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Is the housing market starting to slow?

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Is this crazy housing market slowing? Let’s talk about that today. On one hand stats are basically at all-time highs, but when we look deeper we’re starting to see some subtle signs of slowing. What are you seeing out there?

QUICK SUMMARY: The market is still bananas, but we’re seeing some slight slowing. Stats could change in coming weeks and months, but for now the best available information suggests a slightly slower trend. And I’m not saying the market is dull, so save your hate mail. It’s more like housing was driving 135 mph and now it’s driving 127 mph. 

Some subtle examples of slowing:

1) It’s taking slightly longer to sell: It May it took only six days to sell (median) in the Sacramento region while pendings over the past four weeks took seven days to get into contract (median).

2) Fewer multiple offers: In May we saw the number of multiple offers slough by 6% as seen in the graph below. We are still basically at all-time high levels, but the percentage of multiple offers is slightly lower than it was.

3) Buyers paid slightly less above asking: In May buyers paid an average of $20,975 above asking price while in April they paid $22,247. This is a very minor difference that I’m honestly hesitant to talk about because we’ll have to revise May stats in a few weeks once more sales get added into MLS. So it’s possible this stat in May could change. Though right now the best available market stats show buyers paid slightly less above contract price in May compared to April.

4) Lower sales to original list price ratio: In May buyers paid an average of 103.3% above the original list price compared to 103.8% in April. Okay, this is even closer than the example in number three, so again, I’m reluctant to post this – especially since we’ll need to refresh this number when more May sales are counted. But for now it’s something to watch. Keep in mind the number in April at nearly 104% was literally the highest amount ever above the original list price, so 103.3% is telling of an incredibly competitive market.

5) Word on the street: I’m hearing from real estate agents that they’re seeing slightly fewer offers and having slightly fewer showings. This is mostly anecdotal and of course subjective to whatever sliver of the market an agent is working, but it’s something to consider.

CLOSING ADVICE:

a) Know the seasonal market: Each year around this time in a normal year we start to see the real estate market slow and this image shows some of the things we can watch. Remember, prices could keep going up in coming time, but prices reflect pending contracts from the past, so being on the cutting edge of the trend in a market has more to do with watching other stuff before the trend eventually catches up to prices. 

UPDATE: I just wanted to say I fully expect prices to increase in June and who knows how much longer. We are definitely still in an increasing market to say the least. I know it seems ludicrous to be talking about slowing in the midst of such insane competition. But this is exactly the conversation to have because let’s watch all the little things instead of getting overly distracted by the bling of sexy price stats. Know what I’m saying?

b) Don’t misread this post: The market is still 100% on steroids, so I’m hoping people don’t walk away thinking, “Ryan said the market was dull.” Nope. Also, the market is not crashing, so be cautious about painting what looks like normal seasonal slowing with a doom and gloom brush. Buyers, you’re still going to have to make aggressive offers. But sellers, stay in touch because even though you have an incredible amount of power, you did lose just a little recently.

c) The x-factor of mortgage rates: If mortgage rates dip below 3% again it could easily change the speed and trajectory of the market.

d) Be careful of rose-colored lenses: It’s easy in real estate to only speak in ultra positive terms about the housing market. But markets change temperature all the time and we have to be real about the trends because buyers and sellers need good advice for the market that actually exists. My advice? Let the stats form your perspective and narrative. Don’t get trapped into thinking you need to speak in hyper-positive language either to be successful in real estate.

e) Say something different if the temperature changes: If the market speeds up in coming months and we don’t end up seeing seasonal slowing, then that’s what we need to say. The best we can do at any given moment is interpret the stats in front of us and let that shape what we say. So for now it looks like we’re seeing some slowing. What does the future hold? We’ll see.

MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.

APRIL TO MAY: How has the market changed recently? Take a look at the April to May visuals below.

Prices in Placer tend to bounce around month to month because there aren’t that many sales. Take these with a grain of salt.

NOTE ON PRICE GROWTH: Last year the market was dull at the beginning of the pandemic and there was a slump in sales and even prices – which tends to inflate the numbers this year. My advice? Take the percentages with a grain of salt. I think it’s likely better to focus on price metrics generally being up about 20-23% or so rather than fixating on pandemic percentages at 25-30%.

Thanks for being here.

SHARING POLICY: You can share my stats and visuals above, but please attribute the source. Here are 6 ways to share my content (not copy verbatim).

Questions: Are you seeing any slowing at all? What is the market like in the trenches right now? I’d love to hear your take.

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Bad real estate advice & blue bathrooms

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There’s no shortage of bad real estate advice out there. Today let’s look at a few common examples and talk through Zillow’s recent claim that blue bathrooms add $5,400 in value. Any thoughts? I’d love to hear your take.

Common bad real estate value advice:

1) Solar Salesman: “You will get $20,000 in value if you buy this $20,000 solar system. Buyers always pay for the full cost of the system in the resale market”

2) Enclosed Patio Contractor: “This 400 sq ft enclosed patio will definitely add 400 extra sq ft of living area to your home when you sell it.” 

3) Energy Salesman: “If you do these energy upgrades for $28,000, you’ll get $28,000 back in value. There won’t be any trouble selling your home after going through the PACE program either.” 

4) Landscaper: “Studies show doing $2,000 of landscaping will yield about $10,000 in value.”

5) Zillow’s Blue Bathroom: “Homes with blue bathrooms sell for $5,400 more than expected.”

What other examples can you think of?

Thoughts on Zillow’s blue bathroom:

Zillow put out a press release last week stating, “Homes with blue bathrooms, often found in hues of powder blue or light periwinkle, sold for $5,400 more than expected.” Thanks Jonathan Miller for writing about this. A few thoughts:

a) False hope: Consumers hear they can increase their value by $5,400, so they think they can just buy a gallon of paint for $30 and make some huge profit. As Jonathan Miller said, “The consumer absorbs the results as gospel without challenge.”

b) Location: Which market would this idea of blue paint apply? Is it true in Portland, Sacramento, Birmingham, and Baton Rouge? Is it equally true at $200,000 as well as $900,000? Was it true when the market was collapsing in 2007 or is it only true right now? How long will it continue to be true? 

c) Buyer Behavior: When we hear such precise value claims, let’s take a step back and ask if buyers actually behave that way. Have you ever met a buyer who said, “Oh snap, that blue is on point. I’m gonna pay $5,400 more for this house now”? Probably not. To be fair we all know color does make a difference for value. Yet making such a precise value claim at $5,400 ironically doesn’t line up with how buyers tend to behave in real life.

d) Multiple factors: There are so many factors when it comes to a house selling at a certain price. Maybe the blue paint is part of the package, but what if it’s also the condition, remodeled kitchen, refinished wood floors, landscaping, updated bathrooms, location, garage size, multiple fireplaces, school district, built-in pool, etc… Maybe it’s just me, but isolating only one inexpensive factor and attributing a large value boost seems like a stretch.

My advice? Be careful when individuals without local real estate expertise start giving you specific value advice. Of course their advice might be spot on, but sometimes people say things in order to get a contract signed. Also, be wary of general stats because they might not make any sense for the local real estate market or for every property type (or market). Lastly, before doing something significant to your home, you might consider finding trustworthy real estate professionals in your local market who can help give advice or steer you in the right direction.

I hope this was interesting or helpful.

Questions: What other examples of bad real estate advice can you think of? What do you think of studies that make specific value claims? Anything else to add? I’d love to hear your take.

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Eating tacos and 10 housing market truths

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I eat tacos with investors. That’s right. A few times a year a group of real estate friends get together to talk shop at the best taco joint in town. It’s informal and fun because we’re friends, but it’s also valuable to get a sense for what everyone is seeing out there in the trenches. Anyway, despite not having tacos in front of me at the moment, I wanted to share some of the things that have seemed to come up lately in housing market conversations. Anything to add?

33102060 - top 10 - businessman with chalkboard

10 truths about the housing market

1) One high or low sale doesn’t make or break a market.

2) Just because inventory is low doesn’t mean buyers will pay any price.

3) The market isn’t doing the same thing in every neighborhood or price range.

4) There is no such thing as a national housing market. The “national” market is actually made up of thousands of local markets (Jonathan Miller).

5) Appraisers only measure the market. They don’t make values go up or down.

6) There is no recipe or formula for the way a housing “bubble” has to pop. In other words, for all the conversation about a current “bubble”, if the market did “pop” it wouldn’t necessarily have to look the same way it did 10 years ago.

7) Real estate advice has a shelf life, which means it might not be good for every market (or every price range or location).

8) Markets aren’t so perfect that we can say a property is only worth one certain amount like $336,456. It’s best to recognize there is a reasonable range for what the market might be willing to pay (say $330,000 to $340,000). Is there any support for the appraised value to come in at or near the list price or contract price? Does this price fall within the range of what is reasonable?

9) “Negative market trends are not the end of the world. They represent opportunities for some” (from Jonathan Miller).

10) Thinking positively or talking positively about the market doesn’t drive the market. In other words, “you can’t overpower the market with the power of positive thinking. The market doesn’t care what you or your client thinks” Jonathan Miller.

You may notice I referenced New York Appraiser Jonathan Miller a few times above. I realize that makes me look like a fanboy, but that’s okay because he’s an influential voice in my life and I appreciate his weekly notes every Friday. Last week Jonathan knocked it out of the park in his section entitled “McMansions, McEgos, McPrices and McHonor” (that’s where I picked up point #9 and #10).

how-to-think-like-an-appraiser-class-by-ryan-lundquist-150x150Class I’m teaching on Thursday: On September 29 from 9am-12pm I’m doing my favorite class at SAR called HOW TO THINK LIKE AN APPRAISER. We’re going to have a blast talking through seeing properties like an appraiser does. We’ll look at comp selection and talk through so many issues. My goal is to help you walk away full of actionable ideas. Register here.

Questions: What types of conversations are coming up in your circles right now? What is #11? I’d love to hear your take.

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An open letter about celebrity flipping seminars

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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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