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?

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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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:

sacramento appraisal blog - star wars blog post

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:

Looking at market graphs strorm troopers - sacramento appraisal blog

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:

the force - by sacramento appraisal blog

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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Some perspective as real estate “bubble” conversations emerge

Lots of real estate “bubble” talk lately. Have you noticed? It’s a hot topic for the public and real estate community as housing affordability is becoming more of an issue since values have been on the rise for the past four years. Even Hollywood is getting in on the action with movies hitting the screen about the bursting of the “bubble” ten years ago (thanks Jonathan Miller for the heads-up). Anyway, this isn’t another post on whether we are in a bubble or not, but rather some things to keep in mind for the real estate community as bubbly conversations emerge. I’d love to hear your take in the comments below.

real estate bubble - image bought and used with permission from 123rf dot com by sacramento appraisal blog

Enjoy the tips. Anything you’d add?

Things to keep in mind during real estate “bubble” conversations:

  1. Predicting is Dangerous: Predicting the future of real estate is sort of like predicting what Justin Bieber is going to do next. What will the Biebs do next month or next year? Nobody knows. The same is true in real estate, and it’s okay for real estate professionals to simply say, “I don’t know what the market is going to do. My crystal ball is broken. But I can tell you what the market is doing right now and what it seems poised to do.” Seriously, if you work in real estate, this is probably the best and most honest answer you can give.
  2. Remember that markets change: At some point in the future values are going to decline, and at some point in the future they are going to increase. Of course we want to avoid incredibly steep declines, but otherwise it’s normal for real estate values to go up and down, and we should therefore expect that. We seem to have a mindset that prices should only increase, but that’s just not realistic. That would be like saying every day should be sunny or each day of a marriage should be only positive and filled with bliss (nothing is always positive).
  3. Be in tune with the slow fall season: When the market slows during the fall, it only exacerbates bubble talk. The past three years have seen a very definitive dull market in the fall (at least in the Sacramento area), and we need to respect and embrace that slow seasonal reality (and price accordingly). It’s sort of like when work is slow, it’s easy to get depressed or even think the business is going under. Well, it’s the same deal with the cyclical real estate market.
  4. Never promise equity: It’s easy to say things like, “This house will be worth much more in two years, so it’s a good time to buy,” but can anyone really guarantee that? If you never promise value to your clients, they can never come back and say, “You told me the market was going to increase and it didn’t”. This was exactly what many real estate pros told buyers using 100% financing last decade. “Hey, the market is going to increase, so don’t worry about that adjustable rate. You can refinance out of it in two years.” Interestingly enough, today’s FHA buyers are sometimes told, “You can get in the market with FHA now, and just refinance into a conventional loan when the market increases.”
  5. Focus on affordability: Everyone wants to buy at the lowest point in a market, but very few people actually pull that off. In fact, many times it’s simply an accident when it does happen. Ultimately people ought to buy when it makes sense for their wallet and lifestyle, and that is a fantastic point to emphasize because it respects where people are at in life rather than telling people when they should do something. If you have clients who want to buy, then honor their desires by helping them understand what affordability looks like with whatever market is in front of them.
  6. Become great at explaining the cake: Value in real estate is like a multi-layered cake since there are many “layers” in a market that impact prices. See my cake image here and use it (I love this analogy). It’s easy to think of real estate in terms of being only about supply and demand, but it’s also about interest rates, the economy, cash investors, financing, affordability, jobs, consumer confidence and so many other “layers”. In short, when one layer of the cake changes (such as inventory or financing), it can change the entire cake (the market).
  7. Hone your pricing skills:  How can you get better at pricing, pulling comps, or making value adjustments this year? It can be challenging to price when a market slows or declines because values might actually be lower than the most recent sales and listings indicate. Thus I recommend getting some training this year, taking some stellar CE, or connecting with some locals who you think are getting it right (By the way, if you’re local, I teach a 2 or 3-hour class called “How to Think Like an Appraiser”. May I do a training in your office?)
  8. Change what you say about the market as the market changes: It’s easy to speak fluently in clichés or say the same thing about the market for years. Agents do this by saying “it’s a good time to buy and sell” even if it isn’t, and appraisers do this by always indicating in their reports that values are “stable” with a “balanced” supply of inventory (even if that’s not the case). When we look closely at trends and begin to see what the market is doing, we can change what we say to our contacts and clients. Moreover, we might even price more effectively and give better real estate advice.
  9. Bubble Obsession: Values were massively inflated ten years ago, yet we still have this obsession about getting back to “the good ‘ol days”. Was it really that good to see huge price increases only to have the housing market collapse around us? Do we want to get back there? Nah, I think we can do better. This is why I recommend real estate professionals to be aware of bubble issues, but also find other interesting things to talk about and share. I’m absolutely not saying to ignore the market or be dishonest, but only find a balance so we don’t perpetuate a fear or worry about what may or may not happen to values in the future.
  10. Consider your future clients: One of the best things to do when considering the future of real estate is to think about who your clients might be as the market changes. Based on the way the market is moving, who do you think your clients are going to be in 2016 and 2017? What will your database need over the next two years? Are they going to be looking to buy, sell, rent, get married, get divorced, invest, do a short sale, get back in the market, remove PMI, sell a parent’s home, move up, build an accessory dwelling for an aging parent, downsize, settle an estate….?

I hope this was helpful.

Thank you sincerely for reading. I cannot tell you how much I appreciate you letting me share a few thoughts each week.

Questions: What is point #11? Which one resonated with you the most? Do you think we’re in a “bubble”? (I’ll share my thoughts if someone asks)

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The frog and kettle of real estate financing

Do you remember how easy it used to be to get a loan a decade ago? It was actually ridiculous how simple it was. Nowadays things are MUCH more stringent, yet at times it seems like we are gradually starting to head back to some more risky and creative loan products. It’s sort of like the frog and kettle, but with financing.

financing changes in real estate - by sacramento appraisal blog - image purchased and used with permission

Financing Moves Value: There are many reasons why home values go up or down in real estate, and financing happens to be one of the bigger layers in the market to make value move. This means when financing begins to change, we can ask why it changed, and also consider any future impact on values. A decade ago there were many options to finance 100% of a purchase, but those options disappeared from the scene for a few years. Yet as prices have skyrocketed in recent years, lenders have begun to equip buyers with more products to “afford” the higher market without putting any “skin in the game” so to speak (By the way, 29% of all sales last month in Sacramento County were FHA). There is certainly a time and place for diverse loan products, but new products can also help values continue to rise when it might be okay for values to cool.

I asked a group of loan officers what more risky products they are beginning to see or hear about coming back into existence. Here is what they said:

adrian petersen - loan officerAdrian Petersen – Loan Officer: It’s been a very interesting roller coaster ride in the lending world over the past decade. Some of the old products are beginning to surface again. Specifically the Fannie Mae My Community 97% for first time home buyers (no ownership in last 3 years) which only requires 3% down payment and can be gifted from family or employer. Also, the 85% Jumbo with no MI has also just re-entered the market. Although we have some very exciting products out there, it’s a good time to remember where we just came from…

stanfordSandy Donaldson – Loan Officer / Branch Manager: There are not a lot of risky products on the market per se due to many of the recent regulations. However, we have seen the conforming 3% down loan reappear. This is a conforming 30 year fixed rate product that requires only 3% down and that 3% can be gifted from a relative. We have also seen conforming loosen their standards on gift funds. It used to be that buyers needed 5% of their own money but now the entire down payment can be gifted on a standard conventional loan. We have seen FHA MIP premium go down substantially and mortgage insurance factors for conventional loans have also declined.

Matt the Mortgage GuyMatt Gougé – Loan Officer: Not only have I seen the increased advertising of ‘Stated Income’ loans in my social media news feed, but I have also heard discussions among some industry folks that there are Venture Capitalists pooling BILLIONS of dollars with the intention of buying up these alternative mortgage products. While these loans do carry extra risk and don’t have the same terms as conventional financing, there is a subsection of the market that will be well served by these products. In my humble opinion the area where people really get into trouble is when they start using loan products that adjust (either the rate or the fact that a certain term is ‘interest only’- or both) and/or have balloon payments. Signing up for a mortgage payment you can afford today that can increase 50%+ in 5 years is a recipe for disaster.

Brad YzermansBrad Yzermans – Mortgage Loan Originator: I think the reemergence of homebuyer assistance programs that require $0 out of pocket and allow a person to borrow up to 105% of the home’s value, along with higher qualifying income limits, is helping sustain home values and keep home ownership more affordable. Many people would consider these programs to be risky…..but they work!  In fact, 75% of all my buyers are eligible for one of the many different home buyer assistance programs we offer.

Dara Delgado Loan OfficerDara Delgado – Loan Officer / Mortgage Broker: In the last year, there have been several “niche” or non-QM loan products that have rolled out, that I have originated and closed. 1) 2 years seasoning from foreclosure, short sale, bankruptcies –allows a max up to 55% Loan-To-Value. 2) Self-employed borrowers allowed alternative documents (12 month bank statements) – adding all deposits, then dividing by 12 months = qualifying income –allows a max up to 65% Loan-To-Value. 3)  Asset Depletion loans (using substantial assets, to qualify, opposed to income). I have also seen various private money lenders roll out more aggressive product such as: Stated income for self-employed or wage earner borrowers – allowing a maximum of 75% Loan-To-Value. Private money lenders loan terms and costs, however are much higher than traditional or niche product loans.

People of Sacramento: By the way, I was featured in a series called “People of Sacramento Commenting on the News“. Nathaniel Miller of the Sacramento Bee is the brains behind this effort. Read more here. Photo: Kevin Fiscus.

People of Sacramento - Ryan Lundquist - Photo by Kevin Fiscus Photographer

Questions: What risky products do you hope won’t make it back? Any other insight or stories to share?

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