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Rates are low, but buyers aren’t going nuts

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Rates and inventory are really low, so on paper it seems like the market should be booming. But it’s not. The truth is sales numbers are down despite rates doing the limbo below four percent again. It’s like the market looks hot on paper, but it’s also a bit lackluster in some ways.

Affordability: A big issue today is buyers are struggling with affordability. After seven years of price increases, we’re seeing the market become too expensive for many prospective buyers since wage growth has not kept pace with price growth. Some buyers feel uncertain about the future also, which is causing hesitancy about whether to purchase.

Hot couple analogy: The market is like a super hot couple that looks great on paper. They’re rich, attractive, successful, and they get a ton of “likes” on Instagram. Everything looks perfect, but then out of nowhere they break up because it turns out their relationship wasn’t as good as everyone thought. In a similar way, the real estate market looks stellar on paper. Rates are low, inventory is sparse, and it’s actually really competitive out there. But we’re also seeing weaker sales volume which shows us buyers aren’t as enthusiastic as we’d assume them to be.

Any thoughts?

—–——– Big local monthly market update (long on purpose) —–——–

Now for those interested, let’s talk about Sacramento trends. If I had to pick a few phrases to describe the market it would be competitive if priced right, modest price growth, slumping volume, and fairly normal stats for the spring.

DOWNLOAD 70+ visuals: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

THE SHORT VERSION:

  • Prices are up, volume is down
  • It kinda feels normal right now
  • Price growth has been modest
  • 46% of sales had multiple offers last month
  • Sales volume is down for the 14th month in a row
  • Low rates have helped change the feel of the market this year
  • Inventory is thin, but slightly higher than last year
  • The post is long on purpose. Skim or pour a cup of coffee

THE LONGER VERSION:

Here are some of the bigger topics right now:

Normal: The market felt really dull last year, but it’s been a somewhat normal year so far in 2019. There are certainly concerns about affordability, but from a stats perspective it’s been a pretty standard first half of the year. Pendings continue to be strong also, so buyers still clearly have a strong appetite for the market.

14 months in a row of slumping volume: Despite mortgage rates being low we’re seeing somewhat sluggish sales volume. In fact, sales volume was down 11.6% in the region last month and it’s down 8.6% so far in 2019. Moreover, we’ve had fourteen months in a row with lower sales volume compared to the previous year. In my mind it’s still best to say we’re having a slower year instead of a volume meltdown because levels aren’t alarmingly low by any stretch. Let’s watch this carefully.

Dude, rates will never get below 4% again: It’s been a little surprising to see how low rates have gone again, right? The narrative for a while was, “Dude, they’ll never go below 4% again. We’ve bottomed out.” Yet here we are. My sense is if rates keep going down it’ll only increase competition and artificially inflate prices. That would be temporarily nice for buyers, but an unfortunate byproduct is low rates in a wider picture tend to create less incentive for sellers to move. Why sell if you’re sitting on a 3.5% mortgage rate?

Purplebricks & the tech invasion: Last week it was announced that Purplebricks will be exiting the United States housing market after a 75% loss in shares. This company is going to the grave in the U.S., but the reality is we’re still in a market where tech companies are trying to disrupt the traditional real estate model. Next up? Zillow is said to be coming to Sacramento by the end of the year.

Joe Montana’s $49M overpriced listing: Former Quarterback Joe Montana listed his property for $49M and it didn’t sell because it was profoundly overpriced. In fact, the price has now been reduced to $28M. Many sellers are like Joe in trying to attract mythical unicorn buyers who will mysteriously overpay for some reason. My advice? Be aware that today’s buyers are incredibly picky about paying the right price.

The dream of selling at the top: I met a guy who wants to sell because he says the market might top out soon. His concern is a friend sold two years ago thinking the market was at its peak, but it wasn’t. The truth is it’s not so easy to time a market perfectly. We talk about how simple it is to do this, but most people pull it off from dumb luck more than anything. The reality is the bulk of buyers don’t buy based on price metrics, but rather lifestyle and affordability.

This is a fascinating chart, right? It shows a few price cycles over the past twenty years in Sacramento County. I don’t share this to say prices are about to change directions, but at some point that’s probably what we ought to expect because that’s what markets do. They go up and down. For now price momentum has been slowing and we’ll continue to watch this closely to see how it plays out. Let’s remember the collapse we saw in 2005 was not a normal trend that’s now the formula for the next price cycle. That was a market built on fraud and rampant speculation.

The coming recession: There are lots of predictions about a coming recession, and at some point one will happen. But predicting recession specifics is a bit like predicting housing market specifics. At the end of the day we might have ideas, but we don’t know the future if we’re honest. Moreover, the last “great” recession isn’t now the template or formula for all future recessions.

Eyeballs vs offers: Over two years ago I wrote about a $250M listing in Bel-Air. At the time it was the highest-priced property in the United States, and it was called “record breaking”. But today it’s still on the market and priced at $150M. Despite going viral and having global attention this listing did not sell. This reminds us it’s nice to have eyeballs on a listing, but the only thing that matters is offers. Sellers, if you aren’t getting offers, it may be time to adjust your pricing until the market bites.

Preparing for a slower season: At this time of year we typically see the market begin to slow down. The sales stats don’t show it yet, but when July stats come out we usually see it starts to take slightly longer to sell in July compared to June. This is a clue into a slowing market, and eventually we see more slowness in actual prices (but it often takes a few months to see the slow trend show up in actual sales stats). This is a good reminder to pay close attention to pendings today because that’s where we see what the current market is doing. What is similar and actually getting into contract? That is THE question.

I could write more, but let’s get visual instead.

FOUR BIG ISSUES TO WATCH:

1) SLOWER GROWTH: The market has moved forward this year, but it’s been at a slower pace. In other words, the market has felt competitive this year, but price momentum has continued to slow. Remember, “slower” and “slow” are not dirty words in real estate. They are market realities.

2) A QUICK RECAP: All year prices have shown a modest uptick. What I mean is prices are up from last year, but not by much. Keep in mind the lowest prices are likely the “hottest” market in town too.

3) VOLUME SLUMP: The number of sales has slumped in the region for 14 months (and 13 months in Sacramento County). Overall volume is noticeably lower this year, but it’s still not outside of normal low ranges though either (see 2014 and 2015).

SACRAMENTO REGION:

Key Stats:

  • June volume down 11.6%
  • Volume is down 9.9% over the past 12 months

SACRAMENTO COUNTY:

Key Stats:

  • June volume down 13.4%
  • Volume is down 9.3% over the past 12 months

PLACER COUNTY:

Key Stats:

  • June volume is down 10%
  • Volume is down 9.2% over the past 12 months

EL DORADO COUNTY:

Key Stats:

  • June volume down 6.3%
  • Volume is down 12.4% over the past 12 months

4) PRICES TICKED UP IN JUNE: The market generally showed price increases last month, though they were pretty subtle.

NOTE: Take El Dorado County data with a grain of salt. Stats change significantly month by month.

Thanks for respecting my content: Please don’t copy my post verbatim or alter the images in any way. I will always show respect for your original work and give you full credit, so I ask for that same courtesy. Here are 5 ways to share my content.

Please enjoy more images now.

SACRAMENTO REGION (more graphs here):

SACRAMENTO COUNTY (more graphs here):

PLACER COUNTY (more graphs here):

EL DORADO COUNTY (more graphs here):

DOWNLOAD 70+ visuals: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: What are you seeing out there? What do you think prices are doing? What are you hearing from buyers and sellers lately?

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The Golden State Killer’s house (quick survey)

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The suspected Golden State Killer was arrested two weeks ago. This man is said to be responsible for more than 50 rapes and 12 murders throughout California. It’s crazy to think about the path of terror this monster blazed for so many years. Well, let’s talk about him, but from a real estate angle.

Take a Quick Survey: I thought it would be interesting to do a quick survey to gauge public perception. If the Golden State Killer’s house was listed for sale, what sort of price discount if any would you expect to see? Vote below or HERE, and I’ll publish results in two weeks.

Create your own user feedback survey

Real Estate History: It’s sobering to think that Joseph James DeAngelo, the accused killer (aka East Area Rapist), was pursuing the “American dream” of home ownership all while destroying people’s lives. Here’s a history of his real estate happenings:

  • 1980: Bought a house for $77,000.
  • 1993: Refinance
  • 2003: Refinance
  • 2012: Refinance

The Golden State Killer’s Neighborhood: If you wondered what homes are selling for in the accused killer’s neighborhood, here’s a graph. The neighborhood is a well-kept area of Citrus Heights. I’ve seen a few national media outlets report the alleged killer lives in a luxurious community, but that’s not true. 

Dorothea Puente House: While we’re on the subject of mass-murderers in Sacramento, let’s talk about the duplex where seven bodies were discovered on F St in Sacramento in the late 80s compliments of Dorothea Puente. She lured victims to her “boarding” home, drugged and buried them, and then cashed their social security checks. This property has sold four times in the past, which is interesting as a case-study in terms of detrimental property conditions.

I look forward to more conversation in a couple of weeks. Thanks for voting in the survey above too. Fame and real estate can be complex and it’s definitely something to keep on the radar for this situation.

Questions: Would you buy this house? What advice would you give to a prospective buyer? I’d love to hear your take.

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Will it be an appraisal issue if there is pot growing at a house?

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Is it going to be a problem for a loan if the appraiser sees pot growing at a house? Well, it depends. Like many things in real estate, it’s not always a simple answer. Here are some things to consider.

Different opinions: There isn’t one definitive opinion appraisers have on how to handle cannabis, so seeing pot growing at a home can potentially be dealt with in different ways depending on the appraiser and the lender.

Not an agricultural specialist: Many appraisers don’t want to be put in the position of identifying plants, so some say, “I can’t tell if it’s Ficus or cannabis. I’m not an agricultural specialist. I don’t need to mention roses or peaches, so why would I call attention to a different plant?” Of course to be fair, roses and peaches aren’t federally illegal, so this might not be a perfect comparison.

It’s personal property: Some appraisers say, “It’s personal property, and it’s not my job to discuss personal items belonging to a seller or Borrower. I wouldn’t mention cottage cheese in the fridge or a Lambo‘ in the garage, so why would I mention a specific plant?”

Not a code enforcement officer: An appraiser in residential real estate shouldn’t be expected to confirm legality or count plants. Appraisers are not there to tattle, judge, or explain code.

One plant vs. farm: Let’s be real. There’s a difference between having a few plants for personal use and a full-fledged cartel “grow house.” Remember, it is never legal to use a residential house for a commercial cannabis operation. Yet here’s an honest question. How many plants are acceptable for a federally-backed loan? Is one too many? How about five, ten, or fifty? Ask a loan officer and see if you can get a definitive answer.

Bouncing the ball: When seeing “alternative agriculture,” an appraiser might email a photo to a lender client and say, “Hey, I saw some plants at the property. How would you like for me to handle this?” The appraiser in this case is bouncing the ball of liability to the client and allowing the lender to give direction. It is the lender’s decision and loan anyway, right? Some lenders might choose not to do the loan and other times appraisers might be asked to blur photos that clearly show a certain type of plant growing. In other cases lenders have asked for plants to be removed, so they might instruct the appraiser to make the value subject to removal of plants. The reality is most lenders have been silent about cannabis so far, but some smaller banks have been clear they won’t do loans with cannabis on site.

Would the loan have closed?: Here’s a question running through my mind. If I would have included a photo in my appraisal of cannabis growing somewhere on the parcel or in the house, would the loan have closed? Even if I personally think it’s no big deal to grow, if a loan only closes because I chose to ignore something that I knew would (or could) be an issue for a client, is that more liability for me as an appraiser? I know, it sounds like I’m overthinking the issue, but I’m actually doing critical thinking. This isn’t a statement on how appraisers should think. I’m only saying it’s a viable question to ponder in the midst of an emerging market. 

Closing Thoughts: Will it be an issue for the loan if there is cannabis growing? Honestly, there are many moving parts. I’m not trying to be frustrating, but it probably depends on the lender, how the appraiser handles it, and maybe even the number of plants. In short, this green issue is not black and white (sorry). Of course if there is obvious moisture or electrical damage associated with growing, then we can all agree that’s going to be a problem. The truth is some escrows with cannabis simply aren’t going to close since it’s an ambiguous world right now in lending due to the disconnect between federal and state law. Yet to be fair lots of people grow cannabis and they’re still getting loans. So clearly a few plants isn’t killing deals all the time either.

I hope that was interesting or helpful.

Questions: Did I miss something? Appraisers, how do you handle this? Lenders and Realtors, anything to add? I’d love to hear your take.

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My last blog post in 2017, Bitcoin, & a big market update

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I started this blog almost nine years ago, and this is my last post for the year. After next week I’ll be lying low, enjoying family, doing some woodworking, staying on my diet (I’m down 30 pounds), and taking some time to get recharged. But first I have two things on my mind. 

Thank you: Thank you so much for hanging with me for another year. I cannot tell you how much I appreciate your support, friendship, comments, emails, insight, and the business you send my way. It might sound cheesy, but I get so much joy out of writing once a week and I’m grateful for you. It’s been a dynamic year for business too, and I honestly could not be doing this without your support. Here’s to continuing to grow together. Please don’t stop asking questions, pitching in thoughts, and challenging my thinking.

Big market stats: Secondly, if you’re looking for the latest market trends for Sacramento, you’ve come to the right place. Check it out below. 

From my family to yours, Merry Christmas and Happy Holidays.

–——-——- Big monthly market update (it’s long on purpose) ———–——-

The market is often dull during the fall, but that’s not the case this year. I mean, we’re definitely seeing slightly lower prices, it’s taking longer to sell, and sales volume is sloughing, so clearly the signs of a slower market are here. Yet this fall season isn’t really incredibly slow or painfully dull either.  

Sideways: Price metrics were more or less sideways last month, though some metrics either showed a slight uptick or a slight decline. Overall there wasn’t much change from the month before in terms of price, but it took an average of three days longer to sell. This November saw almost the same amount of sales as last November for the region. Housing inventory is slightly higher than the same time last year, but it’s still hovering at 1.60 months for the region – which is still low. In other words, the housing shortage didn’t go anywhere.

Bitcoin & Modest Appreciation: The rapid increase of Bitcoin has been the talk of town lately, and it’s also seemed to fuel some conversations about quickly rising values in real estate. I get the comparison, but we’re really not seeing Bitcoin type huge increases in real estate. In fact, this year in Sacramento values have seemed more modest in many price ranges, which means somewhere around 5-7% upticks. I realize “modest” in California would be huge in other areas of the country, but that’s not really the case on the west coast. Yet the bottom of the price market easily saw 10-15% increases in many areas of Sacramento. That’s not so modest.

Our “Bitcoin” real estate market in 2012 & 2013: The closest to rapid appreciation we’ve seen in Sacramento in recent years took place between 2012 and 2013 in which we saw price metrics change by 35-40% over the course of one year. During that time both real estate agents and appraisers said it wasn’t easy to keep up with how quickly prices were changing.

$7M Sale: Did you see the sale in Granite Bay that closed two days ago at $6.95M? What the? This is one of the highest residential sales ever in the Sacramento area. You can watch a video tour of it here. Also, that $4.1M condo listing Downtown has been pending since November. I don’t know what it’s in contract for yet, but let’s talk about it when it closes.

Rents: Sacramento made a list again on the fastest growing rents. Yardi Matrix reports a 9.1% uptick in rent year over year in November. Now if we can only get wages to grow by 9.1% too.

Price Sensitive: Lastly, the market may not be incredibly dull like it is during some fall seasons, but it’s still price sensitive. This means buyers are tending to be logical, well-informed, and often not so desperate as to offer any amount. My advice? Don’t just look to the high sales from the spring and summer. What is getting into contract right now? That will give you a good picture of the current market and a hint for how to price too (possibly lower than the height of spring / summer).

I could go on, but let’s get visual.

DOWNLOAD 69 graphs HERE: Please download all graphs in this post and more here as a zip file (includes a stat sheet too). See my sharing policy for 5 ways to share (please don’t copy verbatim).

SACRAMENTO COUNTY (more graphs & stats here):

SACRAMENTO COUNTY:

  1. The median price is currently $349,450. It’s the same as last month but down 1% from summer.
  2. The median price is 7.5% higher than the same time last year.
  3. Sales volume in November was 4.5% lower this year than 2016. There were 1354 single family detached sales last month.
  4. It took an average of 32 days to sell a home last month (one year ago it was taking 4 days longer).
  5. The median days on market last month was 18 days.
  6. It took 3 more days to sell in Nov. compared to October (median days).
  7. FHA sales were 20% of all sales last month in the county.
  8. Only 1.4% of sales last month were bank-owned & 0.9% were short sales.
  9. The avg price per sq ft was about $224, which increased last month (11% higher than last year).
  10. The avg sales price softened slightly last month and is currently $385,778. This is 10% higher than last year.
  11. Cash sales were 13% of all sales last month.

SACRAMENTO REGION (more graphs & stats here):

SACRAMENTO REGION:

  1. The median price is $389,000. It softened nearly 1% last month.  
  2. The median price is 9.5% higher than the same time last year.
  3. Sales volume in November was nearly the same as Nov 2016. There were 2220 single family detached sales last month.
  4. It took an average of 36 days to sell a home last month (one year ago it was taking 5 days longer).
  5. The median days on market last month was 19 days, which means properties are selling really quickly.
  6. The median days on market increased by 1 day last month, which shows a slowing in the market.  
  7. FHA sales were 17.2% of all sales last month.
  8. Only 1.5% of sales last month were bank-owned & 0.8% were short sales.
  9. The avg price per sq ft was about $230, which increased last month (10% higher than last year).
  10. The avg sales price increased less than 1% last month and is up 10% higher than last year.
  11. Cash sales were 14% of all sales last month.

PLACER COUNTY (more graphs & stats here):

PLACER COUNTY:

  1. The median price is currently $451,000 and decreased about 1% last month.
  2. The median price is 5.6% higher than the same time last year.
  3. Sales volume in November was 3.6% lower than 2016. There were 473 single family detached sales.
  4. It took an average of 40 days to sell a home last month (one year ago it was taking 9 days longer).
  5. The median days on market last month was 19 days, which means properties are selling really quickly.
  6. The median days on market deceased by 3 days last month (don’t read too much into that). 
  7. FHA sales were 12.6% of all sales.
  8. There were only 9 bank-owned sales last month and only 2 short sales.
  9. The avg price per sq ft was $236, which is slightly higher than last month (9% higher than last year).
  10. The avg sales price is currently $513,280. This is 6.8% higher than last year.
  11. Cash sales were 17% of all sales last month.

DOWNLOAD 69 graphs HERE: Please download all graphs in this post and more here as a zip file (includes a stat sheet too). See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: What are you seeing out there in the market? Anything I missed? I’d love to hear your take.

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