a normal trend we see almost every single month. But the disparity between under $500,000 and above $1,000,000 is striking. As an FYI, it’s worth noting the top of the market does feel a bit soft.

3) Inventory is still not as low as the Blackstone days.

inventory in sacramento county Since 2011 - by sacramento appraisal blog

It’s true that inventory is anemic, but we have to remember during 2012 and 2013 it was at one month for nearly an entire year when Blackstone and other investors were gutting the market. I mention this because while the market has an aggressive feel, it’s still not what it was. If inventory persists in declining though it will be a bloodbath in terms of competition for buyers (good for sellers though as a developer mentioned to me on Twitter). 

4) Inventory was 1400% higher ten years ago during the “bubble”.

inventory in sacramento county Since 2007 - by sacramento appraisal blog

Ten years ago during the worst of the real estate “bubble” popping we had a 14-month supply of homes for sale (as opposed to one month now).

5) Bank-owned inventory is not a driving factor today.

REOs and Short Sales Sacramento County - by Sac Appraisal Blog

Eight years ago over 70% of all sales in Sacramento County were REOs, but that number is now about 3%. Some folks promise a new “foreclosure wave”, but it’s definitely not here right now.

6) Low inventory is putting pressure on values to increase.

Median price since 2013 in sacramento county

Declining inventory over the past few years is a big factor in rising prices. Right now values are about where they were at the height of last summer (or slightly higher) after a lull in the fall in many neighborhoods in Sacramento County. But let’s not make the mistake to think the market is doing the same thing everywhere. The truth is in some areas increases have been modest at best over the past year while some price ranges feel flat, but the bottom of the market is hands-down experiencing the largest increases. Remember, in some price ranges the market feels more aggressive than actual value increases too, so it’s really important to sift through emotions, look at actual numbers, and not overprice because the market is “hot”. A good mantra for some areas is “Aggressive Demand, Modest Appreciation.”

7) Strong demand is a huge reason why inventory is declining:

price metrics since 2014 in sacramento county

Demand is strong right now for both buying and renting, and buyers and tenants are simply gobbling up almost anything out there (I say “almost” because buyers are still sensitive about adverse locations and overpriced homes). Thus it’s not surprising to see the median price is 7% higher than last year, the average sales price is 9% higher, and the average price per sq ft is about 9% higher. Prices increases from February to March were anywhere from 1-3% depending on the metric (this doesn’t mean values went up by 1-3% though). 

8) Increasing sales volume is one reason for lower inventory.

Cash in Q1 - by Sacramento Regional Appraisal Blog

Housing inventory is the relationship between sales and listings, so if there are more sales and no real change in the number of listings it will naturally mean inventory as a metric will show a decline. Look at the graph above to see all sales since 2013 for the first quarter of the year. Can you see how sales volume is increasing? At the same time we see cash volume declining. This reminds us the market is trying to figure out what normal looks like. It’s healthy to see sales volume growing.

9) Low interest rates have helped take homes off the market.

Interest Rates Since 2008

Historically low interest rates have played a big role in shaping inventory in that some owners are sitting on a 3.5% interest rate from years ago and they are simply not going to move unless necessary. Why would they anyway if their replacement home would come with a much higher mortgage? This means there are fewer homes hitting the market that might otherwise sell.

10) Low inventory is causing homes to sell faster.

CDOM in Sacramento County - by Sacramento Regional Appraisal Blog

Last year it was taking 5 days longer to sell a home and two years ago in March 2015 it was taking 15 days longer to sell a home. Can you see how low inventory makes a difference in how long it takes to sell? By the way, here is CDOM by price range. As you can see, the higher the price the longer it takes to sell. Just because it is a “hot” market does not mean every property is selling in 3 days.

BIG MONTHLY POST NOTE: Once a month I do a big market update (and it’s long purpose). Normally I talk about Placer County and the Sac Region too, but I tore my MCL a few weeks back, so I only had time to focus on Sacramento County in today’s post. Next month I’ll likely be back to normal (but I may change it up too).

DOWNLOAD 50 graphs HERE: Please download new market graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: Did I miss anything? Any other thoughts as to why inventory is low? How would you describe the market right now? I’d love to hear your take.

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

Seeing the real estate market without numbers (and a big Sacramento update)

It’s not just about the numbers. Like many, I’m a huge fan of getting deep into real estate stats, but the truth is there are so many other ways to sniff out what the market is doing. Thus I’ve created a list of some of the things on my radar lately that help say something about the temperature of the market. Then for those interested, let’s crunch some numbers with my big monthly Sacramento market update. I’d love to hear your take. Any thoughts?

How to see the market moving - image purchased and used with permission from 123rf - Sacramento Appraisal Blog

Ways to see the real estate market without numbers:

  1. Facebook Posts: I can’t tell you how many posts I’ve seen lately saying, “Hey, my friend needs to rent a house. Anyone have something?” Seeing an increasing number of posts like this on Facebook or Nextdoor.com is definitely a symptom of rising rents and scarce inventory.
  2. Celebrity Flipping Seminars: Last week an HGTV flipping couple hosted a 4-day “how to flip” seminar in Sacramento, and this week a different “guru” is coming to town. If anything, this tells us the market for flipping has passed.
  3. Riskier Loans: As more lower-down payment loan products hit the market, it reminds us buyers need more options to afford higher prices.
  4. Sacramento Kings vs. Market - jokeSacramento Kings Wins: Here is an image to show the relationship between an NBA team winning and the housing market. Okay, there really isn’t a connection, but it almost looks like there is (you can make numbers say whatever you want).
  5. Less Property Tax Appeals: As the market has improved, assessment appeals have declined every year since 2008 in Sacramento County. Right now home owners are enjoying equity again and they’re hardly paying attention to their property tax bills. Here is an image to back that up.
  6. More Divorces: As the housing market has rebounded, it seems there are more divorces. I’ll admit stats are tricky in that some sources say divorces are increasing and others say they are not. It may be my personal experience, but I’ve done more divorce appraisals these past 2-3 years than I have in the previous ten years.
  7. Builders Being Less Cooperative: I’ve heard from several agents lately about local builders being less cooperative with agents representing buyers. That’s fairly normal for builders of course, though being less cooperative is certainly a luxury afforded by a market with tight inventory too. In other words, if the market had three times the housing supply, conversations might go differently at the sales office.
  8. The word “shift”: There is so much emphasis right now on the market shifting or maybe doing so in coming time. When the real estate community uses terms like shift, change, correction, or bubble, it can sometimes highlight what the market is doing (or at least what is on the mind of the real estate community).

Question: What is #9? I’d love to hear in the comments below. By the way, scroll to the bottom if you want to see some of my recent woodworking projects.

—————– For those interested, here is my big 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 (or send me an email). 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: Yep, the stats show the market has been increasing. This doesn’t mean every single price range or neighborhood is going up in value, but county and regional data are definitely showing that trend overall. One of the bigger narratives is that housing inventory is still down by 15% in the region compared to last year. Sales volume has been up slightly for the year and it took 6 less days to sell last month compared to the previous month. For context, last year at the same time it was taking an average of 8 days longer to sell. This reminds us the market has been more competitive this year compared to last year, though don’t take that to mean value increases have been extremely aggressive. Last month the median price increased by nearly 2% in the region, and the average price per sq ft increased by 2.5%. Overall most value stats are up a good 8-10% since last year, though remember it’s not the same market as it was in 2005 when we’d say, “My house went up by $10,000 last month.” It’s still important to price correctly unless you want to sit instead of sell.

Sacramento County:

  1. It took an average of 27 days to sell a home last month, which is 4 days less than the previous month.
  2. The sales to list price ratio was 100% last month.
  3. It took 8 less days to sell this May compared to last May.
  4. Sales volume was up nearly 4% in May 2016 from May 2015.
  5. There is only 1.35 months of housing supply in Sacramento County.
  6. Housing inventory is 22% lower than it was last year at the same time.
  7. The median price increased by 3% last month.
  8. The median price is 9.6% higher than the same time last year.
  9. The avg price per sq ft increased by 1.8% last month.
  10. The avg price per sq ft is 9.9% higher than the same time last year.

Some of my Favorite Graphs this Month:

Median price since 2013 in sacramento county

monthly inventory is sacramento county since 2001 - by sacramento appraisal blog

inventory - May 2016 - by home appraiser blog

CDOM in Sacramento County - by Sacramento Regional Appraisal Blog

price metrics since 2015 in sacramento county - look at all

market in sacramento - sacramento appraisal group

SACRAMENTO REGIONAL MARKET:

  1. It took 6 less days to sell last month compared to the previous month.
  2. It took 8 less days to sell this May compared to last May.
  3. The sales to list price ratio was 99% in the region last month.
  4. Short sales and REOs were both 3% of sales last month.
  5. There is 1.6 months of housing supply in the region right now.
  6. Housing inventory is 15.6% lower than it was last year at the same time.
  7. The median price increased 1.7% last month from the previous month.
  8. The median price is 6.8% higher than the same time last year.
  9. The avg price per sq ft increased 2.5% last month.
  10. The avg price per sq ft is 8.4% higher than the same time last year.

Some of my Favorite Regional Graphs:

median price sacramento placer yolo el dorado county

sacramento region volume - FHA and conventional - by appraiser blog

sales volume 2015 vs 2016 in 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

median price and inventory in sacramento regional market

Regional market median price - by home appraiser blog

PLACER COUNTY:

  1. It took 2 less days to sell a house last month than April.
  2. It took 1 less day to sell this May compared to last May.
  3. Sales volume was up 3% in May 2016 compared to last May.
  4. FHA sales were 16% of all sales last month.
  5. Cash sales were 17% of all sales last month.
  6. There is 1.84 months of housing supply in Placer County right now.
  7. Housing inventory is 12.4% lower than it was last year at the same time.
  8. The median price is about the same as it was the previous month.
  9. The median price is up 7% from May 2015.
  10. Short sales were 2.1% and REOs were 1.7% of sales last month.

Some of my Favorite Placer County Graphs:

number of listings in PLACER county - 2016

Placer County sales volume - by sacramento appraisal blog

months of housing inventory in placer county by sacramento appraisal blog

Placer County price and inventory - by sacramento appraisal blog

days on market in placer county by sacramento appraisal blog

Placer County housing inventory - by home appraiser blog

I hope this was helpful and interesting.

My Latest Woodworking: By the way, I know this post has been ridiculously long already (on purpose since it’s my big monthly market update), but here are some of my recent woodworking projects. If you didn’t know, I like to tinker and create.

Ryan woodworking 2

Ryan woodworking 1

DOWNLOAD 70 graphs HERE: Please download all graphs in this post (and more) here as a zip file (or send me an email). 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.

Question: Any other market insight you’d like to add? I’d love to hear your take.

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

Advice for an increasing real estate market (and Sacramento trends)

When the market is flat, it’s easy to impress clients and look like a guru because of how accurate your values are. But when inventory shrinks, demand is off-the-hook, and the market shifts, it’s not always easy to nail value because things can change quickly in a short period of time. In light of the market increasing in value lately in many areas of the country, I thought it would be useful to offer some quick advice for dealing with increases. Then at the bottom of the post I have my ridiculously long Sacramento market update. I’d love to hear your take. Any thoughts?

increasing market advice for agents and appraisers - sacramento regional appraisal blog

Advice for Agents: When values are increasing, it’s crucial to pay careful attention when pulling comps before a listing. The tricky part in a “hot” market is it can be possible to get into contract at much higher levels than what is reasonable, so in a sense the agent has to really spend time weighing what a realistic value looks like before the listing hits the market. Keep in mind a lender’s appraiser is going to need to come up with a value that is supported by market data, reasonable for the neighborhood, and representative of the market. It’s easy to say, “The market is ‘hot’ and inventory is low, so I priced it higher,” but there really has to be support for the higher value. I recommend asking yourself the following questions and then talking clients through the answers.

  1. Is there support for value at the list price? (sales, pendings, listings, data)
  2. Is the list price reasonable? Does it make sense for the neighborhood?
  3. Would the market pay this price or would only one buyer pay this amount?

Advice for Appraisers: In an increasing market appraisers need to spend time figuring out how much the market has changed in recent time. In other words, if there has been upward value movement since the most recent sales got into contract, it could be very reasonable to give upward market adjustments to the comps. I suggest paying careful attention to competitive pendings, making market graphs in each report to help see the market, and keep an eye on competitive neighborhoods too in case data is sparse in the subject neighborhood. Lastly, let’s remember value increases might look more aggressive in some areas than others, so adjustments won’t look the same in every neighborhood or price range. Moreover, a typical canned market adjustment might be 1% per month (because that’s what a mentor taught us to do), but that might not be legit at all (like most canned adjustments). What does the market say? Let’s do our best to listen and then adjust if needed.

Questions: Any thoughts? What other advice would you give?

—————– For those interested, here is my big 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 77 graphs HERE: Please download all graphs in this post (and more) here as a zip file (or send me an email). 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 has been showing value increases. Whether looking at the median price, average price, or average price per sq ft, all the numbers sound “hot” so to speak. This isn’t a surprise though because it’s what normally happens in April. It’s worth noting it took 8 less days to sell last month compared to the same time last year, and the median price is up in the region by nearly 8% from last April. FHA sales were roughly 25% of all sales last month in Sacramento County, though they are down slightly from 27-28% of the market in past quarters (this is a stat worth watching over time). Sales volume for the entire year is down slightly, but not by much. In short, the stats are glowing overall because there has been upward growth with most metrics. However, buyers are still exhibiting price sensitivity. If properties are not priced correctly they are sitting instead of selling. Moreover, under the umbrella of a “hot market”, some sellers are simply pricing WAY too high for the market. They hear the word “hot”, but that doesn’t mean you can sell for anything. Lastly, just because the market has increased in value in some neighborhoods and the entire county doesn’t mean values are increasing for every property type or in every price range.

Sacramento County:

  1. It took an average of 31 days to sell a home last month.
  2. It took 6 less days to sell last month that the previous month.
  3. It took 11 less days to sell this April compared to last April.
  4. Sales volume is down slightly from last year by 3%.
  5. There is only 1.3 months of housing supply in Sacramento County.
  6. Housing inventory is 15% lower than it was last year at the same time.
  7. The median price increased by 1% last month.
  8. The median price is 10% higher than the same time last year.
  9. The avg price per sq ft increased by 2.8% last month.
  10. The avg price per sq ft is 8.8% higher than the same time last year.

Some of my Favorite Graphs this Month:

inventory - April 2016 - by home appraiser blog

CDOM in Sacramento County - by Sacramento Regional Appraisal Blog

Median price since 2013 in sacramento county

price metrics since 2015 in sacramento county - look at all

median price and inventory since 2005 - by sacramento appraisal blog

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

fha and cash in sac county - sacramento appraisal blog

seasonal market in sacramento county sales volume 2

SACRAMENTO REGIONAL MARKET:

  1. It took 6 less days to sell last month compared to the previous month.
  2. It took 8 less days to sell this April compared to last April.
  3. Sales volume was 4.6% lower in April 2016 compared to last April.
  4. Short sales were 3% and REOs were 3% of sales last month.
  5. There is 1.6 months of housing supply in the region right now.
  6. Housing inventory is 9.5% lower than it was last year at the same time.
  7. The median price increased 3% last month from the previous month.
  8. The median price is 7.7% higher than the same time last year.
  9. The avg price per sq ft increased 2.5% last month.
  10. The avg price per sq ft is 6% higher than the same time last year.

Some of my Favorite Regional Graphs:

median price sacramento placer yolo el dorado county

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

sacramento region volume - FHA and conventional - by appraiser blog

Regional Inventory - by Sacramento regional appraisal blog

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

median price and inventory in sacramento regional market

PLACER COUNTY:

  1. It took 6 less days to sell a house last month than March.
  2. It took 2 less days to sell this April compared to last April.
  3. Sales volume was 6% lower in April 2016 compared to last April.
  4. FHA sales were 17% of all sales last month.
  5. Cash sales were 21% of all sales last month.
  6. There is 1.8 months of housing supply in Placer County right now.
  7. Housing inventory is 6.7% lower than it was last year at the same time.
  8. The median price increased 5.6% last month (take with a grain of salt).
  9. The median price is up 9.2% from April 2015.
  10. Short sales were 2.7% and REOs were 1% of sales last month.

Some of my Favorite Placer County Graphs:

days on market in placer county by sacramento appraisal 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

Placer County price and inventory - by sacramento appraisal blog

Placer County sales volume - by sacramento appraisal blog

I hope this was helpful and interesting.

DOWNLOAD 77 graphs HERE: Please download all graphs in this post (and more) here as a zip file (or send me an email). 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.

SacBee: By the way, the second article I wrote for the SacBee real estate section went live. It’s called “One size does not fit all when talking about the housing market.”

Questions: Any advice you’d give to clients right now about pricing? Is there any other market insight you’d like to add? I’d love to hear your take.

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

The big deal about rising rents in real estate

Values have been rising and so have rents. Across the country we’ve been hearing of rent increases in many cities (including Sacramento). Why does this matter? If you work in real estate, how do you plan to communicate this trend to clients? Let’s talk through some key points. I’d love to hear your take in the comments.

rising rents in sacramento - by greater sacramento area appraisal blog

Things to keep in mind about rising rents:

  1. Low Inventory: Rents are rising in large part due to low inventory. There has been population growth over the past decade, but very few new housing units have been built since the housing “bubble” burst. This essentially means we have a shortage of housing units. Keep in mind this isn’t an easy issue to solve since building a large number of units won’t happen overnight.
  2. Squeezed Savings for Tenants: Wage growth has been more or less stagnant in the Sacramento area at least, which means rent increases are coming directly out of a tenant’s savings account. Remember, if a tenant is saving up to buy a house, it’s going to now take longer to make that happen.
  3. Investors Holding: There are investors enjoying higher rents, and many will hold on to their properties for now instead of selling. Unless an investor is looking to diversify outside of real estate, an investor’s money is probably parked well right where it is. After all, why would an investor trade in great rentals only to buy something else at a much higher price today (and get the same rent)?
  4. Investors Selling: Not everyone is going to hold on to their properties though. There are many investors who purchased at lower prices from 2009 to 2012 especially, and it’s now time for them to cash out. Quite a few investors are actually selling directly to their tenants off MLS (agents, be there to write up the contract and help guide the process).
  5. Old Numbers: When rents rise quickly, sometimes the rents we see published online from a few quarters ago are simply old. Just like with rising values in the resale market, we have to ask whether the rental market has changed since the most recent data was published. Ultimately it’s important to look to a number of sources to get fresh numbers. Here are some suggestions: Craigslist, Hot Pads, Zilpy, Rent-O-Meter, & Zillow.
  6. Not Every Neighborhood: Like any trend, it’s easy to hear “rents are rising” and think that applies everywhere. Let’s remember some rental markets are hotter than others though. Apartment rents are said to have increased 10% last year in Sacramento and are projected to increase by another 10% this year. A similar dynamic is happening with single family units too, though NOT in every neighborhood.

I hope that was helpful.

Rental Event: By the way, I am helping put together a “Show Me The Money” event at SAR about the rental market. On May 18th from 12-1:30pm a property manager will talk through rental trends and give tips to agents for turning tenants into buyers. This is hosted by the Housing Opportunity Committee (which I chair this year).

Questions: What is point #7? Did I miss anything? What source do you use for rental data?

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