Big demand and the force of FHA in Sacramento’s housing market

Big demand. Big FHA. Let’s talk the latest housing trends in Sacramento. If you’re local, my goal is to give you 10 quick talking points to share with clients. If you’re not local, what are you seeing in your area?

Two ways to read my big monthly market post:

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

star-wars-real-estate-photo-by-sacramento-appraisal-blog-530

One Paragraph to Describe the Sacramento Market: This year the market feels much stronger than it did last year at the same time. Values have not skyrocketed like they did a few years ago, but there has been somewhat of a desperation among buyers to get into contract before interest rates and/or values rise much more. This has made for an environment where multiple offers have been commonplace (at least for properties that are priced correctly and in average condition). Housing inventory did increase slightly last month, and we are starting to see slightly more price reductions, but demand is still “off the charts” in that pendings are a good 20% higher than one year ago. Regional prices have seen an uptick these past few months, and sales volume is 7% higher so far this year compared to last year. We all know low interest rates and sparse inventory have been driving the market, but having such a huge percentage of escrows going FHA has also boosted sales figures. Remember that many FHA buyers are not putting much “skin in the game” so to speak, and at times they tend to offer more than anyone else to get a contract accepted. Being that 25% of all sales in the Sacramento region were FHA last month (and 29% in Sacramento County), this definitely creates more competition at certain price ranges and makes housing stats look more impressive. As housing inventory presumably begins to increase over the next few months (as it did last year), watch out for price reductions, unrealistic expectations from sellers, and buyers gaining more power.

DOWNLOAD 51 graphs HERE (zip file): 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.

Sacramento Regional Trends for May 2015 (Sac, Placer, Yolo, El Dorado):

  1. The median price in the Sacramento Region is $333,250.
  2. The median price is 7.5% higher than one year ago (May 2014).
  3. Sales volume is up 7.3% so far in 2015 compared to the beginning of 2014 (January through May).
  4. It took an average of 38 days to sell a house last month (44 days in April).
  5. Cash sales were 15.6% of all sales last month.
  6. FHA sales were 25.4% of all sales in the region last month.
  7. Sales volume was 7% higher this May compared to last May.
  8. There is 1.9 months of housing inventory (2.2 months in May 2014).
  9. The average sales price is $368,525 (7.5% higher than last year).
  10. It took 14 less days to sell a house this May compared to May 2014.

median price and inventory in sacramento placer yolo el dorado county

fha and other sales in sacramento placer yolo el dorado county

volume cash and conventional in region by sacramento appraisal blog

months of housing inventory in region by sacramento appraisal blog

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

Sacramento County Market Trends for May 2015:

  1. The median price in Sacramento County is $289,950.
  2. The median price is 7% higher than one year ago (May 2014).
  3. It took an average of 35 days to sell a house last month (42 in April).
  4. Cash sales were only 15% of all sales last month.
  5. FHA sales were 29% of all sales in Sacramento County last month.
  6. Sales volume is 5.7% higher this May compared to last May.
  7. There is 1.7 months of housing inventory (2.0 months last May).
  8. The average price per sq ft is 183 (13% higher than last May).
  9. The average sales price is $317,000 (7.5% higher than last year).
  10. It took 12 days shorter to sell a house this May compared to May 2014.

Median price and inventory since 2011 by sacramento appraisal blog - with median figures

price metrics since 2014 in sacramento county

months of housing inventory by sacramento appraisal blog

CDOM in Sacramento County - by Sacramento Appraisal Blog

sales volume in May in Sacramento County since 2008 Interest Rates Since 2008

Placer County Market Trends for May 2015:

  1. The median price in Placer County is $400,000.
  2. The median price is 5.3% higher than one year ago (May 2014).
  3. It took 38 days on average to sell a house last month.
  4. Cash sales were 15.8% of all sales last month.
  5. FHA sales were 21.5% of all sales in Placer County last month.
  6. Sales volume was 9.8% higher this May compared to last May.
  7. There is 2.1 months of housing inventory (2.5 months last May).
  8. The average price per sq ft is 201.
  9. The average sales price is $445,218 (5.7% higher than May 2014).
  10. It took 16 days shorter to sell a house this May compared to last.

Placer County median price since 2012 - by home appraiser blog

months of housing inventory in placer county by sacramento appraisal blog

days on market in placer county by sacramento appraisal blog

number of listings in PLACER county - May 2015 - by home appraiser blog

Placer County sales volume - by sacramento appraisal blog

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

I hope this was helpful. Thank you so much for being here.

DOWNLOAD 51 graphs HERE (zip file): 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.

My New Office & the Desk I Built: By the way, I wanted to share some exciting news. I’m in the process of building a new home office since I recently moved to Carmichael. By this time next week my office should theoretically be finished, but for now here is a desk I built out of reclaimed wood last week. It’s a beastly 12′ long, and it’s designed for two work stations.

The desk I built

Questions: How do you think sellers and buyers are feeling about the market right now? What are you seeing out there?

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The market continues to cool in Sacramento

The market is cooling, and that’s normal to see at this time of year. Yet beyond the expected chill of the season, the market as a whole is still clearly slowing down to become a buyer’s market. Let’s take a quick look today at real estate trends in Sacramento County so we can better understand what values are doing, and how to talk to clients about the market (don’t miss my 5 tips at the bottom). I’ll have a post on Tuesday to discuss the regional market and Placer County. Remember, you can use some of the graphs in your marketing too (see my sharing policy).

Two ways to read this post:

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

GRAPHS

(I was getting spam from the form, so email me)

1)  The median price dipped about 2% last month:

median price and inventory since 2013 - by sacramento appraisal blog

The median price declined from $270,000 to $265,000 from October to November in Sacramento County. Remember, it’s normal to see prices cool during this season, and the graph below helps illustrate that. Yet at the same time the overall market is definitely slowing regardless of the season.

median price in fall - by sacramento appraisal blog

2)  The median price is 33% lower than it was at the TOP of the market:

context for median price since the real estate bubble by sacramento appraisal blog

Since the bubble burst by sacramento appraisal blog

Let’s get some context. The median price hit its peak in Sacramento County in August 2005 at $395,000, and now it’s about 33% lower at $265,000. It’s hard to imagine prices were that high, but at the time buyers were willing to buy at those levels.

3)  Prices overall are softening

price metrics since 2014 in sacramento county

It’s important to look not just at the median price, but other metrics such as average price per sq ft and average sales price. This helps us get a stronger sense of the trends of the market so we don’t put too much weight on one metric.

price metrics since 2012 in sacramento county

4) Inventory increased to 2.75 months last month.

inventory in sacramento county  Since 2011 - by sacramento appraisal blog

Housing inventory increased  from 2.47 months to 2.75 months from October to November. This seems like a dramatic increase, but remember that inventory is the relationship between the number of sales last month and the number of current listings. Sales volume was REALLY low last month, so it’s natural to see inventory see an uptick. Having 2.75 months of housing inventory means there are 2.75 months worth of houses for sale right now (active listings).

months of housing inventory by sacramento appraisal blogGenerally speaking, the higher the price, the more inventory there is. Knowing what the market is doing at various price ranges can help us better market or value properties. The market doesn’t behave the same at every price level.

inventory in sacramento county - by sacramento appraisal blog

BIG POINT: The market has ultimately become much more sensitive to increases in inventory in recent years, so what happens with inventory in coming months will help set the stage for next year.

inventory during fall 2 - by sacramento appraisal blog

5) Sales volume was sluggish in November (lowest November in 7 years):

sales volume in Sacramento County since 2001

We had a slow November. In fact, sales volume in November hasn’t been this low since November 2007. Granted, volume this year was only down by 4% from November 2013, but it’s still important to note when volume is sluggish.

sales volume in fall through 2014 - by sacramento appraisal blog

Remember that sales volume always declines in the Fall months. This is part of the normal real estate cycle, and we see this every year. However, the decline in sales volume was slightly higher this past month than normal. Volume usually declines by about 15% from October to November, but this year was 22%. This isn’t something to write home about because it’s only one month of data. It’s simply important to explain what happened.

6) Cash sales are down 40% in Sacramento County in 2014:

cash sales and volume in sacramento county - by home appraiser blog

Cash sales since 2009 in Sacramento County by sacramento appraisal blog

Sales volume is down by 8.5% in 2014 compared with 2013. When we break down the numbers in Sacramento County, this means there have essentially been 1336 less sales this year compared to last year. The chief culprit in lower sales volume is the fact of 40% less cash sales in 2014 compared to 2013. Cash sales represented only 17% of all sales last month, which is far lower than 36% of all sales less than two years ago. This is great news for conventional, VA, and FHA buyers in that there is now more space to get into contract. Furthermore, non-cash sales are about 4% higher in volume this year compared to last year, which is also good news.

7) FHA sales were 25% of all sales last month (buyers are gaining power):

FHA and cash sales since 2009 in Sacramento County by sacramento appraisal blog

The market is still fairly competitive out there, especially for well-priced listings in good condition, but overall buyers continue to gain an edge in the market. One out of ever four buyers in Sacramento County last month used FHA financing. As you can see in the graph above, as cash declines, FHA has increased (conventional and VA are also increasing). Moreover, the market used to be about 33% FHA, so there is still some room for FHA to take an even greater share of the market.

8) It’s taking an average of 45 days to sell a house in Sacramento:

CDOM in Sacramento County - by Sacramento Appraisal Blog

It took an average of 45 days to sell a home in Sacramento County last month (that’s the same as the previous month). As you can see above, the market doesn’t behave the same in every price range. Generally speaking, the higher the price, the longer it takes to sell. There were only 5 sales above $1M last month, and they sold very quickly. For reference, current listings above $1M have been on the market for an average of 119 days. Take stats below $100K and above $1M with a grain of salt since data is limited in both price segments.

9) Distressed sales are only 5% of the entire market:

REOs and Short Sales since the bottom in Sacramento County

The market hit bottom in early 2012, and since then both REO sales (bank-owned) and short sales have seen a dramatic decline. The market simply is not driven by distressed sales any longer. In fact, only 5% of all sales last month were REOs and 6% were short sales. Investors did a great job buying up the distressed market over the past couple of years, and banks have likely done a better job with loan modifications too. Some say there is a “foreclosure wave” coming, but friends, people have been saying that for 6 years. When looking at the stats, there is a slight uptick in foreclosures this year in terms of volume, but it’s more like a rain drop rather than a wave.

10) There are many layers to the housing market

layers of the market sacramento county since 2001 - by sacramento appraisal blog layers of the market sacramento county since 2008 - by sacramento appraisal blog layers of the market sacramento county since 2011 - by sacramento appraisal blog

These are some of my favorite graphs because they help show that the market is made up of many layers. Housing trends are never just about supply and demand, but interest rates, the job market, cash investors, the economy, buyer confidence, availability of financing, etc…

Conclusion: The market is experiencing a normal Fall seasonal dip, yet at the same time the market as a whole is definitely cooling. Interest rates have seen a decline lately, which helps buyers gain more power in the market to a certain extent, but increasing inventory is the trump card in that higher inventory carries the most weight to drive values these days in Sacramento.

5 Quick Tips for Real Estate Agents:

  1. Price Correctly: Houses that are priced right are selling, but overpriced homes are sitting. The market is still very price sensitive, meaning buyers will pull the trigger quickly when the price is right.
  2. Current Listings: Remember to price according to the most current listings that are actually getting into contract. Of course you’ll want to pay attention to sales, but remember that sales are historical documents in that they tell us what the market used to be like whenever the sales got into contract. Today’s market might have softer prices compared to six months ago, so that’s why current pendings (and listings) can sometimes help give us a better temperature of what the market is like right now.
  3. Concessions & Credits: As inventory increases, buyers in some price ranges are going to be asking sellers for more credits for repairs and/or concessions in the purchase price. Preparing your sellers for this reality is important. Also, remember to be cautious about padding the price with concessions beyond what it can appraise for.
  4. Know FHA Standards: One in four sales were FHA last month, so it makes it all the more important to be in tune with what it takes for a property to meet minimum FHA appraisal standards. On a side note, if you do not know where a carbon monoxide detector should be installed, read here.
  5. Being a “Short Sale Specialist”: There are still short sales happening, but keep in mind only 6% of all sales last month were short sales (which translates to 64 short sales in November in the entire county). It’s still somewhat relevant for your website and business card to say “Short Sale Specialist”, but keep in mind there are lots of agents out there to service this limited pool of sellers. Consider marketing to sellers who have equity again and to buyers who went through a foreclosure or short sale several years ago and can now re-enter the market (these buyers are called “Boomerang Buyers”).

I hope this was helpful. Thank you so much for being here.

Sharing Trends with your Clients? If you want to share graphs online or in your newsletter, please see my sharing policy. Thank you for sharing.

Questions: How else would you describe the market? What are you seeing out there?

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