Trends to watch in real estate in 2017

What’s the real estate market going to do this year? I thought it would be worthwhile to consider some of the emerging trends to watch in 2017 in Sacramento and beyond. What do you think? I’d love to hear your take in the comments.

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1) Bubble conversations: This year we are going to have even more real estate “bubble” conversations. We’ll hear things like, “The bubble is going to pop in 2017”, or “Get ready for 2007 again”, or “It’s all going to crumble after this year.” As these conversations ensue, my advice is to sift through the headlines, pay close attention to actual data, know the limitations of your ability to predict the future, and be in tune with the way the seasonal market tends to behave so you can spot anything out-of-the-ordinary.

2) Creative lending: As interest rates presumably rise in coming time, it will make mortgages more expensive (duh). This won’t matter for some buyers because they have the money to afford the market, but others will need an extra edge to keep up with higher prices. This is where lenders can loosen up financing options so they continue to close deals and make as much money as possible (sounds healthy, right?). Keep in mind President-Elect Trump is talking about repealing Dodd-Frank too, and that could create waves in the market if it actually happened. 

values-in-real-estate-sacramento-appraisal-blog-image-purchased-and-used-with-permission-from-123rf3) Housing inventory remains low: There isn’t any quick fix for anemic housing inventory, so we can expect to see another year of low inventory unless something drastic happens causing sellers to list their homes. That brings me to share something I talked about last month. In a video John Wake talks about San Francisco values and how sellers tend to wait to list their homes when values are increasing. The thought is, why list now when values are going to be higher next year? But then when values do eventually turn there can be a flood of houses hit the market as a “race to the exit”. That’s something to keep in mind.

4) Marijuana: It can be polarizing to talk about marijuana, but it’s definitely a market force since it is now legal in California for recreational use. Over the next year many cities and counties will be fine-tuning rules for grow operations, so be on the lookout for details. By no means am I glorifying marijuana, but I will be talking about it in coming years because it’s a force bound to impact real estate values. 

5) Smart homes: With the advent of Amazon Echo and Google Home, consumers can now say things like, “Alexa, set the sprinklers for 7am tomorrow morning” or “Okay Google, turn the temperature to 68 degrees.” The huge popularity of these devices during the holiday season will only mean millions more households are now going to be making their homes more digitally connected.

finding-cheap-properties-image-purchased-by-sacramento-appraisal-blog-from-123rt-dot-com6) Disappearance of the $100,000 market: There is definitely upward value pressure on the lowest end of the price spectrum. Other price ranges last year were much more flat, but not so much with the lowest prices in town. This year in Sacramento we are going to very likely see the disappearance of the market under $100,000. Each month lately we’ve had maybe 6-12 sales under $100,000 for single family detached homes, and after the next few quarters I expect that number might be down to zero. We shall see though.

7) Home flipping courses: There will be no shortage of “learn to flip” courses coming to a city near you. Friends, be very cautious about paying anyone to teach you “secrets” you can probably get for free online. You can read my open letter to celebrity flippers for more thoughts.

8) Custom woodworking: I’ve been seeing more and more custom woodworking in homes. I don’t mean really high-end craftsmanship per se, but rather the cool DIY stuff you might see on Pinterest or a show like Fixer Upper. I’m seeing more wood walls, large wood slabs, custom exterior wood accents on the exterior, etc…. As a dabbling woodworker, this makes me smile.

9) More agents will enter the market: When values increase and positive real estate news saturates the market, it tends to compel people to enter the real estate profession. So last month’s headline that Sacramento will be one of the “hottest market in the nation” in 2017 very likely sealed the deal for a number of folks on the fence about getting into real estate. 

real-estate-contracts-multiple-offers-in-sacramento-appraisal-blog10) Multiple offers: We are likely to continue to see a climate of multiple offers in the Sacramento area. In a market like this I would advise sellers to be realistic about pricing their homes properly. What have similar homes actually sold for? What is similar and getting into contract right now? It’s easy to cherry-pick the highest non-similar sales in the neighborhood because “the market is hot”, but we have to remember similar homes are the “comps” appraisers are going to use (key point). At the end of the day appraisers have to support the value, so it may be best to be reasonable on the front end rather than run into all sorts of “appraisal issues” because the property got into contract too high. Remember, just because housing inventory is low does not mean you can command whatever price you want. That may have been more true in early 2013, but it’s not true right now.

11) The 2-4 unit market is heating up: These days in many areas it seems like the market is heating up with some surprisingly high prices again for 2-4 unit properties. Values were subdued for years after the housing crash, but news of increasing rents is certainly part of what’s helping drive 2-4 unit prices up. I’ve also observed some Bay Area buyers wanting to park money in Sacramento and overpay. Sometimes unrealistic cap rates are being used to justify value too (more on that in a few weeks maybe).

12) Appraisal waivers: Last month Fannie Mae rolled out an appraisal waiver program. They say this program is only for refinances, but it’s a pretty good guess we’re going to see some purchases waived too. On one hand this program can help offset slower turn-times by appraisers lately, but on the negative side of things it can lead to inflating values too. In short, let’s watch this closely and not forget important safeguards in real estate (like appraisers).

BONUS: This is a quick (well, 12 minutes) walk through what it looks like to see the seasonal trend in real estate and what it was like when values began to decline in 2005. With so much “bubble” talk these days, it’s critical to be able to cut through any hype, focus on data, and be able to spot seasonal trends (and non-seasonal trends). Watch below (or here):

I hope that was helpful or interesting.

Questions: What else do you think will be important in 2017? Did I miss something? I’d love to hear your take.

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Are we really back to “bubble” prices?

We’re back at the peak of the market. Well, that’s what some of the national indexes are saying. So imagine yourself in line at Starbucks and someone remarks, “I heard on CNN we are back to bubble prices.” What would you say? Let’s look at some of the “national” trends below and then kick around a few thoughts. I’d love to hear your take in the comments.

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Case-Shiller National Index: This index shows the “national” market is about where it was during the peak of the index in 2006 (source).

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Freddie Mac National Price Index: This index shows the “national” market is about where it was during the peak of the index in 2007 (source). 

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Freddie Mac California Price Index: The “national” index in gray shows we are back to the peak of the market, but the state index in black shows California is still about 5% below the peak (source).  

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Freddie Mac Sacramento Price Index: The national index in gray shows we are back to the peak, but the local Sacramento index in black shows we are still a ways off (source).

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Some quick thoughts:

1) I want to buy in the national market: There is no such thing as a national market, which makes “national” indexes only so valuable (or sometimes totally useless). As Jonathan Miller says, real estate is local and we have thousands of local markets instead of one national market. Therefore we ought to be naturally cautious about national metrics (see Barry Ritholtz rip NAR’s affordability index). In short, I watch “national” indexes, but I look to the local market for the real trend.

2) Different Peak: The “national” market peaked around 2007 depending on which index you’re looking at, but Sacramento peaked in 2005. Media outlets often talk about the housing “bubble” bursting in 2007 when in fact that wasn’t true for many markets (including Sac).

3) Current Values: Many Sacramento neighborhoods are still a good 10-15%+ below the peak of the market, though some classic areas are getting very close (while other depressed areas have much further to go). I included some neighborhood graphs below for reference.

4) Condos & Land: Let’s remember not all property types trend the same way. For instance, the condo market has struggled since the housing “bubble” burst. Owner occupancy rates being too low have stalled many complexes from obtaining financing, which has stalled value increases too. Vacant land is also far below where it was at the peak because there is less new construction today and we don’t have land speculators like we did 10+ years ago. 

Specific Neighborhoods (Are we there yet?):

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east-sac

4-plex-carro

del-paso-manor

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I hope this was helpful.

Questions: Are there any national metrics you pay attention to? Any you’d recommend avoiding? Did I miss something? I’d love to hear your take.

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Eating tacos and 10 housing market truths

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?

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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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7 goals for the real estate community this year (as illustrated by Star Wars)

Here we go. It’s a brand new year. A blank slate. What will your life and business look like in 2016? I know we all have plans for the year ahead, so as January begins I wanted to pitch in some thoughts on potential goals for the real estate community. These are meant to be fun, helpful, and provocative, so take them for what they’re worth. I snapped some photos of Star Wars actions figures to help tell the story too. I’d love to hear your take in the comments below.

1)  Say Something Different About The Market:

strorm troopers - by sacramento appraisal blog

If you’re in the habit of saying the same thing about the market all year, consider studying the market carefully and adjusting what you say throughout the year. It’s easy for both agents and appraisers to fall into the trap of using the same stale phrases, but getting more specific about the way the market behaves tends to build credibility with clients.

2)  Make it About Connections on Social Media:

storm troopers on facebook - sacramento appraisal blog

Let’s be honest. One of the sins of the real estate community is too much self-promotion, and this comes across loudly on most social media platforms. It’s easy to treat Facebook, Twitter, and other spaces like the yellow pages where we simply broadcast our services. Yet social media is all about building connections and creating conversations. Think about how you can add value to people’s lives this year online while avoiding nauseating self-promotion. Maybe take a look at what you said last year too. Have people been engaging with what you are saying? If not, maybe it’s time to mix things up or get back to a focus on relationships.

3)  Speak Graciously About Neighborhoods:

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This might feel a bit touchy to say, but I can’t tell you how many times I hear things like, “I would never live in this neighborhood,” or “I don’t know why anyone would ever buy here.” It’s easy in the real estate community to gloss over statements like this, but the truth is they come across a bit arrogant because they demean neighborhoods and residents. Why is that person buying there? Probably because that’s what the person can afford. Let’s respect that and find ways to speak graciously about places people call home (even if we really don’t like the area). I’m not saying to be fake, but only to find ways to speak more positively about communities instead of ragging on them. Remember, your next client might want to buy in one of these neighborhoods.

4)  Learn How to Make Quick Market Graphs:

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If you don’t know how to make graphs, why not make that a goal this year? It sounds like a scary thing to learn, but it’s very doable (seriously), and frankly it’s a skill that can help propel your business and understanding of real estate to the next level. I have a brief tutorial here, but send me an email too for some other suggestions.

5)  Remember to Say “CO” instead of “CO2” Detector:

CO alarms in appraisal reports - star wars - sacramento appraisal blog

When it comes to talking about carbon monoxide detectors, this is an easy mistake to make, yet still very important to nail for the sake of sounding professional. Remember, “CO” stands for “Carbon Monoxide” (a dangerous gas), but “CO2” stands for “Carbon Dioxide” (what comes out of our mouths when we breathe). Here are 5 ways to remember the difference in case it’s relevant.

6)  Be Generous:

being generous in real estate - sacramento appraisal blog

A generous person is a rare find. Be known this year for altruism, compassion, and responding in care when people need something. Not only does it feel great to live a life focused on others, but it’s actually really good for business. People want to work with others who are great at what they do AND generous.

7)  Be Prepared for Real Estate “Bubble” Conversations:

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Values have risen dramatically in recent years, and many consumers are wondering about a real estate “bubble”. Whether we are in a bubble or not, it’s important for the real estate community to expect and navigate this conversation well. How will you answer your client’s questions this year when “bubbly” conversations arise? In case it’s helpful, here are some quick points to shine some perspective on the topic.

Interview with Channel 13: By the way, here is an interview I did with Channel 13 in Sacramento a few weeks ago. Check it out if you’d like below or HERE.

Happy New Year! May this be a wonderful and rich year of life and business.

Questions: Which one did you like best? What are a couple of your big or little goals this year? By the way, did you see the new Star Wars?

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