Sagging stats and increasing values (and a market update)

January stats are down, but the market feels up. That’s normal at this time of year, but it can be confusing. Let’s focus on three things to keep in mind about the beginning of the year in real estate, and then let’s unpack the market. This post is long on purpose. You can scan it quickly or pour a cup of coffee and spend some time here. If you aren’t in Sacramento, I hope you can still find some value. Do you see any parallels to your market? Any thoughts? 

39613867 - close up of weathered and textured boards on an old wooden farm door

3 things to keep in mind about the beginning of the year in real estate

1) Recent sales lag the real trend: At this time of year it’s important to remember that the most recent sales don’t necessarily tell us about the current market. It’s like a pregnancy test. You might be pregnant, but an over-the-counter test won’t tell you that for two weeks even though there has been a change in your body. Similarly, the market may have changed, but we may not see the price change in the stats for a month or two.

2) Insane appreciation: We are seeing multiple offers, but in many cases it seems the market is trying to get back to prices from the peak of summer rather than showing rapid value increases like we saw in 2013. I recently heard about a property getting into contract 5% above sales from December, but that doesn’t mean the market actually increased in value by 5% over the past month. It could simply be the market is pulling itself out of the fall seasonal lull and getting back to prices from the summer (where they were 5% higher).

3) We see the market in the pendings: If we want to see the current market we have to look at the pendings and listings. Let’s obviously give strong weight to properties that have actually sold, but we cannot ignore pendings to help us gauge the direction of prices for the current market. If we rely too heavily on sales from December and January alone, we might essentially undervalue properties because the market usually ticks up during the early part of the year (which we would see in the pendings). In other words, today’s higher pendings will close over the next 30-60 days and then show value increases on paper for March and April. But the truth is the value increases are actually happening right now. It just takes skill to be able to see the market before the change shows up in the stats. This is why have to give way more respect to pendings. I realize we don’t know the exact price of pending sales though, and that’s why we have to look at many examples of pendings rather than just one. In some markets pendings get into contract at ridiculous levels too, so we have to sift if the prices are realistic (that makes it even more tricky). If there are few listings in a neighborhood, we can look at competitive neighborhoods for more data because we don’t want to base the entire market on just one listing or pending. Let’s not forget to be in tune with where sales left off at the end of summer too.

Appraisal class: I’m teaching a 3-hour class next week on Feb 22 at SAR called How to Think Like an Appraiser. I’d love to have you come. Details here.

DOWNLOAD 77 graphs HERE: Please download all graphs in this post (and more) here as a zip file (including a one-page quick stat sheet). See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

A Market Summary: The market is always interesting in the early part of the year because we are in a place where values have changed, but we don’t see the change in the sales stats yet. So there is a disconnect between reporting slow January data and how the market feels right now. What I mean is the median price softened last month by 3%, sales volume declined by 27% from December, and it took 3 days longer to sell a house than the previous month. If we didn’t know any better we’d say the market was tanking. But let’s back up and think through this.

January sales stats aren’t often very sexy because they represent properties that went into contract in November and December. Do you remember Thanksgiving and Christmas? Yeah, you probably weren’t looking for a house, so it’s not a surprise to see sales stats sag from those months. At times the real estate community doesn’t like to admit the market shows a price lull during the fall, but a lull happens nearly every single year. So if we’re not careful we can focus on sales volume declining last month by 27% without realizing that’s normal to see every January (see graphs below). The irony is it’s easy to say we are in trouble because sales volume declined, but this January actually had its strongest month of volume in 4 years. We might also be concerned about sales showing a good 5% or so decline from the height of summer, but that’s not unusual (see graphs). Or we can freak out about sales taking longer to sell, but over the next month or two we are bound to see this stat change as it will begin to take less time to sell during the spring.

The truth is the market is beginning to heat up. Right now we have an atmosphere of multiple offers in many price ranges. Let’s remember though the market feels more aggressive than actual value increases at times. Moreover, it’s easy to let news of a “hot” real estate market or anemic housing inventory trump actual market data. Thus I would caution sellers to price according to the market instead of the headlines. Just because inventory is spare does not mean you can get whatever price you want too. I would also remind buyers that the bulk of listings don’t usually come on the market for a few months (April through August tends to be the peak).

Sacramento County:

  1. The median price softened to $305,000 (down 7% from summer).
  2. The median price is currently 8.9% above January 2016.
  3. Sales volume was stronger in January than it’s been in 4 years. We could focus on sales volume declining by 27% from December, but volume always declines from December. See the graphs below.
  4. Sales volume in January 2017 was 14% higher than last year.
  5. One year ago in January it was taking 4 days longer to sell.
  6. FHA sales volume is down 6% this year compared to 2016 (but 27% of all sales were FHA last month).
  7. Only 3% of all sales were bank-owned last month and 2.4% were short sales.
  8. The average price per sq ft was about $202 last month (about the same as December, but 8% higher than last year).
  9. The average sales price softened 1% last month and is currently $339,028. This is down 5% from the height of summer (but is 9% higher than last year).
  10. Cash sales were 15% of all sales last month.

Some of my favorite images this month:

Median price since 2013 in sacramento county

january and december

january seasonal market in sacramento

inventory in sacramento county Since 2013 - part 2 - by sacramento appraisal blog

price metrics since 2015 in sacramento county - look at all

CDOM in Sacramento County - by Sacramento Regional Appraisal Blog

inventory - January 2017 - by home appraiser blog

SACRAMENTO REGIONAL MARKET:

  1. The median price softened to $339,000 (down 8% from summer).
  2. The median price is currently 5% above January 2016.
  3. Sales volume in the region is up about 2% over the past year.
  4. Sales volume in January 2017 was 7.6% higher than last year.
  5. One year ago in January it was taking 3 days longer to sell.
  6. It took an average of 47 days to sell a home last month.
  7. FHA sales volume is down almost 7% over the past year (but still 23% of all sales were FHA last month).
  8. The average price per sq ft was about $208 last month. This is down about 1.5% from summer, but 5.7% higher than last year.
  9. The average sales price softened 2% last month and is currently $380,151. This is down about 6.5% from summer (but is 5.9% higher than last year).
  10. Cash sales were 16% of all sales last month.

Some of my favorite images this month:

median price sacramento placer yolo el dorado county

Regional Inventory - by Sacramento regional appraisal blog

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

inventory in sacramento regional market

sacramento region volume - FHA and conventional - by appraiser blog

PLACER COUNTY:

  1. The median price is $424,500 (down 3% from the height of summer).
  2. The median price is currently 4.8% above January 2016.
  3. Sales volume in Placer County was down almost 13% this January compared to last January. 
  4. Sales volume in January was nearly identical in volume to January 2014 and January 2015.
  5. Housing supply is down 4% from last year.
  6. It took an avg of 52 days to sell a home last month (same as Jan 2016).
  7. The average price per sq ft was about $211 last month. This is down about 2.5% from summer, but about 5% higher than last year.
  8. The average sales price softened 1% last month and is currently $467,276. This is down about 3% from summer (but is 3% higher than last year).
  9. Bank-owned sales were 2.4% of all sales last month (short sales were 1.3%).
  10. Cash sales were 19.5% of all sales last month.

Some of my favorite images this month:

Placer County price and inventory - by sacramento appraisal blog

Placer County sales volume - by sacramento appraisal blog

months of housing inventory in placer county by sacramento appraisal blog 2

days on market in placer county by sacramento appraisal blog

Placer County housing inventory - by home appraiser blog

DOWNLOAD 77 graphs HERE: Please download all graphs in this post (and more) here as a zip file (including a one-page quick stat sheet). See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Questions: Did I miss anything? What are you seeing out there? How would you describe the market? I’d love to hear your take.

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The market is definitely maybe going to do that one thing in the future

The market is doing great. It’s about to crash. Values are fine but they’re slowing. Actually, the “bubble” popped two months ago. Right now there are some strong opinions about real estate trends. It feels a bit manic to be honest as some say the market is tame while others say it’s beginning a downward slide. In light of this, I hoped to kick around some ideas together. What do you think?

36852833 - businessman holding a glass ball,foretelling the future.

A few things to consider when the market begins to slow:

  1. Don’t let headlines become your talking points: It seems like sensational headlines and stories can become our talking points if we’re not careful. It’s easy to let this happen in our personal lives, so two weeks ago we were offended by Ryan Lochte, this week it’s Colin Kaepernick, and next week it’s going to be some other person or situation. I’m not saying these things don’t matter, but only that it’s easy to get swept up in the latest headlines. The same thing happens with real estate articles and opinions. It’s easy to hear something and swiftly conclude “the market is doing this or that,” without really fact checking our local market. My advice would be to let local data inform our market statements.
  2. Be careful about predicting value: It’s really not the job of real estate professionals to predict what values will do in the future. If I asked you to predict exactly what Apple stock will be worth in one year, could you be precise? Or tell me how consumers will feel about Netflix in 5 years from now. Or let’s keep it simple. Who is going to be President in two months? You get the point. Everyone is asking where the real estate market is heading, but the most honest thing we can say is, “I don’t know what the market is going to do. My crystal ball is broken. But I can tell you in depth what the market is doing right now and what it seems poised to do in the immediate future.”
  3. Know the seasonal trend: Almost every single year in the later summer the real estate market slows down and the real estate community tends to freak out. What is happening? Has the “bubble” popped? Is the market starting to turn? It’s as if we are disconnected from seasonal trends and thus treat any slowing like it’s something totally unexpected. Like I said two weeks ago, weighing a slowing market is like stepping on a scale at the right time of day. Frankly, we have to be able to answer questions like this: What does the market normally do at this time of year or during this month? Does it take longer to sell? What happens with sales volume? Does monthly inventory usually go up or down? Do prices usually soften or increase? Answers to these questions can show us how the seasonal market usually behaves and then help us interpret whether a current slowing is something normal or not. Here’s a good rule of thumb: Unless we see something that indicates this is more than a seasonal slowing, it’s probably an okay idea to consider this a seasonal slowing.
  4. Preaching the market is going to change: For those preaching a coming change in the market, here are a few questions: What is going to cause the market to change? When is it going to happen? And by how much will values decline? In reality it’s a given that at some point in the future the market is going to change. Why? Because that’s what markets do. They go up and they go down. While I’m not a huge fan of predicting real estate, I guess if someone has a platform of change, I’d rather hear some specifics because otherwise preaching change seems like prophesying something inevitable. Know what I’m saying?

I hope this was helpful and relevant.

Video Market Screencast: In the following video I talk about seeing the seasonal market and what the market was like in 2005 when values began to decline. I hope this will be helpful and maybe even a game-changer for some. Watch below (or here). Yeah, it’s not short, but maybe watch it in the background while working.

Questions: What is point #5? Did I miss anything? Which point resonated with you the most? Do you think what’s happening now is a seasonal trend or is it something else? I’d love to hear your take.

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The stats show the market is slowing (and we’re not surprised)

Shocking titles tend to get clicked more on Facebook. So if I wanted more clicks, I probably could have gone with a sensational title like, “The market is taking a turn downward”. Or maybe I could have said, “Big changes you MUST know about in Sacramento real estate.” After all, the stats are showing values are softening, so hyping up this point could certainly lead to more traffic. But you know what? I’m not interested in hype, and I never want more clicks at the expense of my integrity. Yes, the market is growing softer right now, and that can feel scary for some, but truth be told there really isn’t any shock here because this is exactly what we expect to see happen during the fall months. Nonetheless, the fascinating part is the fall season this year has still been different than it was last year. This year is actually much more competitive and far less dull. So let’s unpack some trends below with the goal of understanding what values are doing so we can more effectively tell the story of the market to our clients and contacts. I hope this is helpful for locals as well as out-of-town readers (what is your market doing right now?).

housing numbers - image purchased and used with permission by sacramento appraisal blog

Two ways to read THE BIG MONTHLY 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 70 graphs HERE (zip file): Please download all graphs in this post (and more) here as a zip file (or send me an email). Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

One Paragraph to Describe the Sacramento Market: The market has been slowing in the Sacramento area, but it’s nowhere near as slow as it was last year at the same time. Overall sales volume is up nearly 11% in the region this year, housing inventory is down 24%, and homes took 4 fewer days to sell this September compared to last September. There have actually been less price reductions so far this year too. In terms of home prices, the median price, average price per sq ft, and average sales prices are tending to be about 4-5%+ higher than they were last year, though this doesn’t mean values are necessarily 4-5% higher. This is an important distinction because median price increases don’t always translate dollar to dollar to actual value. Keep in mind the median price in the regional market has softened by almost 2.5% over the past few months, and the median price in Sacramento County has been about the same for five months in a row. There are some graphs below to help show the seasonal market, and they remind us it is customary to see the median price soften, inventory increase, and sales volume decline during the fall months. Overall there is still a higher demand than there was last year, but the market is very price sensitive. Buyers simply aren’t pulling the trigger on overpriced homes (sellers, please consider that). By the way, if you missed my post last week, I gave some perspective on “real estate bubble” conversations, and it is a very relevant post as we see price metrics begin to soften at this time of year.

Sacramento County Market Trends for September 2015:

  1. The median price has been hovering around $290,000 for 5 months (3.6% higher than last year).
  2. It took an average of 36 days to sell a house last month (up 2 days from the previous month).
  3. Last year at this time it was taking an average of 41 days to sell a house.
  4. FHA sales were 29.5% of all sales last month (nearly 28% of all sales in Sacramento County last quarter).
  5. Sales volume is 10.1% higher so far in 2015 compared to last year.
  6. Sales volume was 13% higher in Sept 2015 compared to Sept 2014.
  7. There is a 1.74 month supply of homes for sale (similar to previous month).
  8. Housing inventory is nearly 30% lower right now compared to Sept 2014.
  9. The average price per sq ft is 188 (5.6% higher than last September).
  10. The average sales price is $314,317 (1.9% higher than last September).

Median price since 2013 in sacramento county

reo and short sales sacramento county 2

seasonal market in sacramento county median price

seasonal market in sacramento county sales volume 2 FHA and cash trends in Sacramento 3

seasonal market in sacramento county inventory 2

inventory - September 2015 - by home appraiser blog CDOM in Sacramento County - by Sacramento Appraisal Blog price metrics since 2014 in sacramento county

Sacramento Regional Trends for September 2015 (Sac, Placer, Yolo, El Dorado):

  1. Sales volume was up 11.5% in Sept 2015 compared to Sept 2014.
  2. Sales volume for the year is up 11% compared with 2014.
  3. The median price at $325,000 is up 4.8% from last year, but down 2.5% from the past few months.
  4. It took an average of 41 days to sell a house last month (2 days longer than last month).
  5. FHA sales were 23% of all sales in the region last month.
  6. There is 2.06 months of housing inventory (same as previous month).
  7. The average sales price is $360,481 (4.3% higher than last year, but down slightly from three months ago at $370K).
  8. It took 4 less days to sell a house this Sept compared to Sept 2014.
  9. FHA sales volume has increased by 30% in 2015 compared with 2014.
  10. Housing inventory is nearly 24% lower right now compared to Sept 2014.

sales volume 2015 vs 2014 in sacramento placer yolo el dorado county

breakdown of sales fha and everything else in sacramento placer yolo el dorado county

breakdown of sales in sacramento placer yolo el dorado county

median price sacramento placer yolo el dorado county

months of housing inventory in region by sacramento appraisal blog

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

Placer County Market Trends for September 2015:

  1. Sales volume was up 7.7% in September 2015 compared to September 2014.
  2. Sales volume for the year is up 15.8% compared with 2014.
  3. The median price in Placer County is $389,000 (about 1% higher than last year at the same time).
  4. Cash sales were 18.8% of all sales last month (very normal level).
  5. It took 46 days on average to sell a house last month (same as previous month).
  6. Last year at this time it took 1 day longer to sell a house.
  7. FHA sales were 16.7% of all sales in Placer County last month.
  8. There is 2.42 months of housing inventory (17% lower than last year).
  9. The average price per sq ft is 194 (5.3% higher than last year at the same time).
  10. REOs were 2.6% of all sales and short sales were 1.5% of all sales last month.

Placer County median price since 2014 - part 2 - by home appraiser blog

months of housing inventory in placer county by sacramento appraisal blog

days on market in placer county by sacramento appraisal blog

interest rates inventory median price in placer county by sacramento appraisal blog

Placer County sales volume - by sacramento appraisal blog

I hope this was helpful. Thank you so much for being here.

Quick Pricing Advice:

  1. It’s normal for prices to cool during the fall. This year the market is not as soft as it was last year at this time, but we are still seeing a softening.
  2. Price according to the most recent listings that are actually getting into contract rather than the highest sales from the spring.
  3. Talk about the difference between actives, pendings, and neighborhood sales on your listing appointments and in your appraisals. See How to use a CMA to gauge the temperature of the market for a fantastic way to quickly explain what the market is doing to your clients.
  4. The market is price sensitive, which means buyers are not biting on overpriced listings despite inventory and interest rates being relatively low.
  5. Remember there are many markets within a market, so price according to the neighborhood market rather than county-wide trends since your neighborhood might be more or less aggressive compared to the entire county.

DOWNLOAD 70 graphs HERE (zip file): Please download all graphs in this post (and more) here as a zip file (or send me an email). Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

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

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

4 temptations to avoid when it comes to cost vs value in real estate

If you spent $50,000 on a 15 ft statue of Yoda in your front yard, do you think you’d get $50,000 back in value? A Star Wars fan might wet his pants and quickly offer a premium for the house, yet what would everyone else pay? That is the bigger question. We all know there is a difference between cost and value. Cost is the price of something, while value is what it is actually worth. We understand this logically, yet there often seems to be a disconnect between cost and value in the actual real estate market, which is why this conversation is important. Let’s look at some temptations to avoid as well as tips to get the most value out of improvements. I’d love to hear your take in the comments below.

cost vs value in real estate - by sacramento appraisal blog

Temptations to avoid when it comes to cost vs value:

  1. Treating Cost & Value the Same: Value can be much different from cost, right? This means a $47,000 home remodel might not lead to $47,000 in value. Or $75,000 in extensive landscaping might not command a $75,000 price premium. Or a $150,000 accessory dwelling built in the backyard may not automatically boost value by $150,000. Or a built-in pool that cost $35,000 to install may not lead to…. you get the point. We can always consider the cost and quality of something when we are trying to come up with a value, but at the end of the day we have to answer this question: How much are buyers actually wiling to pay for it? An owner might say, “I spent $136,000 on this rehab, and the appraisal came in low”, but if the appraiser used solid comps and made proper adjustments, the real issue could be the full cost of the rehab is not showing up dollar for dollar in the resale market (it’s actually not as easy as you’d think to get dollar for dollar).
  2. Letting Emotion Trump Data: What are homes actually selling for in the neighborhood? We have to look at sales to inform us about the resale market since sales help tell the story of what the market has been willing to pay. This is especially true when considering the ARV (after repair value) of a house that is going to be flipped (or even remodeled). It’s far too easy to get trapped into a formula like this: cost of acquisition + cost of remodeling + profit = value. But the truth is we need to look at the resale market first. What are remodeled properties actually selling for in the neighborhood? Once we have a good sense of the numbers we can then take steps back to determine if the acquisition cost and/or a rehab costs make sense or not. Thus an investor might pass on a house because the deal doesn’t make financial sense, or an owner might decide to scale back that extensive remodel.
  3. image bought and used with permission by 123rf dot com smDistracted by Shiny Objects: It’s easy to feel so excited about putting in the latest upgrades, that we actually miss value. In other words, we can get distracted by the glow of the new shiny features that we fail to ask whether buyers are going to pay for those features or not. For instance, someone might install $70,000 worth of energy-efficient features, but will buyers pay for that in the resale market?
  4. Projecting Other Neighborhoods on Yours:  What works well in one neighborhood may not work in a different area, so it’s important to not project one neighborhood on another. For instance, I appraised a house in a first-time buyer neighborhood that had VERY extensive upgrades. The owner had it listed over 25% higher than even the highest competitive sale so he could recoup his costs (it was way overpriced). The unfortunate reality here was instead of letting other remodeled homes in the neighborhood guide the owner on what type of upgrades to select, the owner instead put the best stuff from the region into this one house.

Tips for getting the most value out of upgrading your home:

  1. Buyer Expectations: Be in tune with what buyers expect in the neighborhood for upgrades. What are they actually willing to pay for? One way to know this is to visit open houses and talk with neighbors so you can see what others have done (and then see if their homes are commanding higher prices).
  2. Let Neighbors Overbuild: Don’t do more than others have done in the neighborhood. It’s far better to benefit from upgraded homes around you rather than be that one over-the-top property.
  3. Know your Location: Be realistic about your neighborhood so you are doing the right upgrades for the location.
  4. Consult a Professional: Talk with a reputable real estate agent or consult with an appraiser before you remodel so you get a better idea of where your dollars might be best spent to maximize value and appeal. This step is often not considered, but if you’re spending tens of thousands or hundreds of thousands of dollars, why not reach out to the real estate community before you break ground?

NOTE: Homes are not just about resale value. Owners should do what they want to their homes and enjoy them. But if you do plan on selling, maybe keep these things in mind.

I hope this was helpful.

Questions: Would you pay more for a Yoda statue in your front yard? What is Temptation #5 or Tip #5?

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