Why comparing the right numbers matters so much in real estate

You can make numbers say whatever you want in real estate. Sometimes this happens on purpose, but other times it’s an accident. That’s why it’s so important to know how to make the right comparisons. Below I will show you an example of how you can look at the numbers and end up saying two completely different things about the market. Both might be technically true, yet one of the statements really doesn’t reflect the real trend. In an era of big data in real estate, knowing how to communicate these things to clients is key. Enjoy.

Looking at the numbers - image purchased and used with permission by sacramento appraiser blog

THE WRONG COMPARISON: (Volume is down by 30%)

December to January

When we compare January with December, it’s easy to get an inaccurate picture of the market (but it happens all the time in media outlets). In the case above, we see a 30% decline, and this sounds very alarming. Yet volume from December to January almost always decreases by 20-25% easily in any given year in Sacramento, so 30% in not something to freak out about.

Truth: Comparing the previous month to the current month can sometimes give us the wrong picture about the market – especially in the midst of a strong seasonal trend. Volume is ALWAYS lower in January (see this quick graph as proof).

THE RIGHT COMPARISON: (Volume is down by 4.5%)

Month to Month

When we compare January 2015 with January 2014, we see sales volume was down by only 4.5% this year. That’s a far cry from sounding the alarm that “VOLUME IS DOWN BY 30%”. In this case the most accurate thing we can say about the market is that volume was 4.5% lower this January.

Truth: Comparing the current month to the same month last year tends to give us important insight because we are using the same context for comparison. I’m not saying to not compare back-to-back months, but only to get in the habit of looking at the same month last year too. This is especially important when dealing with January and February data since they are typically slower months in terms of closed escrows. Remember too that last month’s sales tell us what the market used to be like when these properties went into contract 30-60+ days ago, but current listings and pendings tell us about the market right now.

Questions: Any thoughts or insight? I’d love to hear your take.

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10 quick talking points when someone asks about Sacramento real estate

The holidays are here, so if your Uncle Bob asked you next week at a family gathering what the real estate market is doing, what would you say? Or if a neighbor heard the market has been slow, how would you respond? Below I have 10 quick talking points to help you impress your Uncle Bob or anyone else with your knowledge of the local market. So let’s unpack some real estate trends in Placer County and the Sacramento region to hone in on two important questions: What are values doing? And why are they doing it?

Two ways to read this post:

  1. Scan the talking points and graphs quickly.
  2. Grab a cup of coffee and spend a few minutes digesting what is here.

 

PLACER COUNTY

1)  The median price dipped about 2.5% last month:

Placer County median price since 2013 - by home appraiser blog

It’s not surprising to see the median price dipped last month by about 2.5% in Placer County. The median price had been at $375,000, and now it’s at $365,000. It is very normal for prices to soften at this time of year, which is seen in the graph below. Yet at the same time, the market really is getting much softer in light of increasing inventory, which is also important to watch.

Placer County median price since 2012 - Fall season - by home appraiser blog

2) Inventory increased to 3.24 months last month.

Placer County housing inventory - by home appraiser blog

months of housing inventory in placer county by sacramento appraisal blog

Housing inventory saw an increase from 2.75 months to 3.24 months from October to November 2014. This increase sounds dramatic, but fewer sales last month played a big role in seeing inventory increase. Remember, housing supply is calculated by dividing the number of current listings by the number of sales over the past 30 days, so a lower amount of sales will naturally drive inventory up. As you can see, inventory is not the same at ever price level, is it?

number of listings in PLACER county - October 2014 - by home appraiser blog

3) It’s taking an average of 55 days to sell a house in Placer County:

days on market in placer county by sacramento appraisal blog

It took one more day this month to sell a house compared to the previous month, and about 10 more days compared to mid-Summer. It’s still taking much less time to sell a house than it used to about 5 years ago, but it is still very important to price listings correctly. When prices are softening and houses are taking longer to sell, this means overpriced homes are simply going to sit. Generally speaking, the higher the price, the longer the marketing time. Keep in mind sales above $1M took only 91 days, but there were only 12 sales, so take that stat with a grain of salt. Realize too that current actives above $1M have been on the market for 198 cumulative days.

4) Sales volume is slightly lower right now compared to last year:

Placer County sales volume - by sacramento appraisal blog

There were only 345 sales in Placer County this past month, and that’s a fairly low number, though last year in November the figure was only 365.

SACRAMENTO REGION:

5) Regional values in Sacramento softened by about 2% last month:

median price sacramento placer yolo el dorado county

The regional market was extremely flat for about six months, but it finally dipped over the past couple of months in light of the onset of Fall. An increase of inventory is definitely putting pressure on values too. Housing supply lately has been hovering about where it was when prices hit bottom in January 2012.

Regional market median price - by home appraiser blog

When watching real estate, it’s important to take a broad look at how values are unfolding in surrounding counties as well as the entire region. If we look too closely at any given county, we might not be able to see the bigger picture. By the way, the median price in Placer County is $100,000 higher than Sacramento County. Does this mean prices are $100,000 higher in Placer County? Nope. Keep in mind the average size of house that sold last month in Placer County was about 450 sq ft larger in size than in Sacramento County. This makes for huge price differences, don’t you think?

6) Sales volume is down 7.5% this year compared to last year:

SALES volume in sacramento region - by home appraiser blog

Sales volume is down in 2014 by about 7.5% when compared to the same time period in 2013. This might seem like a trivial number, but it equals about 1900 less sales on MLS so far this year.

7) Cash sales are down 34% in the Sacramento Region in 2014:

cash sales and volume in sacramento region - by home appraiser blog

Our regional market was heavily driven by cash investors over the past couple of years, but cash is no longer king. In fact, there have been 34% less cash sales in 2014 compared to 2013, which effectively means there have been 2186 less cash sales so far this year. This is a huge reason why housing inventory has increased this year because there are simply less buyers in the market right now. As time goes on, non-cash sales continue to show an increase as owner-occupant buyers are ultimately beginning to drive the market more and more. Some good news in the market is that FHA, conventional, and VA buyers have been increasing in numbers.

8) It’s taking an average of 50 days to sell a house in the Sacramento Region:

days on market in placer sac el dorado yolo county by sacramento appraisal blogIt took one more day last month to sell a house compared to the previous month (10 more days since July 2014). It’s important to be in tune with the trends of each price range too since the market is not the same at each segment.

10) Housing inventory is a HUGE driver for the regional market:

months of housing inventory in region by sacramento appraisal blog

The higher the price, the more inventory there is (generally speaking).

number of listings in Placer Sacramento Yolo El Dorado county - Oct 2014 - by home appraiser blog

median price and inventory in sacramento placer yolo el dorado county

As you can see, housing inventory in the region is definitely increasing, and that has dramatically slowed values over the past couple of years. Remember that housing inventory was artificially low at times in 2012 and 2013 because of the massive influx of cash investors who came from outside of the market to take advantage of the lower prices at the time.

interest rates inventory median price in sacramento regional market by sacramento appraisal blog

Since the current market is no longer driven by cash investors, real estate is more prone to be strongly influenced by the health and strength of the local job market as well as increases in inventory.

I hope this was helpful, and I do hope you can share something here in a conversation soon. Thank you so much for being here.

Sharing Trends with your Clients? If you want to share graphs online or in your newsletter, please see my sharing policy. Thank you for sharing.

Questions: How else would you describe the market? What are you seeing out there?

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Quick signs of the Fall real estate market arriving in Sacramento

Fall is here. You wouldn’t know it so much by the weather though since it’s still been hot in the Sacramento area. Seriously, my family has not even used our heater once yet (have you?). But the real estate numbers are a different story because they are showing a very definitive seasonal trend as the Fall market arrived on time over the past 30 or so days. Let’s take a look at 9 quick talking points to help understand and explain how the real estate market is unfolding right now in Sacramento County. I hope this helps.

Quoted in the SacBee: By the way, I was quoted in the Sunday morning edition of The Sacramento Bee in a story, “Sacramento area home could set record with 6.5 million listing“. Check it out if you wish.

photo by reggiewilliams on Instagram

Two ways to read this post:

  1. Scan the talking points and graphs quickly.
  2. Grab a cup of coffee and spend a few minutes digesting what is here.

GRAPHS

1)  The median price has been about the same for 6 months:

median price and inventory since 2013 - by sacramento appraisal blog

The median price technically declined from $275,000 to $269,951 last month, but take that with a grain of salt since the 2% boost in median price to $275,000 in September felt like more of a statistical fluke than anything. Overall the median price has been about the same for 6 months in a row.

2)  Prices overall are softening (which is normal for Fall):

price metrics since 2014 in sacramento county

Does the median price being the same for 6 months mean prices are stable? Looking at several metrics helps answer this question. Both the average sales price and average price per sq ft took a dip last month. Overall prices are softening in Sacramento County as well as the entire region (more on that in two days).

cooler price in Fall - by sacramento appraisal blog

Remember, it’s normal for prices to cool off during the Fall. The market as a whole is is slowing down, which is one thing, but let’s not forget the reality of our seasonal real estate cycle.

3) Inventory is at 2.5 months (about the same as last month).

inventory in sacramento county  Since 2011 - by sacramento appraisal blog

inventory during fall - by sacramento appraisal blog

Overall inventory is a hair under 2.5 months of housing supply, which means there are about two-and-a-half months worth of houses for sale right now in Sacramento County. This is about where the peak of inventory was in 2013. If the market unfolds “normally” over the next two months, we should see an increase in inventory.

4) Sales volume is down 8.8% in 2014 (but up 4% from October 2013):

sales volume october to october in sacramento county

sales volume in fall - by sacramento appraisal blog

It’s normal to see sales volume decline during the Fall months, so it was not a surprise to see slightly less sales in October compared to September. It is true that volume is actually 4% higher than it was during October 2013. Whiles this is obviously not a huge percentage, it’s still good to see slightly more volume. If you remember, last year was a very dark time in real estate in light of the looming government shutdown and the market having a very strong reaction as cash investors began leaving in droves. Keep in mind some savvy buyers are trying to scoop up properties right now during November and December since they know they are gaining more power to negotiate, but realistically many potential buyers are not shopping aggressively these days since their focus will soon shift to turkeys and holiday gifts. Likewise, some sellers have pulled their listings from the market since they didn’t sell at their desired prices. In fact, beginning several weeks ago price reductions have gone from about 400 per day in MLS to closer to 200. This is a byproduct of a slower Fall season (this is normal).

5) Cash sales are down 40% in Sacramento County in 2014:

cash sales and volume in sacramento county - by home appraiser blog - Copy Cash sales since 2009 in Sacramento County by sacramento appraisal blog

Cash purchases are down by 40% this year, which is really the X-factor for why sales volume has been more sluggish this year. Over the past couple years cash served as a steroid to increase values, but since investors took their foot off the gas pedal, the market has been attempting to figure out how to be normal. What does it look like for real estate to be more driven by local demand instead of an artificial demand from buyers outside of Sacramento? At the same time, cash purchases still represent about 1 in 3 sales under $200,000 (but it’s normal to have more cash at the lower end of the market).

6) Buyers are still gaining power in the market:

FHA and cash sales since 2009 in Sacramento County by sacramento appraisal blog

Less cash has created more space for both FHA and conventional offers to thrive. This has been great news for buyers. FHA has taken back an additional 4.5% of the market in 2014, which effectively means just over 23% of all sales in 2014 have been FHA (as opposed to 18.9% of all sales last year at this time). Keep in mind almost 33% of all sales used to be FHA a few years ago, so there is definitely room for buyers to absorb even more of the market. Did you catch that stat? As the market unfolds to become more of a buyers’ market in coming time, we can expect to see more FHA, conventional, and VA deals. In short, if you are not familiar with FHA appraisal standards, it’s time to get up to speed.

sellers lagging behind the trend in Sacramento County

Part of buyers gaining power in Sacramento’s housing market is due to overpriced listings from sellers. While price reductions have slowed down a bit over the past 30 days as less listings are hitting the market, there are still many overpriced properties. Sellers, remember that the mind of the buyer has changed drastically over the past six months. Buyers are simply not pulling the trigger unless properties are well-priced for their condition and location. As I’ve been saying, I recommend pricing according to the most recent competitive listings that are actually getting into contract. The image above shows how many sellers are lagging behind the trend of the market and not quite in tune yet with the change that took place. The market has been very flat and has been softening over time, yet some sellers have tried to “test the market” at higher price levels (which hasn’t worked out too well for many).

7) It’s taking an average of 45 days to sell a house in Sacramento:

CDOM in Sacramento County - by Sacramento Appraisal Blog

It took 4 more days to sell a home last month compared to the previous month. When it starts taking longer to sell like this, it’s a sign of the market slowing down (as well as a normal seasonal trend). Remember that it was taking 90 days to sell a home just a few years ago. Generally speaking, the higher the price, the longer it is taking to sell. Take the properties under $100K with a grain of salt since there were fewer sales in that price segment.

months of housing inventory by sacramento appraisal blogRemember too that not every price range is experiencing the same trend, which is a powerful point to communicate to your clients. The image above shows how inventory is not the same at every price level. Inventory is still relatively low, and while it’s easier to get into contract than it was in early 2013, it’s still not easy in some price segments.

8) Distressed sales remain very low at around only 6% of the entire market:

REOs and Short Sales in Sacramento County

There were only 85 REO sales last month and 79 short sales in the entire county. So is it a good time to be an REO agent or short sale specialist? Both are still relevant avenues of business to a certain extent, but remember to let trends inform what type of business you pursue. Who might your clients be next year if the market continues to shift to a buyers’ market?

9) Interest rates declined over the past month:

interest rates by sacramento appraisal blog since 2008

Many experts thought interest rates would be hovering around 4.5 to 5.0 by the end of 2014, but it doesn’t seem like that’s going to happen. Of course only The Fed knows how things will unfold, but keep watching this trend since lower interest rates can end up pulling in buyers who are sitting on the fence (and thus lowering inventory and creating more pressure on values to increase). Ultimately at some point the real estate market needs to be more driven by the local job market, but for now it looks like a band-aid (temporary solution) of lower interest rates is bound to help fuel the market a bit more.

10) Other graphs for context:

context for median price since the real estate bubble by sacramento appraisal blog Median price and inventory since 2001 by sacramento appraisal blog Since the bubble burst by sacramento appraisal blogI hope this was helpful. I’d love to hear your take below.

Sharing Trends with your Clients? If you want to share graphs online or in your newsletter, please see my sharing policy. Thank you for sharing.

Questions: How else would you describe the market?

If you liked this post, subscribe by email (or RSS). Thanks for being here.

An interview with the “Voice of Appraisal” show

I did an interview recently with Phil Crawford of the Voice of Appraisal show. This was a real honor since I love what Phil is doing for the appraisal industry. It’s nice to hear a fresh voice in a field that needs more unity and sometimes a reminder to embrace a progressive vision for business. Give the interview a listen below (or here) and let me know what you think. Phil and I talk shop for about 20 minutes, and my segment begins at 15:11. Thank you so much to anyone who came here after listening to the show too. I am truly honored.

Thoughts on Being a Local Real Estate Expert: One of the things Phil and I talked about briefly was the importance of becoming a local real estate expert. I cannot emphasize how vital it is for both appraisers and real estate agents to pay close attention to local real estate data. I know that sounds dull, but keep in mind how effective it is for business when you can speak confidently and definitely about HOW the market is moving and WHY it is moving. Being in tune with your real estate market in depth is especially helpful since consumers are trusting websites like Zillow more and more these days. Why not invite consumers to trust you instead? Why let a big company become the go-to source for real estate data and information?

knowing real estate trends

This is a slide from one of the presentations I give in real estate offices each month on seeing the current market. I unpack this slide a bit further in 3 reasons why knowing real estate trends is NOT just for data geeks.

voice of appraisal interview

Blog Tidbits: For any new subscribers, I post two times per week (sometimes only once). Most of the time I talk about issues that are relevant nationally for the real estate community, though at least twice a month I have two very hyper-local posts on the Sacramento housing market. Trends here of course often tend to echo what is happening in other places too.

Question: Any thoughts on marketing in real estate, the appraisal industry, or knowing local data? I’d love to hear your take. If you’re here for the first time too, please introduce yourself.

If you liked this post, subscribe by email (or RSS). Thanks for being here.