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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Big demand and the force of FHA in Sacramento’s housing market

Big demand. Big FHA. Let’s talk the latest housing trends in Sacramento. If you’re local, my goal is to give you 10 quick talking points to share with clients. If you’re not local, what are you seeing in your area?

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.

star-wars-real-estate-photo-by-sacramento-appraisal-blog-530

One Paragraph to Describe the Sacramento Market: This year the market feels much stronger than it did last year at the same time. Values have not skyrocketed like they did a few years ago, but there has been somewhat of a desperation among buyers to get into contract before interest rates and/or values rise much more. This has made for an environment where multiple offers have been commonplace (at least for properties that are priced correctly and in average condition). Housing inventory did increase slightly last month, and we are starting to see slightly more price reductions, but demand is still “off the charts” in that pendings are a good 20% higher than one year ago. Regional prices have seen an uptick these past few months, and sales volume is 7% higher so far this year compared to last year. We all know low interest rates and sparse inventory have been driving the market, but having such a huge percentage of escrows going FHA has also boosted sales figures. Remember that many FHA buyers are not putting much “skin in the game” so to speak, and at times they tend to offer more than anyone else to get a contract accepted. Being that 25% of all sales in the Sacramento region were FHA last month (and 29% in Sacramento County), this definitely creates more competition at certain price ranges and makes housing stats look more impressive. As housing inventory presumably begins to increase over the next few months (as it did last year), watch out for price reductions, unrealistic expectations from sellers, and buyers gaining more power.

DOWNLOAD 51 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.

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

  1. The median price in the Sacramento Region is $333,250.
  2. The median price is 7.5% higher than one year ago (May 2014).
  3. Sales volume is up 7.3% so far in 2015 compared to the beginning of 2014 (January through May).
  4. It took an average of 38 days to sell a house last month (44 days in April).
  5. Cash sales were 15.6% of all sales last month.
  6. FHA sales were 25.4% of all sales in the region last month.
  7. Sales volume was 7% higher this May compared to last May.
  8. There is 1.9 months of housing inventory (2.2 months in May 2014).
  9. The average sales price is $368,525 (7.5% higher than last year).
  10. It took 14 less days to sell a house this May compared to May 2014.

median price and inventory in sacramento placer yolo el dorado county

fha and other sales in sacramento placer yolo el dorado county

volume cash and conventional in region by sacramento appraisal blog

months of housing inventory in region by sacramento appraisal blog

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

Sacramento County Market Trends for May 2015:

  1. The median price in Sacramento County is $289,950.
  2. The median price is 7% higher than one year ago (May 2014).
  3. It took an average of 35 days to sell a house last month (42 in April).
  4. Cash sales were only 15% of all sales last month.
  5. FHA sales were 29% of all sales in Sacramento County last month.
  6. Sales volume is 5.7% higher this May compared to last May.
  7. There is 1.7 months of housing inventory (2.0 months last May).
  8. The average price per sq ft is 183 (13% higher than last May).
  9. The average sales price is $317,000 (7.5% higher than last year).
  10. It took 12 days shorter to sell a house this May compared to May 2014.

Median price and inventory since 2011 by sacramento appraisal blog - with median figures

price metrics since 2014 in sacramento county

months of housing inventory by sacramento appraisal blog

CDOM in Sacramento County - by Sacramento Appraisal Blog

sales volume in May in Sacramento County since 2008 Interest Rates Since 2008

Placer County Market Trends for May 2015:

  1. The median price in Placer County is $400,000.
  2. The median price is 5.3% higher than one year ago (May 2014).
  3. It took 38 days on average to sell a house last month.
  4. Cash sales were 15.8% of all sales last month.
  5. FHA sales were 21.5% of all sales in Placer County last month.
  6. Sales volume was 9.8% higher this May compared to last May.
  7. There is 2.1 months of housing inventory (2.5 months last May).
  8. The average price per sq ft is 201.
  9. The average sales price is $445,218 (5.7% higher than May 2014).
  10. It took 16 days shorter to sell a house this May compared to last.

Placer County median price since 2012 - 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

number of listings in PLACER county - May 2015 - by home appraiser blog

Placer County sales volume - by sacramento appraisal blog

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

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

DOWNLOAD 51 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.

My New Office & the Desk I Built: By the way, I wanted to share some exciting news. I’m in the process of building a new home office since I recently moved to Carmichael. By this time next week my office should theoretically be finished, but for now here is a desk I built out of reclaimed wood last week. It’s a beastly 12′ long, and it’s designed for two work stations.

The desk I built

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.