The housing market is like a…

I’m a huge fan of housing market analogies. Of course we can keep it plain by sticking to the numbers, but there is so much more flavor when we use a fitting comparison. Not only can analogies capture people’s attention, but they can also help break down complex ideas to communicate to the masses. Moreover, sometimes a funny or relevant comparison can open up the door to further conversation about trends. Today let’s take a look at some housing market analogies that complete the sentence, “The housing market is like a ….” Thank you to everyone who contributed to this post.

housing market analogies by sacramento appraisal blog - donut image purchased from 123rf dot com

Do you have any other analogies to add? I’d love to hear your take.

Donut
The New York City market was like a donut in 2014, strong on top and bottom and weak in the middle (Jonathan Miller).

Pizza
The Sacramento market is like a pizza. We are affordable, there is a piece for everyone, and even when we cool off a bit, we are still great (Barbara Lebrecht)

Matryoshka Doll
The market is like a matryoshka doll. Just as there are many little dolls within one large doll, there are many sub-markets within the larger market (Ryan Lundquist).

A market within a market - purchased and used with permission by sacramento appraisal blog

iPhone
The market is like an iPhone. Everybody has used it, some people use it too much, but few really know how it works (Gary Kristensen).

Coffee
Real estate is like a cup of coffee – too hot you’re going to get burned; too cold you don’t want to drink it; but when it’s just right you’ll probably have another cup or two (Michele Skupic).

Ocean Waves
The market is like ocean waves. There are many things that create the waves and their size, and it’s always changing – just like the many things that make real estate values move (Craig Dunnigan)

Stock Market
The housing market is like the stock market in that a home is worth what the market says it’s worth at a point in time; if a seller isn’t happy with the current value, he can wait and hope it increases, but as with the stock market, the value could also decrease (Dean Rinker).

real estate bubble - Image purchased from 123rf dot com and used with permission - sacramento appraisal blogBubble
When real estate values are inflated, we like to say the market is like a “bubble” because we think at some point values will “pop” or correct. Interestingly enough, the National Association of Realtors used to describe the previous housing “bubble” as “a balloon with a slow leak” from 2003-2007 (thanks Jonathan Miller for that tidbit).

Roller Coaster
The market is like a roller coaster…and we are hanging on for the ride (Paula Swayne).

Teeter Totter
The market is like a playground teeter-totter, it likes to be in balance, but adults keep coming along and screwing things up (Gary Kristensen).

Parent who Threatens Consequences (and doesn’t give them)
The Fed’s talk of raising interest rates is like a parent who threatens consequences but doesn’t give them. We all know interest rates will eventually increase in the future, but we’ve been hearing about an impending increase for years now. All we know for sure is rates will definitely, probably, maybe increase soon (Ryan Lundquist).

Relationship
The housing market is like a relationship, meaning it’s full of ups and downs. Any meaningful relationship has both good and bad days, right? That is very normal, and the same exact thing is true in real estate. However, one of the temptations in the real estate community is to talk like everything is always good as if values are always increasing (Ryan Lundquist).

Multi-Layered Real Estate Cake
Value in a real estate market is like a multi-layered cake since there are many “layers” in the market that help impact or create value. When one of the layers changes, it can change the rest of the market. See more here (this is my favorite analogy to use). Source: Unknown (though I first heard it from Dennis Lanni over a cup of coffee years ago).

multi-layered-cake-analogy-cake-by-Joy-Yip-text-by-Sacramento-Appraisal-Blog-yellow-text

I hope this was a fun read. Thank you again to everyone who contributed some thoughts. On a serious note, analogies can be an amazing way to describe the market, and I hope you feel encouraged to use them even more.

Questions: Do you have any analogies or metaphors to add? Which one(s) work best for you? I’d love to hear your take in the comments.

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12 market trends and tips for real estate professionals to watch in 2015

It’s a new year, which means it’s crucial to take a look at the housing market. If you work in real estate, ask yourself these two questions: What is the market doing? And who are your clients going to be this year? The truth is if we do the same thing each year without really considering how the market is evolving, it’s easy to miss out on being relevant to clients.

The 2015 housing market

Here are some trends and tips on my radar as 2015 begins, and I wanted to share them because I thought some of them might be good conversation fodder for business plans or with clients. These trends are relevant for Sacramento, but I have a feeling they might be showing up in many markets across the country. Enjoy.

12 trends and tips for real estate professionals in 2015

  1. Buyers’ Market: The market is definitely morphing into a full-fledged buyers’ market. In light of more houses for sale, buyers simply have more options. This means properties will generally take longer to sell, and buyers will have more room to negotiate.
  2. Pricing Correctly: As the market changes and inventory increases, it will be paramount this year to price properties correctly. When a market grows soft, buyers tend to become more picky about pricing and making offers, which means overpriced listings will sit on the market instead of sell.
  3. image purchased from 123rf and used with permission by sacramento appraisal blog - distressed sales fishingThe Small Distressed Sales Pond: Foreclosures and short sales used to drive the market, but that’s not the case any longer these days. Being a distressed property specialist is still a relevant avenue of business, but it’s also a crowded pond to fish in. Remember that owners who went through a foreclosure or short sale several years ago may actually now be able to re-enter the market (these buyers are called “Boomerang Buyers”).
  4. Equity Sellers: Some home owners do not realize how much the market surged in recent years. They may actually be surprised to know they have equity again after the recent increases from 2012 to 2014. This can open up options for moving up or downsizing.
  5. Dispelling the Want to Buy at the Perfect Time: With the advent of vast online real estate data, many buyers are watching the market carefully and wanting to time the market perfectly to be sure they are buying at a time when values are increasing. The reality is it’s not easy to pull this off. In fact, many home owners who purchased at the bottom of the market in early 2012 didn’t actually realize they were doing so. They were simply lucky and bought at a time they could afford. When I ask, “Do you realize you purchased at the bottom?”, their response is often, “Really? I had no idea at the time.” In short, in a market that is no longer rapidly appreciating in value, buyers need to focus on being sure they are comfortable with the price and monthly mortgage payments rather than looking for that perfect market moment to get rich in real estate.
  6. Image purchased at 123rf dot com and used with permission - 14688774_s - smallerDivorce: As the economy improves, divorce has been more common (the LA Times says so too). I easily did three times as many divorce appraisals last year compared with previous years. Divorce is a very difficult time in a client’s life, so it’s important to be able to serve clients in their time of need, and to be aware that divorce stats may be increasing as the economy heals.
  7. FHA Buyers Increasing: Despite some in the real estate community saying FHA would not increase due to permanent mortgage insurance being required, it has definitely increased over the past 18 months in the Sacramento region. FHA has been a relevant product for many buyers since there is little money down required. Of course we can expect to see some more creative financing options emerge as the market softens, but in the mean time, if you are not in tune with FHA appraisal standards, it’s time to brush up so your buyers and sellers know what to expect. I have seen several properties recently trying to use traditional FHA financing that were blatantly not acceptable for FHA (maybe a 203K loan though). This is where knowing the standards becomes important.
  8. Rentals Hitting the Market: Some investors who purchased in 2012 and 2013 are beginning to sell their properties. I have yet to see Blackstone do this, but I have seen some smaller funds with 30-40 properties begin to unload. I talked with an investor recently who has a few dozen properties, and he wondered how strong the market is to sell. What would you say?
  9. Not as Easy to Flip: Everyone and their Mom wants to be a house flipper, but buying distressed inventory on MLS these days isn’t as easy as it used to be because there just aren’t as many low-priced foreclosures. Since there is less room to buy at a discount on MLS, it’s important for would-be flippers to explore alternative ways of picking up properties, and to be extra sure they are purchasing with enough room to rehab and sell. Being realistic about the ARV (After Repair Value) is key – especially in a price-sensitive market.
  10. Exit Before It’s Too Late: Some property owners are concerned about the future direction of the market, so they will be interested in selling this year “before it’s too late” (in case the market begins to decline in value).
  11. The Granite Wave: Having granite counters used to be such a custom feature a decade ago, but it’s become a bit stale in the current market. Don’t get me wrong, buyers still like granite, but at the same time there is a growing sense of the market becoming saturated with granite. What advice would you give clients about making a kitchen shine in today’s market?
  12. Standing Out: As housing inventory presumably increases this year, it will be important for properties to stand out from others to compete for a limited pool of buyers. When inventory increases, buyers tend to become more finicky about location, condition, and upgrades (which underscores the need to price properties correctly).

NOTE: These trends may not be present in every neighborhood or price range in Sacramento, or in every area of the United States.

I hope this was helpful in some way, and I hope you have a profoundly successful year in real estate. I look forward to watching the market carefully this year, and to all the discussions we’ll have together. May you have a very prosperous 2015.

Questions: Anything else you’d add? If you are not in Sacramento, are there some parallels here that also resemble your market? I’d love to hear your take.

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7 tips to NOT stress out when the real estate market changes

Change can be stressful. That’s obvious. I don’t know about you, but I’ve picked up on a slightly stressed vibe when talking with the real estate community lately. We had such an aggressive market for the last couple of years, but now that things are slowing down, it can feel a bit stressful for some. For what it’s worth, I wanted to share a few thoughts for anyone who is feeling edgy right now about the market.

stressed guy - image purchased by sacramento appraisal blog

7 tips to NOT stress out when the real estate market changes

  1. It’s normal for markets to change: This is what we tell our clients, and this is what we need to tell ourselves. Real estate markets are constantly morphing, so we should expect change and plan for it too.
  2. Sellers will eventually catch up to the market: Right now sellers have been lagging behind the trend, meaning they’ve been wanting to price their properties higher than the market will bear. Sellers will eventually catch up to the market though, which will help put sellers and buyers on the same page. Kevin Cooper and Tom Lichtenberg reminded me of this point last week.
  3. Find some optimism: There are always two sides to stats. Sellers might look at a softening trend as a threat, but on the positive side buyers have more opportunity to afford the market and actually get into contract. I’m not saying to turn a blind eye to stats or perpetuate real estate spin, but simply keep things in perspective.
  4. Think about your marketing strategy: When you consider how the market is moving, who are your clients going to be next year? Now is the time to work hard and diversify your clientele if needed. Also, when a market changes, sometimes that means employing different strategies instead of doing the same thing that worked last year.
  5. Keep connecting with people: Business is about people. When we start to stress about market trends, the focus is removed from the most important thing. People. Yes, watch trends carefully, but be sure to let them serve and guide you instead of stress you out.
  6. Try to keep your emotions grounded: The plight of any self-employed person or sales professional is that our emotions are often contingent on how business is going. If things are booming, we feel great, but if things are slower, we feel down. The key is to find a way to stay grounded and put your confidence in something bigger than work. I’d love to hear what you do. I’ve yet to meet someone who does not struggle with this to a certain extent.
  7. Know the context of your stats: Lastly, when a market changes we can often look at stats with tunnel vision rather than the broader picture. For instance, on one hand it’s taking 40% longer to sell a house in Sacramento compared to last year, but four years ago it was taking twice as long than it is now. Additionally, inventory more than doubled in the past 18 months, but it’s actually at a fairly normal level right now.

Three graphs to provide context for the current market:

CDOM in Sacramento Region

Regional housing inventory in Sacramento

I hope this was helpful.

Questions: Which is your favorite point? Any other points you’d add?

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A quick recap of February’s real estate market in Sacramento

Let’s do a quick recap of how real estate unfolded in February in Sacramento County. There are two ways to read this post: 1) Briefly scan the graphs below in 30-ish seconds; or 2) Take a few minutes to digest the graphs and commentary.

February sales in sacramento county by sacramento appraisal blog

Sluggish Sales: It’s normal for there to be less sales during colder months, though overall the market has felt sluggish. That’s my take and many real estate agents have also been talking about how the market has seemed to lag since the beginning of the year (though conversations are beginning to discuss the market heating up for Spring).

sacramento real estate market trend graph houses sold since 2008 by sacramento appraisal blog

Similar to January: Sales were fairly similar to January in that there were only about 950 sales (single family detached). This number will go up slightly in coming days as more sales are reported, but it’s strong enough now to say this past month was fairly similar to the previous month in regards to sales volume.

sacramento real estate market trend graph median price and inventory since 2012 by sacramento appraisal blog

Median Price Increase: The real estate market bottomed out in early 2012 after many years of decline, and the graph above charts the market rebound. The median price since January 2012 has risen from $160,000 to $259,000 and last month saw an increase from $240,000 to $259,000. Technically we could talk about how real estate increased by 8% last month, but sales volume has been REALLY low, which makes the median price weak since there aren’t as many sales to pack into the data set. So take this huge increase with a grain of salt. We could also say the median price has not been at $259,000 for six years either, but let’s try to avoid sensationalism based on one month of data during a Winter season that had VERY few sales.

inventory since 2011 by sacramento appraisal blog

Story of Inventory: Inventory is now at 2.5 months, which means on a monthly basis there are enough listings to satisfy two-and-a-half months worth of buyers. This is still a low figure, which leaves some room for very decent competition (but not the blood bath of last year when inventory was at one month). Keep in mind there are about 2300 pending listings right now too, which is a huge number. Some of these pending sales will of course fall out of contract, but many should close to help boost an increase of sales in March (which is the norm in Sacramento County).

sacramento real estate market trend graph interest rates since 2001 by sacramento appraisal blog

Interest Rates Dipped: Interest rates saw a slight decline from January. When rates began to increase between May and June last year, it really impacted the real estate market and definitely helped to cool off values (investors began pulling back around the same time too). The market is definitely sensitive to the direction of interest rates and inventory in particular, so it’s important to watch trends carefully and consider the implications for the future.

sacramento real estate market trend graph median price interest rates inventory since 2008 - by sacramento appraisal blog sacramento real estate market trend graph median price interest rates inventory since 2011 - by sacramento appraisal blog

Layers Working Together: I know I am constantly talking about the layers of the real estate market. I don’t mean to beat a dead horse, but watching how trends are unfolding together can help give us clues into how the market may unfold in coming time.

sacramento real estate market trend graph median price and inventory since 2001 2 by sacramento appraisal blog

Some Context: If you’re looking for context for price levels, current values are similar to what they were during the first quarter in 2008 and toward the last quarter of 2003. Of course this is for the entire county and specific neighborhoods can vary greatly. Classic neighborhoods tend to be ahead of county numbers and the condo market tends to lag behind county numbers.

If this was helpful for you, please forward it to others.

Share the Graphs: As always, you can use these images unaltered in your newsletter, on social media sites or blog posts (just link back). See my sharing policy for more details about 5 different ways to share my content. Or if you need a quote for a blog post you’re writing, let me know.

Question: What are you seeing out there in the market? Do you sense Spring fever beginning to kick in or does it seem like the market is still lagging?

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