Insane value increases (not really) and Facebook real estate trends

The market has been showing insane value increases. Well, on paper it looks that way, but in reality that’s not what we’re seeing right now. Let’s take a deep look at the market today and also consider real estate trends we can glean from Facebook statuses. This big monthly 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? 

Three real estate trends we can glean from Facebook:

1) Asking for inventory: I am seeing many posts from real estate agents saying, “I have buyers, but there aren’t any homes on the market”, or “Do you have any upcoming homes in XYZ city or neighborhood?”, or “There are only 11 listings in the entire zip code.” Even if we didn’t have actual numbers to show inventory is sparse, we could pick up on this reality by some of what we see on Facebook. This is a good reminder that data is not just about looking at sales. 

2) Asking for rentals: Many in the real estate community and the general public are asking for rental inventory on social media. There are so many posts from tenants needing to find a home or agents and loan officers asking on behalf of someone. A person I know recently posted about trying to rent a home in Roseville only to have to compete with 23 other contracts on one house.

3) Announcing price improvements: This market is “hot”, but buyers are not biting on absurdly overpriced listings. This is why we still see Facebook posts telling of price reductions or “price improvements” (a softer way of saying the same thing). You might think we wouldn’t see such a thing in a “crazy hot” market, but we do.

4) What is #4?

———————- big monthly market update below ———————-

DOWNLOAD 70 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:

Last month values increased no matter how we look at it. The median price, average sales price, and average price per sq ft all increased in Sacramento County, Placer County, and the region. This isn’t a surprise though because it’s what tends to happen in the spring. The mistake we can easily make though is to look at the median price rising nearly 5% last month and say things like, “Values increased by 5%.” Thus if we’re not careful we might claim values are increasing rapidly when in reality they simply got back to where they were at the height of summer before a lull in the fall.

While the market is said to be “hot” in the “Farm to Fork Capital of America”, let’s still remember the market is not doing the same thing at every price level. Inventory is incredibly sparse under $400,000, and that is putting tremendous pressure on values to increase, but in some higher price ranges and neighborhoods the market feels a bit flat. Yes, there are multiple offers on about anything that is priced right, but still we have to not confuse the aggressive feel of the market with rapid appreciation. In short, at the moment we are not seeing the type of rapid appreciation we had in 2013 at the height of the glory days of Blackstone. In all of this let’s remember too we’ve had value increases without much wage growth. Let’s keep rooting for wages and the economy to drive the market instead of anemic inventory and low interest rates. 

Lastly, let’s remember the bulk of listings in 2016 hit the market between April and August, so my advice to buyers is to keep waiting for inventory to come (many buyers are feeling hopeless). I would advise sellers to price according to other properties that are actually getting into contract too instead of sensational real estate headlines.

SACRAMENTO COUNTY:

  1. The median price increased to $323,500 (8.2% above February 2016).
  2. The median price rose 6% last month, but values were basically getting back to summer after a lull in the fall, so this doesn’t mean values increased by 6% in one month.
  3. Sales volume in February 2017 was just about 1% higher than last year.
  4. It took an average of 44 days to sell a home last month (one year ago in February 2016 it was taking 2 days longer to sell).
  5. It took two days longer to sell in February compared to January (next month we should see stats show less days on market as spring unfolds).
  6. FHA sales volume is down 6% this year compared to 2016 (but roughly 25% of all sales were FHA last month).
  7. Only 3.8% of all sales were bank-owned and 2.3% were short sales.
  8. The average price per sq ft was about $204 last month (about 2% higher than January, but 8% higher than last year).
  9. The average sales price increased about 2.5% last month and is currently $348,892. This is 7.7% 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

price metrics since 2015 in sacramento county - look at all

inventory in sacramento county Since 2008 - by sacramento appraisal blog

inventory - February 2017 - by home appraiser blog

CDOM in Sacramento County - by Sacramento Regional Appraisal Blog

sales volume in Sacramento County since 2012

january seasonal market in sacramento - 2

SACRAMENTO REGIONAL MARKET:

  1. The median price increased to $355,600 (7.7% above February 2016).
  2. The median price rose 4.8% last month, but values were basically getting back to summer after a lull in the fall, so this doesn’t mean values increased by 4.8% in one month.
  3. Sales volume in February 2017 was about 2% higher than last year. Sales volume in the region is up nearly 3% this year so far.
  4. It took an average of 48 days to sell a home last month (one year ago in February 2016 it was taking 3 days longer to sell).
  5. It took one day longer to sell in February compared to January (next month we should see stats show less days on market as spring unfolds).
  6. FHA sales volume is down 6.7% this year compared to 2016 (but roughly 22% of all sales were FHA last month).
  7. Only 3.4% of all sales were bank-owned and 2.5% were short sales.
  8. The average price per sq ft was about $210 last month (about 1% higher than January, but 7% higher than last year).
  9. The average sales price increased about 2% last month and is currently $387,105. This is 4.3% higher than last year.
  10. Cash sales were 16% of all sales last month.

Some of my favorite images this month:

Regional Inventory - by Sacramento regional appraisal blog

inventory in sacramento regional market

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

sacramento region volume - FHA and conventional - by appraiser blog

median price and inventory in sacramento regional market 2014

Regional market median price - by home appraiser blog

PLACER COUNTY:

  1. The median price increased to $435,000 (4.8% above February 2016).
  2. The median price rose 2.5% last month, but values were basically getting back to summer after a lull in the fall, so this doesn’t mean values increased by 2.5% in one month.
  3. Sales volume in February 2017 was about 9% higher than last year.
  4. It took an average of 51 days to sell a home last month (one year ago in February 2016 it was taking 7 days longer to sell).
  5. It took 1 less day to sell in February compared to January.
  6. FHA sales volume is down 12.6% this year compared to 2016 (but roughly 17% of all sales were FHA last month).
  7. Only 2.5% of all sales were bank-owned and 3.1% were short sales.
  8. The average price per sq ft was about $219 last month (about 3.9% higher than January and 4.8% higher than last February).
  9. The average sales price increased about 2.4% last month and is currently $478,589. This is 3.5% higher than last year.
  10. Cash sales were 16.5% of all sales last month.

Some of my favorite images this month:

days on market in placer county by sacramento appraisal blog months of housing inventory in placer county by sacramento appraisal blog 2 Placer County price and inventory - by sacramento appraisal blog Placer County sales volume - by sacramento appraisal blog

interest rates inventory median price in placer county by sacramento appraisal blog

DOWNLOAD 70 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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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.

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

Trends to watch in real estate in 2017

What’s the real estate market going to do this year? I thought it would be worthwhile to consider some of the emerging trends to watch in 2017 in Sacramento and beyond. What do you think? I’d love to hear your take in the comments.

real-estate-market-in-2017-sacramento-appraisal-blog

1) Bubble conversations: This year we are going to have even more real estate “bubble” conversations. We’ll hear things like, “The bubble is going to pop in 2017”, or “Get ready for 2007 again”, or “It’s all going to crumble after this year.” As these conversations ensue, my advice is to sift through the headlines, pay close attention to actual data, know the limitations of your ability to predict the future, and be in tune with the way the seasonal market tends to behave so you can spot anything out-of-the-ordinary.

2) Creative lending: As interest rates presumably rise in coming time, it will make mortgages more expensive (duh). This won’t matter for some buyers because they have the money to afford the market, but others will need an extra edge to keep up with higher prices. This is where lenders can loosen up financing options so they continue to close deals and make as much money as possible (sounds healthy, right?). Keep in mind President-Elect Trump is talking about repealing Dodd-Frank too, and that could create waves in the market if it actually happened. 

values-in-real-estate-sacramento-appraisal-blog-image-purchased-and-used-with-permission-from-123rf3) Housing inventory remains low: There isn’t any quick fix for anemic housing inventory, so we can expect to see another year of low inventory unless something drastic happens causing sellers to list their homes. That brings me to share something I talked about last month. In a video John Wake talks about San Francisco values and how sellers tend to wait to list their homes when values are increasing. The thought is, why list now when values are going to be higher next year? But then when values do eventually turn there can be a flood of houses hit the market as a “race to the exit”. That’s something to keep in mind.

4) Marijuana: It can be polarizing to talk about marijuana, but it’s definitely a market force since it is now legal in California for recreational use. Over the next year many cities and counties will be fine-tuning rules for grow operations, so be on the lookout for details. By no means am I glorifying marijuana, but I will be talking about it in coming years because it’s a force bound to impact real estate values. 

5) Smart homes: With the advent of Amazon Echo and Google Home, consumers can now say things like, “Alexa, set the sprinklers for 7am tomorrow morning” or “Okay Google, turn the temperature to 68 degrees.” The huge popularity of these devices during the holiday season will only mean millions more households are now going to be making their homes more digitally connected.

finding-cheap-properties-image-purchased-by-sacramento-appraisal-blog-from-123rt-dot-com6) Disappearance of the $100,000 market: There is definitely upward value pressure on the lowest end of the price spectrum. Other price ranges last year were much more flat, but not so much with the lowest prices in town. This year in Sacramento we are going to very likely see the disappearance of the market under $100,000. Each month lately we’ve had maybe 6-12 sales under $100,000 for single family detached homes, and after the next few quarters I expect that number might be down to zero. We shall see though.

7) Home flipping courses: There will be no shortage of “learn to flip” courses coming to a city near you. Friends, be very cautious about paying anyone to teach you “secrets” you can probably get for free online. You can read my open letter to celebrity flippers for more thoughts.

8) Custom woodworking: I’ve been seeing more and more custom woodworking in homes. I don’t mean really high-end craftsmanship per se, but rather the cool DIY stuff you might see on Pinterest or a show like Fixer Upper. I’m seeing more wood walls, large wood slabs, custom exterior wood accents on the exterior, etc…. As a dabbling woodworker, this makes me smile.

9) More agents will enter the market: When values increase and positive real estate news saturates the market, it tends to compel people to enter the real estate profession. So last month’s headline that Sacramento will be one of the “hottest market in the nation” in 2017 very likely sealed the deal for a number of folks on the fence about getting into real estate. 

real-estate-contracts-multiple-offers-in-sacramento-appraisal-blog10) Multiple offers: We are likely to continue to see a climate of multiple offers in the Sacramento area. In a market like this I would advise sellers to be realistic about pricing their homes properly. What have similar homes actually sold for? What is similar and getting into contract right now? It’s easy to cherry-pick the highest non-similar sales in the neighborhood because “the market is hot”, but we have to remember similar homes are the “comps” appraisers are going to use (key point). At the end of the day appraisers have to support the value, so it may be best to be reasonable on the front end rather than run into all sorts of “appraisal issues” because the property got into contract too high. Remember, just because housing inventory is low does not mean you can command whatever price you want. That may have been more true in early 2013, but it’s not true right now.

11) The 2-4 unit market is heating up: These days in many areas it seems like the market is heating up with some surprisingly high prices again for 2-4 unit properties. Values were subdued for years after the housing crash, but news of increasing rents is certainly part of what’s helping drive 2-4 unit prices up. I’ve also observed some Bay Area buyers wanting to park money in Sacramento and overpay. Sometimes unrealistic cap rates are being used to justify value too (more on that in a few weeks maybe).

12) Appraisal waivers: Last month Fannie Mae rolled out an appraisal waiver program. They say this program is only for refinances, but it’s a pretty good guess we’re going to see some purchases waived too. On one hand this program can help offset slower turn-times by appraisers lately, but on the negative side of things it can lead to inflating values too. In short, let’s watch this closely and not forget important safeguards in real estate (like appraisers).

BONUS: This is a quick (well, 12 minutes) walk through what it looks like to see the seasonal trend in real estate and what it was like when values began to decline in 2005. With so much “bubble” talk these days, it’s critical to be able to cut through any hype, focus on data, and be able to spot seasonal trends (and non-seasonal trends). Watch below (or here):

I hope that was helpful or interesting.

Questions: What else do you think will be important in 2017? Did I miss something? I’d love to hear your take.

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An open letter about celebrity flipping seminars

Dear Public,

Last week I got an invite to a celebrity flipping seminar. That’s right, I can go learn how to flip houses from Tarek & Christina, the stars of HGTV’s Flip or Flop. Being that this is the second celebrity event to come to town this year, let’s talk about some of the dangers of these events and the real temperature of the flipping market. Please note: I’m not angry. I’m not a hater. I’m not jealous. I only want to give thoughtful commentary for the sake of others.

Celebrity flipping event HGTV Sacramento Appraisal Blog

Some things to know about these events:

  1. The reality stars won’t be there: This may come as a surprise, but the stars are not likely going to be there unless you consider a video appearance as being present.
  2. The goal is to make money off you: The event is designed to whet your appetite only to invite you to go deeper by paying for courses. From the reading I’ve done it sounds like the next step costs $1,000 to $2,000, but some students end up spending far more over time ($5000+ easily). The event will feel good and you’ll probably be inspired, but make no mistake the real goal is to get you to open your wallet.
  3. Flipping formulas don’t work everywhere: There is no such thing as a flipping model that will work in every location and every type of housing market in the United States, yet this event is being hosted in many cities and states. Moreover, it may be wise to be cautious about listening to a company coming from the outside, knowing far less about the local market, and using a celebrity’s star power to talk about flipping.
  4. It’s no longer a foreclosure market: The market used to be full of bank-owned properties, so it used to be much easier to buy low-priced homes to make a quick buck. For example, in 2009 over 70% of all sales in Sacramento County were bank-owned, but now that number is 3%.
  5. Experienced investors are struggling to find good deals: This event touts attendees will “gain insider access to private pre-auction real estate inventories.” Keep in mind even seasoned investors are struggling to find good deals right now because housing inventory is sparse and the foreclosure market dried up. Just last week I talked with an investor who was once easily in the top 10 in my market a few years ago, but is having a hard time finding deals lately. This doesn’t mean flipping is impossible, but it’s currently a really competitive market. That might be good to know before forking out thousands of dollars so you can “retire rich”, right?
  6. More skill is required: Today’s market in flipping is much different than it used to be. A friend on Twitter said it perfectly: “The anybody flip market has dried up. It’s a contractors-special flip market now. Serious add-value needed.” I agree with this as today’s flippers often need to add square footage, add a second bath, maybe do a more substantial kitchen remodel, etc… It’s often not just a matter of picking up a property, putting on some “lipstick”, and re-listing it. The rules have simply changed since the “foreclosure flood” ended. In short, it takes more skill to flip in today’s market.

My advice? Be careful. We all want financial freedom, but you could easily spend thousands of dollars on these seminars to obtain “secret flipping knowledge” (that you can probably get for free). If you want to get into flipping I suggest meeting investors in your local market and scouring the forums on BiggerPockets.com for free flipping advice.

I hope this was helpful.

Sincerely,

Ryan

Questions: What is your favorite HGTV show? Did I leave anything out? What point resonates with you the most? If you’ve attended an event like this, was it valuable? If you are currently flipping properties, what advice would you give to a newbie? Any suggestions for places to meet local investors?

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