Predictions, Trump’s impact on real estate, and a Sacramento market update

I reached the point of political exhaustion last week in a big way. This doesn’t mean I’m tuned out, but right now I find myself glossing over Facebook rants or skimming certain conversations because they’re only going lead to arguments. Yet still I hoped we could chat briefly about politics and real estate – without unfriending each other. Then let’s take a deep look at the Sacramento market. Any thoughts?

18345737 - the white house, view from the south, home of the president of the united states of america in washington dc usa

Huge Data Fail & Predicting Real Estate: The media laid an egg when it came to predicting the presidency. In fact, it seemed like many political pundits were shell-shocked when election results were coming in contrary to their predictions that Hillary would win. I don’t mention this so we can argue, but only to remind us of the danger of predicting, being wrong, and then having pie on your face (losing credibility). If some of the best political minds in America couldn’t predict the outcome of the presidential race, can we really predict the future of the real estate market with certainty?

Trump Presidency and Newlyweds: I’ve been asked a couple of times this week how a Trump presidency has impacted real estate so far. My answer is simple. Imagine asking a newlywed couple after one week of marriage to tell us how their marriage is going. It’s only been a week though. We probably need more time to really know how married life is going to unfold. The same holds true with Trump’s impact on real estate. We haven’t had enough time to see waves in the market yet, and nobody really knows how his policies will affect housing. There are many predictions right now, especially about repealing Dodd-Frank, but those are only guesses (see paragraph above).

Any thoughts?

—-—–—– And here’s my big monthly market update  ———–—–

big-monthly-market-update-post-sacramento-appraisal-blog-image-purchased-from-123rfTwo ways to read the BIG POST:

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

DOWNLOAD 71 graphs HERE: Please download all graphs in this post (and more) here as a zip file. 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.

NEW: I created a one-page market sheet to print and keep handy when talking about real estate. I figured it might be helpful to use while talking on the phone. I’m not sold on the look, but is this a step in the right direction? Download here.

Quick Market Summary: A brutal election season has ended (thank God), and many Americans feel worn out, but the market doesn’t feel that tired. The truth is when we look at the stats we are seeing about what we’d expect at this time of year. Ultimately prices are down 1-3% from the height of summer, it took two days longer to sell a house last month, and inventory is down 14% in the region from last year. It’s easy to see softer stats and assume the market is beginning to crash, but the market softens like this almost every single year (besides 2012 when Blackstone and friends gutted the market and we didn’t have a normal fall season). I’m not saying values are not inflated, affordability isn’t becoming more of a factor, or even the market won’t turn at some point, but only that things feel fairly normal right now for the season. Sales volume has been strong this year in Sacramento and is up slightly from last year despite cash and FHA volume both dropping by 7-8%. Inventory is anemic and there really isn’t a quick solution to deal with that problem, but buyers are still finicky about price despite very few homes being listed on the market. Sellers don’t get this, so they try to command whatever price they want, but that rarely works in this market. Keep in mind buyers are scouring Zillow and Redfin every single day, they are visiting properties with their agent, they are getting beat out on other homes, and they are often looking for MANY months before getting a contract accepted. Sellers frankly are not doing anywhere near this level of research, which is one reason sellers are less in tune with proper pricing. Check out specific stats and graphs below for Sacramento County, the Sacramento Region, & Placer County.

Sacramento County:

  1. The median price is $320,000 and is down a few percent from the height of summer, but it’s 10% higher than last year.
  2. The average price per sq ft was $202 last month (down 1% from a few months ago, but 8.5% higher than last year).
  3. There were only 38 short sales and 31 REOs in the county last month.
  4. Sales volume was 5% higher this October compared to October 2015.
  5. It took 3 days longer to sell a house last month compared to the previous month (one year ago it was taking 5 days longer to sell).
  6. Sales volume is up slightly this year compared to last year (1% or so).
  7. FHA sales volume is down 7% this year compared to 2015 (25% of all sales were FHA last month).
  8. Cash sales are down 8.5% this year (they were 12% of all sales last month).
  9. Housing inventory is 12% lower than the same time last year.
  10. The average sales price at $353,000 is down about 1% from the height of summer (but is 9% higher than last year).

Some of my Favorite Graphs this Month:

median-price-since-2013-in-sacramento-county

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

inventory-september-2016-by-home-appraiser-blog

cdom-in-sacramento-county-by-sacramento-regional-appraisal-blog

price-metrics-since-2015-in-sacramento-county-look-at-all

sales-volume-in-sacramento-county-since-2012

seasonal-market-in-sacramento-county-sales-volume-6

seasonal-market-in-sacramento-county-inventory-4

seasonal-market-in-sacramento-county-4

SACRAMENTO REGIONAL MARKET:

  1. The median price was $357,000 in October. It went up slightly from September but is down 3% from the height of summer (up 9% from last year).
  2. The average price per sq ft was $208 last month. That’s down about 1% from the height of summer and 7% higher than last year.
  3. It took 2 days longer to sell compared to the previous month (but 5 less days compared to October 2015).
  4. Sales volume was 4% higher this October compared to October 2015.
  5. FHA sales volume is down 8% this year compared to last year.
  6. Cash sales were 13.5% of all sales last month (FHA sales were 21%).
  7. Cash sales are down 7% this year compared to last year.
  8. Housing inventory is 14% lower than the same time last year.
  9. REOs were 1.8% and short sales were 2% of all sales last month.
  10. The average sales price was $393,000 in October. It’s down about 3% from the height of summer but 8% higher than last year.

Some of my Favorite Regional Graphs:

median-price-sacramento-placer-yolo-el-dorado-county

sacramento-region-volume-fha-and-conventional-by-appraiser-blog

inventory-in-sacramento-regional-market

regional-inventory-by-sacramento-regional-appraisal-blog

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

regional-market-median-price-by-home-appraiser-blog

PLACER COUNTY:

  1. The median price was $438,000 last month (highest point of year, but take that with a grain of salt).
  2. The average price per sq ft was $213 last month (down very slightly from the height of summer and up 6% higher than last year).
  3. It took 41 days to sell last month (same as previous month but 6 days less than one year ago).
  4. Sales volume was about 3% lower this October compared to October 2015.
  5. FHA sales volume is down 16% this year compared to last year.
  6. Cash sales were 17% of all sales last month (FHA sales were 13%).
  7. Cash sales are down 3.6% this year compared to last year.
  8. Housing inventory is 13% lower than the same time last year.
  9. Both REOs and short sales were each 1% of sales last month.
  10. The average sales price was $481,000 and is 8.5% higher than last year.

Some of my Favorite Placer County Graphs:

placer-county-sales-volume-by-sacramento-appraisal-blog

inventory-in-sacramento-regional-market

days-on-market-in-placer-county-by-sacramento-appraisal-blog

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

number-of-listings-in-placer-county-2016

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

placer-county-price-and-inventory-by-sacramento-appraisal-blog

DOWNLOAD 71 graphs HERE: Please download all graphs in this post (and more) here as a zip file. 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: Did I miss anything? What impact do you think Trump will have for the real estate market (if any)? What are you seeing out there? I’d love to hear your take.

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Tips for working with appraisers when they’re really busy

It’s been taking appraisers longer to get their reports done lately. Have you noticed? In many parts of the country appraisers have simply been flooded with work, so quick turn-times have suffered or vanished. In light of this I wanted to give some tips for working with appraisers during times like these. This is really geared toward appraisals for loans instead of private work (divorce, estate, litigation, etc…). Anything else you’d add? Feel free to comment below.

Working with appraisers - sacramento appraisal blog - image purchased and used with permission from 123rf

Tips for working with appraisers when they’re really busy:

  1. Turn-times: Sometimes agents say, “We really need the appraisal in three days because that’s when contingencies will be removed”. But the appraiser just got the order yesterday and the lender may be giving 7-10 days to complete the file. For whatever reason the appraisal was simply ordered way too late in the loan process (not the appraiser’s fault).
  2. Communication 101: If an appraiser emails you, I highly recommend emailing back. The appraiser may be trying to save time by avoiding a phone call. Or if an appraiser calls you, just call back (even if you don’t like to use the phone). These days it seems like good business etiquette to try to communicate with people in their preferred method. I know that sounds petty or even offensive, but it’s true. Obviously if an appraiser is asking a million questions via email, just email back and say, “I’d love to chat, but let’s make this a quick phone conversation instead.”
  3. Don’t call incessantly for status: It doesn’t help speed up an appraisal when everyone is asking for status updates. On a practical note, keep in mind appraisers don’t owe status updates to anyone but the client.
  4. Information up front: Take a few minutes to answer common questions and get this information to the appraiser (preferably during the inspection). I recommend using my Information Sheet. Sometimes agents wait to share information about the property until the value comes in too low. Why not be proactive instead about telling the story of the marketing of the property on the front end of the transaction? This just might save time in the transaction too by avoiding challenging a low appraisal.
  5. Offer a rush fee: If lenders or AMCs are concerned about turn-times, one of the best things to do is offer a reasonable fee to begin with AND also a rush fee. Right now many appraisers are still getting blasted with low-ball appraisal fees from Appraisal Management Companies. During such a busy season appraisers are frankly turning these orders down and gravitating toward working with clients who pay better fees and are easier to work with too. The truth is some AMCs are spending extra days or weeks searching for an appraiser who will take a lower fee (and then blaming appraisers for taking too long). Remember, a Borrower might fork out good money for an appraisal, but how much of the fee is the appraiser actually getting? If you find an AMC is scraping way too much off the top, maybe it’s time to do business with a lender or AMC who is actually paying the appraiser a reasonable fee. On a related note it seems like the market is experiencing an upward fee correction since appraisal fees have been undercut by AMCs for years.
  6. Longer escrows: It can be frustrating that turn-times change because we like to think they’re set in stone or always less than a week, but that’s what markets do. I find something similar has happened with contractors locally as many are absolutely swamped. In short, it might not be a good market to promise a 30-day escrow.
  7. Do repairs up front: If an appraiser is busy, the same appraiser may also need more time to go back out to the property to verify repairs were made. If you know there are obvious repairs, it might be a good idea to have the owner make them in advance so you can avoid a re-inspection. If you are concerned about repairs, reach out to a local appraiser or a loan officer before the property hits the market so you can maybe glean some wisdom.
  8. The little stuff: Some of the most common repairs are actually installation of smoke detectors and carbon monoxide alarms (in California). Even if the appraiser doesn’t care about these things since they have nothing to do with value, a lender may be asking the appraiser to verify they are there. As an FYI, it’s been law for 5 years in California for CO alarms to be in most residential properties, yet this is still one of the top repair issues.

I hope this was helpful.

Podcast with 2 Agents: By the way, last week I did a podcast with two local real estate agents (The Two Jakes). You can give it a listen below (or here) and check out iTunes or the Worley Real Estate website.

Questions: Anything else you’d add? Did I miss something? I’d love to hear your take and any stories you have to share.

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Toxic Water & Real Estate: An interview with a Realtor from Flint

What happens to a real estate market when the water is unsafe to drink? In light of the tragic situation unfolding right now in Flint, Michigan, I thought this would be a timely conversation. So I reached out to Realtor Ryan McFarlane who has sold nearly 1000 homes in Flint. This brief interview isn’t an exhaustive case study, but only one conversation centered on real estate (which has so much to do with people). I’d love to hear your take in the comments below.

Flint real estate agent interview - by sacramento appraisal blog - image purchased from 123rf and used with permission

Tell me about yourself. How long have you been in real estate? How much business have you done in Flint?

Realtor Ryan MacFarlane - MichiganMy name is Ryan McFarlane. I originally got into real estate around 2004. Overall I’ve sold over 3000 homes, and about 1000 of them have been in Flint; the company I work for now was actually started in Flint.

What is the population of Flint?

According to the census, the population is 99,763. However, it used to be 141,553 in 1990. When GM closed down their plants, it was devastating for the housing market and job market in Flint as a blue collar town.

What is the City of Flint like for those who have only read it about it recently?

I would say there are still some nice areas of housing. People are investing in Flint and trying to bring up the Downtown area. Though when you get off the beaten path, there are some rough patches. There are still good areas, but there are many bad areas. Some people say it’s all bad, but it’s not that way. There are also some good things going on, but the attention is often on the bad things.

flint listing - by sacramento appraisal blog

How much do properties tend to sell for in the city?

As of right now there are 352 active properties on the market in the City of Flint. The low end is about $500 and the highest listing is $229,000. In the last year the highest sale was $350,000, but it was over 6000 sq ft and a custom home in a historical area. Otherwise most properties in the city are going to sell under $30,000. The majority of sales are bank-owned properties. Sometimes properties literally sell for nothing since people call me and want to transfer the quitclaim deed to someone else. Sometimes a bank-owned property is in such bad condition that it is worth absolutely nothing. Other times a home will be bulldozed and the land will be sold (often a neighbor will buy the land). Some owners will not pay their taxes too because they might end up paying say $1000 for taxes when the property is only worth $500.

What is the median income of Flint residents?

The median income is $24,834 according to the U.S. Census Bureau.

flint vs sacramento

How much does a typical house rent for in Flint?

I would say on average about $500 per month.

How much are water bills right now in Flint? How does this compare to surrounding areas?

A family of 4 told me recently their bill was $250 per month, and the bill has to be paid even though they cannot use the water. Even vacant houses are being charged $50-60 per month for water. Some surrounding areas bill on a quarterly basis, and the quarterly water bill ends up being about the same as someone’s monthly bill in Flint.

NOTE from SacBlog: Most articles online state Flint residents are easily paying $140 to $150 per month for water they cannot use. This is obviously only an average since Ryan mentioned above that some residents are paying $250. Keep in mind $150 per month is 7% of a household’s monthly income (based on the median income in Flint). Also, if a home rents for say $600, the water bill is 25% of rent. Imagine a $1500 rental in Sacramento and having a $375 water bill (that’s 25%).

flint listing 2 - by sacramento appraisal blog

Some say it’s illegal to sell a house with toxic water. Is that true?

Legally there is nothing that says you cannot sell. There was a recent article from the Michigan Association of Realtors that said you can sell them, but you need to disclose the water issue on the seller’s disclosure form to make people aware of the water issue. Though buyers would have to be living in a cave to not know about the water issue already, so the disclosure is only a formality.

Some appraiser colleagues working in the Flint area say FHA and USDA have asked appraisers to verify where a home is getting water from since FHA/USDA don’t want to guarantee loans on properties using Flint water. Have you found this to be the case too?

Most of my deals have been cash buyers, though there have been people getting loans though too.

NOTE from SacBlog: Who is lending in Flint? Please comment below. I want to hear if any FHA and conventional lenders are making deals happen. Unsafe water is a clear health and safety issue, which would seemingly prohibit FHA deals from happening.

flint listing 3 - by sacramento appraisal blog

What impact are you seeing the toxic water issue to have on the local market in terms of values?

In some senses we may see a slight decline in sales and out-of-state investors are probably not going to be buying properties. But at the same time, sales are going to happen. From a practical standpoint the water issue has to be fixed. Nobody knows when that will happen, but we all know it will presumably happen. Flint is still one of the most affordable places to buy for locals. At the end of the day, values are already so low that they cannot go down much more than they have already. However, anything that is considered “higher-end” will probably be impacted since buyers will definitely look at what they can buy somewhere else for the same price (and not have water issues). But I don’t think there will be much effect under $30,000. You just can’t pick up homes in other nearby places for those low prices.

NOTE on rents from SacBlog: It’s interesting to consider what may happen with rents in outlying areas near Flint. If residents leave the city, will rents elsewhere increase? This reminds me of some reports of price gouging with rents in Porter Ranch in Southern California, which is the community where residents had to be evacuated due to an ongoing methane gas leak.

Have you heard or seen any impact on the commercial sector?

Yes. Businesses serve bottled water and they seem to be careful about water filtration. A few years ago GM had a nearby used motor facility just on the border of Flint. After doing some water testing, apparently the water was not good enough to spray on their motors.

_______________________________________________________

I hope you enjoyed this brief interview. Thank you again to Ryan McFarlane for his time and insight.

Questions: What if anything stood out to you about what Ryan said? What would you expect to see happen in a real estate market when the water is toxic? What would happen in your market?

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What do appraisers look for during an FHA inspection? (free download)

What do appraisers look for when doing an FHA appraisal? These days it’s important to be in tune with FHA appraisal standards so your home can be FHA-ready or so you can know what to expect if accepting an FHA offer. Let’s talk through some of the most common FHA issues below. You can also download an FHA checklist to study or share with clients. This checklist has all the information from this post as well as one additional page.

what appraisers look for during an FHA inspection

DOWNLOAD an FHA checklist HERE (pdf)

The Main Idea with FHA: FHA is primarily concerned that everything in the house functions properly and that there are no health and safety issues. The basic concept of meeting FHA minimum requirements is that everything must work as it was designed to work. For example, a window that is supposed to open must open, and a built-in appliance should do what that appliance is supposed to do. If you have a sliding glass door with a lock on the handle, the lock should work.

FHA requirements - from sacramento appraisal blog

What do FHA appraisers look for?

  • Utilities should be turned on so the appraiser can test systems and appliances.
  • Appliances must function properly.
  • fha-logoThere should be proper drainage around the perimeter of the house.
  • The heating unit must be in working order (and AC if applicable).
  • Water pressure must be adequate for the house. Appraisers flush toilets, turn on all faucets and ensure that both hot and cold water are working.
  • The water heater must be in working order and strapped according to local code.
  • Attics and crawlspaces are to be viewed at minimum from the shoulder up by the appraiser. When viewing the attic, appraisers make sure there are vents, no damage, no exposed or frayed wires, and that sunlight is not beaming through. When inspecting the crawl space, appraisers make sure there are no signs of standing water or any other foundation support issues. Excessive debris in the attic or crawl space should be removed.
  • Paint must not be chipping, peeling, or flaking on homes built before 1978 because of the danger of lead-based paint (lead was used in paint prior to 1978). However, there must be no defective paint or bare wood for properties built after 1978 because defective paint impacts the economic longevity of the property. Defective paint should be scraped and re-painted (with no wood chips on the soil).
  • Electrical outlets must work (outlets should have a cover plate also).
  • Toilets must flush and be mounted.
  • Any active termite infestation needs to be cured.
  • Minor cosmetic issues such as stained carpet or a need for interior paint are okay. The house does not have to be perfect, but if there are issues that impact health and safety or the long-term economic viability of the property, then those issues must be cured.
  • Windows must open and close and they cannot be broken. Minor cracks can be okay so long as there is not an issue with safety, soundness and security.
  • No dangling wires from missing fixtures or anywhere else.
  • FHA doesn’t require air conditioning, but if present the system should work as intended.
  • Smoke detectors & carbon monoxide detectors are required insofar as required by local code
  • The firewall from the garage to the house should be intact. Missing sheetrock, a pet door installed in the door, a lack of self-closing hinges, or a hollow door could pose a safety issue.
  • A roof should not be leaking and needs to have at least two years of economic life left.
  • A house will be rejected if the site is subject to hazards, environmental contaminants, noxious odors, or excessive noises to the point of endangering the physical improvements or affecting the livability of the property (this isn’t an issue for the vast majority of properties).
  • A trip hazard is a subjective call to make by the appraiser and not necessarily an automatic repair, but if there is a legitimate safety issue it should be called out by the appraiser.
  • There are things any appraiser will call out in an FHA appraisal, but there are times when appraisers have to consider how the spirit of FHA might apply in a situation. FHA is black and white on many issues, but other times appraisers simply need to use good judgment.

Reminder About Difference in Locations: Appraisers in different parts of the country may require some items in their appraisals that might not be required elsewhere. For instance, carbon monoxide detectors are required in most residential homes in California, but this is not the case in many other states. An FHA appraiser in a different state might not even mention a CO detector, but in Sacramento it is commonplace.

DOWNLOAD an FHA checklist HERE (pdf)

I hope this was helpful. If you’re looking for more information on FHA appraisal standards, you can check out other FHA appraisal articles I’ve written.

Questions: Anything else you’d add to the list? Any FHA questions? Appraisers, if you have any stories to share about properties that were rejected, speak on.

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