Seeing the forest and the trees in real estate

What was your worst public interaction in recent years? Think of a time when you were mean or rude to a complete stranger. You might not have intended to come across that way…. but you did. Ouch! We’ve all been there, and while I wish I was an exception, I’m certainly not. Now think of the person who experienced you as rude or mean. You might be the complete opposite in most of your life, but all this person knows of you is from that one unfortunate moment. Your larger body of work (your life) shows you are a kind and friendly person, but when someone only sees a clip of your life instead of the entire reel, that person may not have an accurate picture of who you really are.

forest through the trees in real estate - sacramento appraisal blog - image purchased and used with permission by 123rf dot com

The same thing happens in real estate. Sometimes we get so fixated on the most recent moments of data that we don’t see the bigger picture of the market. It’s like we see the trees instead of the forest, which also means we end up talking about “trees” to clients instead of giving them a fuller picture. Let’s take a look at a few examples below to help show how a wider focus on the numbers can be a huge benefit when trying to digest and explain the market.

Three examples of using consecutive months vs. last year:

Month: Sales volume declined 6.1% from September to October.
Year: Sales volume is up 7.9% when comparing October 2014 with October 2015.

Month: It took two days longer to sell a house last month than the previous month.
Year: It was taking one week longer to sell a house last year.

Month: The average price per sq ft declined by nearly 1% last month.
Year: The average price per sq ft is currently 7% higher than exactly one year ago.

I know, we can make numbers say whatever we want them to say, and that is something we always have to be careful of in real estate. But sometimes when we only compare sequential months, we are missing something important: The seasonal market. Since real estate tends to behave in a fairly predictable cycle each year (hot spring season and cooler fall), it becomes very powerful to make comparisons not only with consecutive months, but on a yearly basis. In other words, it’s telling to see what the market was doing in October 2015 compared with September 2015, but it’s just as relevant (if not more important) to compare October 2015 with October 2014. For example, in the case above when we only look at consecutive months, we might report that sales volume is declining, it’s taking longer to sell, and values are declining. Yet when we pan out for a wider view by comparing numbers from October 2015 with October 2014, we see a more well-rounded picture of the market. Sales volume is actually higher this year, it’s taking one less week to sell a house, and values are also higher than they were at the same time in 2014. Don’t get me wrong, monthly information is incredibly valuable and we need to pay attention to how the market is changing right now. But at times too much emphasis on consecutive months of data can obscure our view of the bigger picture. Thus we are left saying things like, “Sales volume is declining” or “values are dipping” when the bigger story is sales volume is actually higher this year (and it’s normal for values to soften in the fall).

Action Step: Next time you talk about the market in a newsletter or in an appraisal, compare numbers over the past couple of months, but also talk about numbers from last year too. For example, in coming weeks if you discuss sales in November, you can compare November 2015 sales with October 2015, but make it a point to also compare November 2015 with November 2014 numbers. It can be very eye-opening to make comparisons like this. I might suggest talking about sales volume, inventory, days on market, and price.

Remember, there is no one right way to explain the market. Just do your best to see the bigger picture (the forest) while you explain the latest (the trees).

I hope this was helpful.

UPDATE: I’m not sure I was as clear as possible, but consecutive monthly trends are VERY important to digest so we know if the market is slowing or growing. This is why I advocate using a CMA to gauge the temperature of the current market as well as knowing the signs of a market slowing (this requires us to use month-to-month numbers). This post is simply highlighting the importance of gleaning a better context for interpreting and reporting the market.

Questions: How do you see the forest through the trees in real estate with so much information these days? What are the positives and negatives of comparing month to month vs year over year?

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Aggressive demand but modest value appreciation in Sacramento

Is it just me, or has the market felt a bit funky? On one hand demand has felt very aggressive, but actual value appreciation has been fairly modest overall. Let’s take a look at the latest trends in the Sacramento housing market below. If you’re local, I hope the 10 quick trends help give you some talking points with clients. If you’re not local, what are you seeing in your area?

the big picture in real estate

One Paragraph on the Market: More listings came on the market last month, but buyers readily absorbed them. Pendings are still a good 20%+ higher than last year in the Sacramento area, and clean and well-priced properties are getting into contract very quickly. As aggressive as demand has felt though, we haven’t seen the rapid appreciation this Spring that we saw in 2013. Values more or less have experienced a normal seasonal increase, though when compared to sales during the Fall of 2014, prices are clearly MUCH higher since there was a lull in the market last Fall. Overall price levels now generally seem to have recovered back to the height of last Summer (or even a bit higher depending on the area). Well-priced listings are getting into contract VERY quickly, and there have been multiple offers. But at the same time buyers are tending to overlook properties that are overpriced and anything with an adverse location or a lack of upgrades. As housing inventory presumably begins to increase over the next few months, keep an eye out for more price reductions, unrealistic expectations from sellers, and buyers gaining more power from sellers. Remember too the market does not behave the same at every price level or in every neighborhood.

Two ways to read my big monthly market post:

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

DOWNLOAD 52 graphs HERE for free (zip file): Please download all 52 graphs here as a zip file (or send me an email). Use them for study, for your newsletter, or even some on your blog. See my sharing policy for 5 ways to share.

Sacramento County Market Trends for April 2015:

  1. The median price in Sacramento County is $280,000.
  2. The median price is 5.6% higher than one year ago (April 2014).
  3. It took 42 days to sell a house last month.
  4. Cash sales were only 16.5% of all sales last month.
  5. FHA sales were 27% of all sales in Sacramento County last month.
  6. Sales volume was 9.2% higher this April compared to last April.
  7. There is 1.5 months of housing inventory (1.8 months last April).
  8. The average price per sq ft is 182 (7% higher than last April).
  9. The average sales price is $310,000 (5.7% higher than last year).
  10. It took 3 days longer to sell a house this April compared to last.

CDOM in Sacramento County - by Sacramento Appraisal Blog months of housing inventory by sacramento appraisal blogprice metrics since 2014 in sacramento countyinventory during fall and winter 2 - by sacramento appraisal blog

median price and inventory since 2013 - by sacramento appraisal blog

layers of the market in sacramento county - by sacramento appraisal blogPlacer County Market Trends for April 2015:

  1. The median price in Placer County is $391,500.
  2. The median price is 6.9% higher than one year ago (April 2014).
  3. It took 41 days to sell a house last month.
  4. Cash sales were 17% of all sales last month.
  5. FHA sales were 20% of all sales in Sacramento County last month.
  6. Sales volume was 27.5% higher this April compared to last April.
  7. There is 1.9 months of housing inventory (2.5 months last April).
  8. The average price per sq ft is 200 (3% higher than last April).
  9. The average sales price is $441,163 (3.8% higher than last year).
  10. It took 10 days shorter to sell a house this April compared to last.

days on market in placer county by sacramento appraisal blogmonths of housing inventory in placer county by sacramento appraisal blogPlacer County median price and inventory - by home appraiser blogPlacer County sales volume - by sacramento appraisal bloginterest rates inventory median price in placer county by sacramento appraisal blog

Regional Market Trends for April 2015 (Sac, Placer, Yolo, El Dorado):

  1. The median price in the Sacramento Region is $325,000.
  2. The median price is 9.4% higher than one year ago (April 2014).
  3. It took 44 days to sell a house last month.
  4. Cash sales were 16.9% of all sales last month.
  5. FHA sales were 23.7% of all sales in Sacramento County last month.
  6. Sales volume was 10.5% higher this April compared to last April.
  7. There is 1.7 months of housing inventory (2.1 months last April).
  8. The average price per sq ft is 192 (7.2% higher than last April).
  9. The average sales price is $360,351 (6.9% higher than last year).
  10. It took the same amount of time to sell in April 2015 and April 2014.

days on market in placer sac el dorado yolo county by sacramento appraisal blog

months of housing inventory in region by sacramento appraisal blog

median price and inventory in sacramento placer yolo el dorado county

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

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

Questions: How do you think sellers and buyers are feeling about the market right now? What are you seeing out there?

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The tallest real estate graph ever in Sacramento

Did you hear about the 100 million dollar condo sale in New York recently? It’s hard to grasp just how much money that is for only one residence. For context, $100,000,000 is about a 19% ownership of the Sacramento Kings, a 10% share of the San Francisco Giants, or a 20% ownership of the Oakland A’s (Forbes). After reading about this sale from New York appraiser Jonathan Miller, and seeing his “tall” graph of the New York market, I was inspired to do something similar.

The Tallest Real Estate Graph Ever in Sacramento: From what I can tell, the image below is the tallest real estate graph ever in Sacramento. This is a unique view of the residential housing market from 2012 through 2014. What do you see?

sacramento county sales from 2012 to 2014 - residential only - sales on mls only - by sacramento appraisal blog

The Small Version of the Graph Above:

The small version of sales in sacramento county since 2012 - sacramento appraisal blog

Sales Above $1M in Sacramento County Since 2008:

Sales above 1M in Sacramento County since October 2008 - sacramento appraisal blog

When we look at the market in different ways, sometimes we can better understand it and then explain it to clients. I hope this was helpful and interesting. As always, feel free to share this post with your contacts, and if you plan to post a graph on your site or in your newsletter, please see my sharing policy (it’s an honor when people share – thanks).

Question: What do you see in the graphs above?

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The striking difference of cash in real estate in 2013 and 2014

Last year was dominated by cash sales. Or I should say DOMINATED since investors really drove the market. This was true in Sacramento and it was true for many markets across the United States. But this year has been different. In fact, cash has been about half of what it was last year, and it has simply softened the market. Let’s take a look at some images and six quick talking points to share with clients and contacts. Any thoughts?

cash sales in sacramento county 2013 vs 2014 - by sacramento appraisal blog - 530

Key Takeaways for Sacramento County: 2013 vs 2014*

  1. Total sales volume is down 14% from 2013
  2. Cash sales are 21% of the market, but they used to be 35% of all sales
  3. There have been 48% fewer cash sales in 2014
  4. As prices in real estate have increased, so have cash price levels
  5. About half of cash sales are still under $200,000
  6. Less cash has created more space for financed offers to get accepted. There have been more conventional /FHA purchases in 2014 compared to last year. There were 4087 in 2013 and there have been 4194 in 2014.

* Data is based on January to May (single family detached sales in MLS).

cash sales in sacramento county 2013 vs 2014 - by home appraisal blog

I hope this was helpful. By the way, this is completely off topic, but here is my latest wood project. If you didn’t know, I love to tinker with wood – especially scrap wood. I built this outdoor cooler a few days ago out of scrap in my garage.

my DIY outdoor cooler

Questions: How have you been seeing cash investors impact the real estate market (even if you are not local)? What is driving your market right now?

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