If the real estate market did shift…

The new buzz word in real estate is SHIFT. Everywhere I go I hear this word, and it seems like every other article is about a coming change in the market. Thus the question becomes, how would you recognize if the market did begin to shift? What signs would you look for? Let’s kick around some ideas below and I’d love to hear your take in the comments. Any thoughts?

change sign - purchased by sacramento appraisal blog by 123rf dot com

Key points when considering a market shift:

  1. Markets go up and down: Just like the stock market, gold, or any other commodity, at some point real estate values will go up and at some point they’ll go down. Bottom line.
  2. See it first in the listings: When the market does eventually “shift”, we’ll see the change in the listings before the sales. This means properties will begin to struggle to sell at the same level as the “comps”, which will lead to price declines. This underscores the importance of paying close attention to pendings and listings to see the current market. Granted, every year someone says, “the market is declining” when the fall season begins to unfold because values begin to soften. Just be aware there is a difference between a normal seasonal softening and a definitive declining trend.
  3. Word on the street: One of the ways we’ll know the market has changed is the real estate community will feel it in the number of offers, feedback from buyers and sellers, more credits being given to buyers, etc… We can always look at stats, but there is something powerful about the word on the street from real estate insiders.
  4. The previous peak: It’s always interesting to see how close or far prices are from their high point ten years ago, but there isn’t any rule that says prices have to get back to their height for a decline to happen.
  5. Watch higher & lower prices: The market isn’t always doing the same thing at every price range or in every neighborhood. When it comes to values declining, watch the top and bottom carefully because one of them might change direction before the other. Which one?
  6. Other metrics: I included an image below to talk through some of the metrics we might watch to know the market is softening. Again, these things all tend to happen during the fall months every year, but no matter what time of year we are not likely to get to full-fledged value declines without passing through a softening stage. Be sure to watch the sales to list price ratio too (I forgot to include that in the image).
  7. The power of lenders: Values have increased these past four years, but wage growth has been more or less stagnant. This means some buyers will now begin to struggle to afford higher prices. The temptation for lenders is to develop more creative financing to help buyers keep playing the game. Does anyone else think Kenny Loggins’ Highway to the Danger Zone would be good background music for this point?
  8. Future clients: This conversation can feel stressful for those who work in real estate because a change in the market can lead to a change in clients. Yet markets always change, so that’s something we can be prepared for, right? Blockbuster Video had a lucrative operation until they didn’t adapt to the way the internet changed the DVD rental landscape. When it comes to business we can spend so much time holding on to the way things have been that like Blockbuster we don’t take steps to adapt and position ourselves to be Redbox or Netflix so to speak. Here are two questions to continually ask: Who are you clients going to be in the future? What are your clients going to need in the next few years?

Signs of a soft market

I hope this was helpful.

Questions: What is point #9? What other metrics can we watch to see the market change? Anything I left out? I’d love to hear your take.

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The big deal about rising rents in real estate

Values have been rising and so have rents. Across the country we’ve been hearing of rent increases in many cities (including Sacramento). Why does this matter? If you work in real estate, how do you plan to communicate this trend to clients? Let’s talk through some key points. I’d love to hear your take in the comments.

rising rents in sacramento - by greater sacramento area appraisal blog

Things to keep in mind about rising rents:

  1. Low Inventory: Rents are rising in large part due to low inventory. There has been population growth over the past decade, but very few new housing units have been built since the housing “bubble” burst. This essentially means we have a shortage of housing units. Keep in mind this isn’t an easy issue to solve since building a large number of units won’t happen overnight.
  2. Squeezed Savings for Tenants: Wage growth has been more or less stagnant in the Sacramento area at least, which means rent increases are coming directly out of a tenant’s savings account. Remember, if a tenant is saving up to buy a house, it’s going to now take longer to make that happen.
  3. Investors Holding: There are investors enjoying higher rents, and many will hold on to their properties for now instead of selling. Unless an investor is looking to diversify outside of real estate, an investor’s money is probably parked well right where it is. After all, why would an investor trade in great rentals only to buy something else at a much higher price today (and get the same rent)?
  4. Investors Selling: Not everyone is going to hold on to their properties though. There are many investors who purchased at lower prices from 2009 to 2012 especially, and it’s now time for them to cash out. Quite a few investors are actually selling directly to their tenants off MLS (agents, be there to write up the contract and help guide the process).
  5. Old Numbers: When rents rise quickly, sometimes the rents we see published online from a few quarters ago are simply old. Just like with rising values in the resale market, we have to ask whether the rental market has changed since the most recent data was published. Ultimately it’s important to look to a number of sources to get fresh numbers. Here are some suggestions: Craigslist, Hot Pads, Zilpy, Rent-O-Meter, & Zillow.
  6. Not Every Neighborhood: Like any trend, it’s easy to hear “rents are rising” and think that applies everywhere. Let’s remember some rental markets are hotter than others though. Apartment rents are said to have increased 10% last year in Sacramento and are projected to increase by another 10% this year. A similar dynamic is happening with single family units too, though NOT in every neighborhood.

I hope that was helpful.

Rental Event: By the way, I am helping put together a “Show Me The Money” event at SAR about the rental market. On May 18th from 12-1:30pm a property manager will talk through rental trends and give tips to agents for turning tenants into buyers. This is hosted by the Housing Opportunity Committee (which I chair this year).

Questions: What is point #7? Did I miss anything? What source do you use for rental data?

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Keeping Sacramento real estate in context

Let’s take a quick look at some trends in different neighborhoods of Sacramento. Yes, property values have been increasing, but it’s important to sift data and trends in context too. Instead of putting too much weight on county-wide median sales price figures, for instance, it’s vital to look at data in each neighborhood to interpret change. I’ll touch more on this in a few coming blog posts, but for now I really wanted to take a tour of sales in various neighborhoods to highlight the market.

How do these graphs strike you?

Quote in SacBee: By the way, I was quoted in an article in today’s Sacramento Bee article, “It feels like a house ‘boom’, but is it?” Check it out and let me know what you think.

899 GLA model in Arden Arcade Neighborhood - Graph by Sacramento Appraisal Blog

It’s interesting to note how tight the market was from the late 1990s through the “bust”, and how more recent sales in this Arden-Arcade neighborhood are a bit more segmented. Have you seen the price gap widen in different areas?

Boardwalk at Lakeside Condominiums in Elk Grove - Trend Graph by Sacramento Appraisal Blog

As you can see in most graphs in this post, The Boardwalk at Lakeside condos in Elk Grove have seen an uptick this year. This increase in value is seen almost across the board in the market whenever I make graphs. However, a 22% increase is not seen in every neighborhood, or with every property type or house size either (the median price was recently reported as having increased by 22% over the year by Zillow / SacBee). The key in valuation is to find recent sales that are truly competitive, and then give stronger weight to those sales instead of applying market-wide metrics that may not be reflective of a specific neighborhood or sub-market.

The Rivers West Sacramento 2004 to 2013 - by Sacramento Appraisal Blog

What do you see above in “The Rivers” in West Sacramento? There aren’t many recent sales, which sometimes makes it challenging to decipher current trends.

Condo Sales at The Reserves at Galleria in Roseville - Sacramento Appraisal Blog -smaller

The condos at The Reserves at Galleria (as well as other neighboring condos) have been seeing an uptick after a steep decline. One of the interesting things about condos in today’s market is there are many cash purchases from investors in some developments because conventional and FHA buyers cannot qualify because of HOA issues or lending issues. At the same time, some condo subdivisions are being marketed in MLS as “owner occupants only”, which is a move by the HOA to get back to adequate owner occupied percentages so the condos can be marketed to a wider pool of buyers (who can obtain financing).

Rosemont Area Newer Construction - by Sacramento Appraisal Blog

This graph shows all newer construction in the Rosemont area of Sacramento (built after the year 2000). There are a few subdivisions in the Rosemont area that were built out just before the “bubble” burst. There has been an uptick in these neighborhoods, but at the same time there are still some properties selling at lower levels for sure.

All Sales in Rosemont Area - 2008 to 2013 - by Sacramento Appraisal Blog

Property values are still lower than they were in 2008 and 2009 in Rosemont, but the uptick is still very obvious this year. This graph helps show a common thread in many Sacramento neighborhoods. There are far fewer sales at the bottom of the market in light of a decline in foreclosures and strong appetite by cash investors. In fact, 50% of all single family detached sales in Sacramento County in January and February 2013 were cash. We should definitely consider this factor as we interpret the market, don’t you think? Might rampant cash sales under $200,000 and vastly lower foreclosures help prop up median price levels? Yep.

Sales in Madrone Condo Complex in Folsom - by Sacramento Appraisal Blog

The Madrone condo subdivision in Empire Ranch in Folsom tells a common story. Huge decline. Stabilization. Beginning signs of increasing values. These condos have been flying off the market as prices bottomed out last year.

Suncountry sales in Sacramento - by Sacramento Apprasial Blog -smaller

When looking at 15 years of sales in the Sacramento area, we often see a mountain-ish image like the one above. One of the interesting aspects of the Suncountry PUD (55+ community) in South Sacramento is how segmented the market still is. For instance, there have been some foreclosures that sold recently at very low levels despite how “hot” the market has been (Jeff Grenz and I recently talked about this phenomenon). These properties may have not been in pristine condition, but they were still dumped on the market at lower price levels instead of given more time to have sold at a reasonable level. When many properties are selling between $115-130K, for example, having a couple foreclosures sell around $80,000 is just low.

Question: Any thoughts?

If you have any questions or Sacramento home appraisal or property tax appeal needs, let’s connect by phone 916-595-3735, email, Twitter, subscribe to posts by email (or RSS) or “like” my page on Facebook