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rapid price growth

Rapid price growth & the Gilmore Girls next door

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It’s unbelievable to see how much prices have risen lately. Today I want to share one quick visual to show you exactly what I mean. Then I have a couple photos to share based on a conversation my wife and I had about the Gilmore Girls.

BIG POINT: The median price is about $40,000 higher than it should be.

RAPID APPRECIATION: This visual helps show the median price rhythm throughout the year. Normally we see prices go up for about half the year and then they soften during the second half of the year. Well, 2020 was abnormal because there was an uncharacteristic price dip in April (beginning of the pandemic) and then prices basically went up in the fall instead of softening like they should have. In short, if we had a normal year in 2020 it looks like the median price should have been closer to $445,000 for January 2021, but it’s now $485,000 (orange line).

Crazy growth, right?

IT’S THE GILMORE GIRLS NEXT DOOR

The other day I was walking with my wife and we were admiring a brand new contemporary listing in the middle of an older neighborhood (Fair Oaks Village). Then when seeing a Craftsman home on the adjacent lot, my wife said, “Look, it’s the Gilmore Girls next door.” This made me laugh because she doesn’t work in real estate, but she clearly recognized the contrast in design.

Here is a brand new contemporary listing in an older neighborhood.

The contemporary home is located next to much older homes.

SOME QUICK TAKEAWAYS:

1) Gilmore Girls: First off, sorry if you don’t get the Gilmore Girls reference. My wife has been streaming this show over the past few years, so I know quite a bit about it (don’t judge me). Anyway, this show is about twenty years old and it took place in a fictitious town called Stars Hollow. This town is older and has many Victorian homes, which is why my wife made the comment she did. By the way, Sebastian Bach, the lead singer of Skid Row (80s hairband), was actually an actor on the Gilmore Girls.

2) Eclectic neighborhoods: Some areas are eclectic, which means it’s completely normal to have a variety of housing designs. Thus it’s acceptable to see brand new contemporary units mixed in with stuff one hundred years old. It’s like vintage and new coexist and people are good with it.

3) Contemporary vs modern: The words “modern” and “contemporary” are often used interchangeably, but there is actually a difference. Here is a Houzz article if you want to read more (and maybe still feel confused). This blog post is also worth reading and maybe a little easier to understand. In truth I was torn whether to call this home contemporary or not, but I went with contemporary because it seems to blend some styles. Let me know what you’d call it.

4) The principle of conformity: There is an idea in real estate that homes ought to generally conform to the design of surrounding units in order to maximize value. In other words, when a home is so different it could lead to a lower value because it will stand out like a sore thumb. In many cases we accept this as a market fact, but it’s really not true all the time. For instance, in Fair Oaks Village there are many different types of units and the market embraces the diversity. Also, in Midtown we see a variety of newer modern units mixed in with Victorians and buyers are okay with that. Obviously in a cookie cutter stucco box tract it could be awkward to see something else, so it’s possible in some situations to see a negative reaction to different architectural types that just don’t fit. All I’m saying is it’s easy to assume a property takes a hit to value because it’s different, but that might not always the case.

I hope that was interesting or helpful.

Questions: Does someone in your household watch Gilmore Girls? What’s happening in your area with price growth?

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Why your home isn’t worth 16% more today

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Home prices have been massive lately, but there is an asterisk. It’s easy to look at glowing stats and say, “Dude, prices are up 16%, so my house is worth 16% more.” But lofty county or regional price stats don’t always show up the same in a neighborhood. Let’s talk about this.

TWO REASONS WHY PRICES ARE SO HIGH ON PAPER:

1) The top & bottom: There have been more sales at the top of the market and fewer sales at the bottom. In fact, when comparing the past four months this year with last year, we’ve seen 20% fewer sales under $400,000 and 75% more sales above $750,000. Here is a brand new visual to show the change in various price ranges. If you’re not in Sacramento, is this happening in your area too?

The effect: Having a big change in volume at the lowest prices and a hefty change at the top has simply boosted price metrics. Thus on paper price stats are really high compared to last year, but when pulling comps in a neighborhood we don’t always see anywhere close to this sort of explosive growth. 

Here’s another way to look at the same data:

2) Larger homes: I’ve mentioned this before and I’m not trying to beat the dead horse, but during the pandemic buyers have been purchasing noticeably larger homes over the past four months. Do you see the spike? In short, having larger homes has boosted price stats, so when talking about growth it’s good to remember that part of the reason for higher prices is due to larger homes selling more often. 

The takeaway: There is no mistaking the market has increased in value quite a bit this year. I’m not saying it hasn’t. I’m just saying if we’re not careful it’s easy to get infatuated with lofty regional price stats which can sometimes blur our vision for a neighborhood market. My advice? Know why the numbers are the way they are and focus on comps instead of county or zip code stats. Moreover, don’t expect the market to be the same temperature with every location, price range, or property type.

I hope that was interesting or helpful.

Questions: Have you seen some neighborhoods where prices have risen greatly and others where growth is more subdued? Did I miss anything? Any stories to share?

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