Paying attention to the mood of the market

The other day a home owner was upset because he thought his appraisal came in too low. Yes, he was hung up on price per sq ft, which was a big issue, but most of all he believed the home should have been worth way more since there were almost no other homes listed for sale on the market. His thought was, “There’s no inventory, so I’m going to command top dollar.” After all, isn’t real estate about supply and demand? Well, yes. But there’s so much more.

the mood of the market sacramento appraisal blog - image purchased and used with permission by 123rf

The Market’s Mood: The truth is there are many factors that make value move in a market, and supply and demand is only one cog in the system (or “layer of the cake” as I like to say). Granted, it’s one of the more important metrics, but at the end of the day we can’t forget to ask how buyers and sellers are feeling about the market. Or in other words, what is the mood? For example, in early 2013 housing inventory in Sacramento was incredibly low, and buyers were pretty much willing to offer at list price or above on anything that hit MLS. In fact, if something didn’t have multiple offers, I wondered what was wrong with the property. At the time there was a real desperate mood, yet despite inventory still being low today, buyers are exhibiting more discretion by not pulling the trigger unless the price is right. Like the owner above thinks, this seems irrational because there aren’t many homes for sale. But the mood has changed. Likewise, if a house backs a busy street or has some adverse issue, buyers are tending to wait rather than offer. Again, this seems illogical because on paper it looks like buyers should be making offers all day long because of how low inventory is. Lastly, it’s worth mentioning the owner above did not realize his home valued toward the higher end of the neighborhood range was simply not experiencing the same demand as the lower end of the price spectrum in the neighborhood. Thus the mood at the top was different than the bottom.

Action Step: At the end of the day, let’s not forget to talk with clients about the mood of the market. We can do this by sharing the latest numbers, thinking about what is driving some of the numbers (the mood), reading articles from several local and national publications, and having conversations as often as possible with others in the real estate trenches (not just with people in your office or field). Also, since market moods are constantly changing, we have the opportunity to continually say something different about the local market.

Any thoughts? I’d love to hear your take below.

—————– 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 a few minutes digesting what is here.

DOWNLOAD 73 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 Sacramento Market Summary: The market in January was fairly normal. It took 3 days longer to sell a house than the previous month. That’s normal. The median price and other price metrics generally declined from December. Yep, that’s normal too for the time of year. Sales volume declined by 39% from December to January, but that’s common since sales volume ALWAYS declines from December to January (yes, I said always). Actually, the real trend is January 2016 had a 2.5% higher sales volume than January 2015. Housing inventory increased, which is also normal. Okay, I apologize because I’m repeating one word too often here. But do you catch my drift? However, I will say the bottom of the market and “entry-level” neighborhoods have felt a little more aggressive in terms of values, number of offers, and demand. In short, some neighborhoods have seemed to have more of a feel of a budding spring real estate market, while others have been cruising along waiting for the spring season to further ripen. As I said last month, if I had to sum up the market in 2015 I would say: Modest value appreciation, but aggressive demand. Yes, demand is very aggressive out there, but sellers really need to price realistically unless they want to sit on the market. One last thing, there is a big difference in the mood among buyers when mortgage interest rates are closer to 3.5% compared to even 4.0%, so watch rates and the market closely.

SACRAMENTO COUNTY:

  1. It took 3 more days to sell a house last month than December.
  2. It took 14 less days to sell this January compared to last January.
  3. Sales volume was 2.5% higher in January 2016 compared to last January.
  4. FHA sales were 26.8% of all sales last month.
  5. FHA sales under $200,000 were 29% of all sales last month.
  6. Housing inventory is 30% lower than it was last year at the same time.
  7. The median price declined by 5.3% last month.
  8. The median price is 9.4% higher than the same time last year.
  9. The avg price per sq ft declined by about 1% last month.
  10. The avg price per sq ft is almost 11% higher than the same time last year.

Some of my Favorite Graphs this Month:

inventory - January 2016 - by home appraiser blog

median price and inventory since jan 2013 - by sacramento appraisal blog

January market in Sacramento real estate - by sac appraisal blog - since 2008

sales volume in January

inventory in sacramento county Since 2011 - by sacramento appraisal blog

price metrics since 2014 in sacramento county

SACRAMENTO REGIONAL MARKET:

  1. It took 2 more days to sell a house last month than December.
  2. It took 15 less days to sell this January compared to last January.
  3. Sales volume was 7.9% higher in January 2016 compared to last January.
  4. FHA sales were 23.6% of all sales last month.
  5. Short sales were 3% and REOs were 3.5% of sales last month.
  6. Housing inventory is 28% lower than it was last year at the same time.
  7. The median price declined by 1.3% last month.
  8. The median price is 10.8% higher than the same time last year.
  9. The avg price per sq ft increased 2% last month.
  10. The avg price per sq ft is 11.6% higher than the same time last year.

Some of my Favorite Regional Graphs:

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

sacramento region volume - FHA and conventional - by appraiser 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

median price and inventory in sacramento regional market 2013

number of listings in sacramento regional market

PLACER COUNTY:

  1. It took 4 less days to sell a house last month than December.
  2. It took 16 less days to sell this January compared to last January.
  3. Sales volume was 13.8% higher in January 2016 compared to last January.
  4. FHA sales were 16.7% of all sales last month.
  5. Cash sales were 19% of all sales last month.
  6. Housing inventory is 28% lower than it was last year at the same time.
  7. Sales volume is over 13% higher these past 12 months compared to the previous one year.
  8. The median price, average price per sq ft, and average sales price increased last month, but Placer County data seems to fluctuate quite a bit since there are fewer sales, so I don’t recommend putting too much emphasis on these increases unless they become prolonged over time.

Some of my Favorite Placer County Graphs:

Placer County price and inventory - by sacramento appraisal blog

number of listings in PLACER county - January 2016

months of housing inventory in placer county by sacramento appraisal blog

days on market in placer county by sacramento appraisal blog

Placer County sales volume - by sacramento appraisal blog - January volume

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

I hope this was helpful and interesting.

DOWNLOAD 73 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 (please don’t copy verbatim). Thanks.

Questions: How would you recommend for someone to find the mood of the market? Are there certain metrics you think best show the mood? Also, what stands out to you about the latest stats in Sacramento? I’d love to hear your take and what you are seeing in the trenches.

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Top items to review in an appraisal report: Part 1

Let’s be honest. If you are in the real estate industry and you regularly come across appraisal reports, do you really read them? If you’re like most people, you simply look at the bottom line value in the report and then call it a day so long as the numbers work. While that makes sense to a certain extent, why not learn how to quickly scan an appraisal to look for quality? This can help you and your clients know that the value is solid, but also help you challenge a bad appraisal too.

Image purchased at 123rf dot com and used with permission - 14688774_s - smallerOver the next few weeks we’ll be looking at top items to review in an appraisal report. I’ve split this into several posts so it’s easier to digest, and at the end I’ll include one example report with all of these items highlighted. In the mean time, you can subscribe by email to get future posts delivered to your inbox.

Let’s hit on three areas of that are located on the very first page of the report:

1. One Unit Housing Trends: This is a section on Fannie Mae’s appraisal report on the first page of the report. It gives the appraiser the opportunity to characterize the direction of property value in the neighborhood, the amount of housing supply on the market and how long it takes properties to sell. If a different form was used for a non-lending appraisal, the appraiser should still comment on these items, but there is no little box to check, so you’ll need to scan the report to find where the appraiser might have discussed the market.

carmichael increasing or decreasing - example found on an appraisal a client sent to me in May 2013

Why does this matter? If this section is not filled out correctly, the appraiser might not understand the market. As an example, consider the box above in Carmichael, which is a census-designated place in the Sacramento area. Values have been increasing, there is an undersupply of listings and properties are selling in very short periods of time, yet this report stated values were stable, supply was balanced and it is taking 3-6 months to market properties (all not accurate). If the fundamentals of the market are clearly incorrect, maybe other things like comp selection and adjustments are also inaccurate.

2. Neighborhood Boundaries: It’s so important to know exactly where one neighborhood ends and another begins. Misunderstanding neighborhood boundaries can have a dramatic impact on perceived property value.

neighborhood boundaries in an appraisal report

The Fannie Mae appraisal report form is used for most lender appraisals, and it asks the appraiser to identify the neighborhood boundaries on the first page of the appraisal report. The section looks just like the box above.

neighborhood boundaries in an appraisal report example by sacramento appraisal blog

The example above is perfect in that there is a huge difference in value between West Tahoe Park and the portion of Oak Park that is just west of this area. Stockton Blvd acts as a “line of demarcation” in this market, so “comps” really shouldn’t be borrowed across the street since these are two distinct markets. Even more striking is the “Med Center” boundaries outlined in red. There is a huge value difference between properties located inside and outside the Med Center boundaries.

3. Market Conditions: The Fannie Mae report asks the appraiser to discuss the conditions of the neighborhood real estate market and give support for the direction of property values, marketing time and inventory levels.

market conditions in appraisal report

In many cases this section of the appraisal report in a bad appraisal will include very limited information that is basically text that is transferred from one appraisal to another. Ultimately if this portion of the report includes erroneous information, we’ll have to wonder if comp selection and adjustments are going to be bad also.

market description for Elk Grove May 2013 - by Sacramento Appraisal BlogThis section is often far too thin in shoddy appraisal reports, but it is actually very important because it should give the reader an idea of the trends in the neighborhood. On a side note, I have been giving great attention to describing the market in my reports, especially since values have been increasing rapidly in some areas. In future years when loans go into default, and the lender is looking for somebody to sue, I want them to see that I gave a detailed description of the volatility of the market. If put on the stand in court, I will at least be able to say, “Did you read the appraisal report?” or “Did you read the section where I talked about rapid appreciation being unsustainable?” Click on the thumbnail for a recent example during an Elk Grove appraisal.

Any questions or insight? Feel free to comment below.

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What do you think of Curtis Park Village?

curtis park infill development image from SacBeeBig news broke yesterday as the “Curtis Park Village” site is now ready for construction. I’m amazed to read that over 358,000 cubic yards of toxic dirt was removed from the site to prepare for future residential and commercial building. By the way, does anyone know where the dirt went?

I’m really interested to see how the new “Village” compliments the historic Curtis Park neighborhood. Curtis Park has such amazing character, so I hope the builders will be as sensitive as possible to the quality and craftsmanship found in the neighborhood.  Whatever the case, as long as the builder does a decent job, my guess is these units are going to be a very hot commodity because of the great location and close proximity to Downtown.

Some articles to read on Curtis Park Village:

Toxic Clean-up Complete – Feb 16, 2012 SacBee
A big day for Curtis Park developer – Feb 15, 2012 Sacramento Biz Journal
– See also Sierra Curtis Neighborhood Association and Curtis Park News.
City of Sacramento Curtis Park Village Project Information
Petrovich Development Company Project Summary

I’d really like to hear from Sacramentans on this matter and especially Curtis Park residents. How do you feel about the development? What are the positives? What are your concerns? The SacBee article seemed to indicate that residents are “cautiously optimistic” about the project. If you are a resident, do you feel that way?

If you have any questions or Sacramento area real estate appraisal or property tax appeal needs, contact me by phone 916-595-3735, email, Facebook, Twitter or subscribe to posts by email.

How to develop original blog content

Have you ever felt like you need to do a blog post, but you just don’t know what to write? I’ve been there many times, so I wanted to share a resource I created that helps me avoid this feeling by keeping 10-20 post ideas in front of me at any given time. The document below hangs in my office, and I use it to jot down post ideas whenever I have them. This system is simple and it’s  worked extremely well for me to be more organized, save time and stay focused on my target audience.

Download “How to develop blog content” and start writing down some ideas. I hope this is helpful, whether you have a real estate blog or write about something else.

template for how to plan orignal blog content

By the way, if you’re in the real estate industry and looking for some general blogging tips, check out Quick Tips for Real Estate Blogging.

How do you plan posts? Could you see yourself using a resource like this?

If you have any questions or Sacramento area real estate appraisal or property tax appeal needs, contact me by phone 916-595-3735, email, Facebook, Twitter or subscribe to posts by email.