sacramento housing market

Not getting distracted by outlier sales

February 5, 2020 By Ryan Lundquist 12 Comments

It’s been a record-breaking couple of years. In New York we saw the highest residential sale ever in the United States at $238M. Then a couple months ago California got a new record with the Beverly Hillbillies mansion at $150M. And now there’s a listing in Bel-Air that just hit the market at $500M. The truth is it’s easy to get distracted by the bling of outlier sales because of how lofty the prices are, but here are a few things to keep in mind.

Price records: It’s not a price record unless it actually sells. In many cases higher-end sales are overpriced by hundreds of thousands of even millions of dollars. As an extreme example, that $250M listing finally closed for $94M after two years of aspirational pricing.

That “One” five hundred million dollar flip: Have you heard about that five hundred million dollar flip in Bel-Air? This property hit the market last week and it’s called “The One.” It’s said to be one hundred thousand square feet and it comes with a bowling alley, night club, and four swimming pools. This property has been talked about for years and it’s finally here. You can buy this one or here’s what you can get in Sacramento instead:

Price records in Sacramento this past year:

– Sacramento County $5M
– East Sacramento $3.8M
– Woodland $2.94M
– El Dorado Hills $3.9M

Growth at the top: Here are a couple visuals to show growth in the million dollar market over time in the Sacramento Region.

Sales over $50M in the United States: If you woke up wondering how many homes are selling above $50M in the United States, you’re in luck thanks to Jonathan Miller who tracks this information and let me share the image. There were twenty three sales above $50M last year in the country. On one hand we’ve definitely seen more sales lately, but this is still a really uncommon price point (probably because FHA financing isn’t available). 🙂

Now here’s some final commentary.

QUICK CLOSING THOUGHTS:

1) These sales don’t pull the market up: Outlier sales don’t pull the rest of the market up, and they have nothing to do with the entry-level market or affordability for the average person.

2) I just gotta have it: My observation with the highest sales is sometimes cash buyers offer prices that seem disconnected from what looks reasonable on paper. This doesn’t happen in all situations, but sometimes it does where the buyer simply says, “I just gotta have it.”

3) Not the new comps: Unless you have an outlier home, the highest sales in town aren’t the new comps. In other words, don’t price higher because of an outlier. What is similar and selling? That’s probably the better question.

4) They sometimes sell for less: What’s interesting is watching record-breaking sales list again after having sold a few years prior. Sometimes they sell for more, but in other cases they end up selling for less than their original purchase despite the rest of the market having risen since the purchase. This actually happened with two of the top ten sales ever in the Sacramento region.

5) A different trend: I was asked recently if you can look at what a high-end sale sold for years ago and simply apply the appreciation rate from the city or county to come up with the value today. Look, there are many ways to figure out value, but as an appraiser I’m more interested in comps today rather than giving too much weight to a previous sale. After all, a past sale might have sold for too much if it was a unicorn “gotta have it” type deal. I saw this recently with a home that ended up selling 25% lower than the original purchase six years ago despite the surrounding market having seen massive gains. In short, I’m cautious about applying county or zip code metrics to these high-caliber sales. It’s just a completely different market that may or may not follow the county trend. What will the current market bear? That’s the bigger question.

I hope this was interesting or helpful.

CLASS I’M TEACHING: I’m doing my favorite class at SAR on Feb 18th from 9am-12pm called “How to Think Like an Appraiser.” Sign up here.

Questions: Why do you think people are so fascinated by lofty sales? What else have you observed about the high-end market? Anything to add?

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‘Tis the season for real estate predictions

December 12, 2019 By Ryan Lundquist 17 Comments

Buckle up. It’s real estate prophet season where everyone and their Mom has a prediction about the market next year. Here are some quick thoughts and then a deep dive into local trends for anyone interested.

1) Nothing too extreme: So far I’m not hearing too many extreme views on the housing market. What I mean is there aren’t as many voices saying, “It’s going to tank” or “We’re going to have massive increases.” For instance, here’s a forecast from Realtor.com and it’s pretty mild. Very little price growth and a dip in the number of sales too. For reference, I wouldn’t base my perception of the market on any forecast.

2) Consumer thoughts & Twitter: I asked Twitter to predict and people seemed to mostly think prices would be flat or modest. This isn’t anything scientific, but the results don’t surprise me based on conversations I’ve been having. If you work in real estate, ask people what they think. But be careful about opinions formed from headlines instead of local data.

3) Beware of the prophets: Spoiler alert. Nobody knows what the market is going to do, so beware of false real estate prophets who predict the same thing every year and then repackage their predictions for the new year. My advice? Don’t lose credibility by trying to predict the future. It’s okay to say, “My crystal ball is broken, but I can tell you what the market is doing right now.” This doesn’t mean we don’t have ideas where things might go based on current data, but it does mean we’re ultimately humble about our ability to predict the future.

And now ironically here’s a piece from the Sacramento Bee on where the market is heading in 2020 (behind a paywall). I was asked to pitch in some thoughts and I did. Of course like a broken record I always start a media interview like this with, “My crystal ball is broken…. Here are some things to consider.”

Any thoughts?

—–——– Big local market update (long on purpose) —–——–

This post is designed to skim or digest slowly.

Summary: Some fall seasons are really dull, but this hasn’t been one of them. In fact, if you’re looking for a slogan right now it could be, “Hey man, it’s not that dull.” The numbers look pretty hot too, but there’s a reason for that (which I’ll get into below). Yesterday when speaking in a real estate office someone asked, “Ryan, has the market not been as slow this year? It seems like it.” And my answer was, “You’re exactly right.” Granted, we’re still seeing signs of a traditional seasonal slowing, but the market has felt more vibrant than usual. This is actually the type of trend we had in 2017 where many real estate professionals said things like, “It seemed like the market just kept going.” Well, technically the market did slow, but I understand why people said that.

DOWNLOAD 90 visuals: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

THE SHORT VERSION:

It’s not that dull
The numbers are hot technically
A new tech company in town
FHA on the prowl
Stop waiting for multiple offers
Rent control communication
Kurt Cobain’s house
Fewer multiple offers this season
How to find school boundaries
California price record
Sellers are still disconnected

THE LONGER VERSION:

Here are some of the bigger topics right now:

Not that dull: Last year many thought the market was at a tipping point because it just felt dark. Sales volume was slumping in a big way and inventory was spiking as buyers stepped back from the market. But today things feel much different in light of low mortgage rates changing the feel of the market. In fact, most price metrics have seemed flat this fall and it took eight less days to sell this November compared to last year at the same time.

Sifting hot numbers: Price metrics have been more glowing lately, but I advise taking these with a grain of salt. The thing is last year the stats were depressed, so when we compare normal numbers today with dismal stats then, it tends to make things look really hot. My advice? Over these next few months be aware of more sensational data due to lackluster stats from last year. Otherwise if we’re not careful we might end up thinking the market is much hotter than it actually is.

A new tech company in town: There’s yet another new tech company playing the local market. This time it’s an outfit called Reali, which appears to be a discount brokerage, but they say they have AI too. Thanks to Mudge on Twitter for the photo of this listing in East Sac.

FHA has been up: For years FHA has been shrinking because there are more conventional products that can readily compete with FHA. But these past few months we’ve seen a bit of an uptick in FHA. This is nothing massive, but it’s worth noting and maybe indicative of an appetite among first-time buyers to get into the market. Last month 21% of sales were FHA in Sacramento County and this past month we saw 19% of all sales. This is up slightly from FHA tending to hover closer to 17-18% or so for the past couple of years. Again, this isn’t something major, but my curiosity is at least piqued.

Accept the offer: We are not in a market with a crazy number of multiple offers. This is exactly what the stats show. Here’s a look at the number of offers among all current pending sales. My advice to sellers? If you get one reasonable offer, it’s probably time to accept it rather than waiting for a mythical unicorn buyer to swoop in and pay more.

Uh, rent control communication: Rent control is a new dynamic and there is going to be a learning curve when it comes to communicating about it. Just yesterday I spotted several listings that mentioned how rents can be raised or how rent control didn’t apply. My advice? Know the letter of the law and how it’s going to be different in the City of Sacramento as well as California. Locally we have two different sets of rent control to consider, and they are similar but not the same. In case it’s useful I did a rent control Q&A a few weeks back. This isn’t a super sexy topic to read about because it’s technical. But these details matter and for anyone who works in real estate it’s time to know the fine print.

Doesn’t smell like teen spirit (hopefully): Kurt Cobain’s former house in Seattle is for sale at $7.5 million. As a guy who loves 90s music I’m definitely watching this. If you’re interested, here’s a history of sales, permits, and other stuff from the Assessor. Remember, if you buy a house that is famous because of a former occupant or something that happened there, you might have people coming by. In fact, here’s a picture I took while visiting Seattle a couple years ago. By the way, think of the marketing opportunities…. “Come as you are,” or “Nevermind about other homes…”

Fewer multiple offers: There’s been fewer multiple offers lately, but that’s a normal part of the fall season. At this time of year there’s simply not as many eyeballs on listings which means there’s also fewer offers. This underscores exactly how important it is to price for the market that actually exists today rather than the more aggressive trend in the spring.

School boundaries: Here’s a quick screencast I put together for a friend on how to find school boundaries. This can come in handy to be able to quickly find boundaries for all schools (not just the district). This can matter at times for pulling comps too.

California new high price record: We have a new record in California as the “Beverly Hillbillies” mansion sold for about $150M. No, this doesn’t mean your property is worth more now. The highest residential sale ever in the United States is an apartment in New York at $238M (it was several apartments combined actually). I’ve read about a flip in SoCal that is supposed to come to the market eventually for $500M…. We’ll see.

Disconnected sellers: Last but not least, sellers are still lagging behind the trend. What I mean is the market has slowed, but sellers are stuck in the past and expecting to command lofty prices from super hungry Bay Area Buyers. They think everything is selling cash too when in fact only 15% of the market was cash last month. It’s like sellers are showing up to a party with Z Cavaricci pants and “Can’t Touch This” t-shirts. They didn’t get the memo that style has changed… Okay, that got weird.

News 10: If you think this post is absurdly long already, you’re right. Here’s a piece I did on News 10 this morning though on gentrification in Oak Park. I pulled some cool stats and honestly I was pretty excited to see my stats so large on the screen too. Haha.

I could write more, but let’s get visual instead.

FIVE THINGS TO TALK ABOUT:

1) SLOWER GROWTH (with an asterisk): Price growth has been slowing. It’s what the stats are telling us. Though technically the monthly and quarterly data below show higher price growth this year. But take this with a grain of salt because the market was REALLY dull last year. So when we compare numbers this year with dismal stats from the last half of 2018 it tends to inflate the numbers today.

2) PRICE CYCLES: Here’s a look at the past few price cycles in various counties. This is a fascinating way to see the market. What do you notice?

3) LAST YEAR vs THIS YEAR: All year long most price metrics have been up about 2-4% each month compared to last year, but these past two months they’ve been higher. This is likely due to stats sagging last year during a really dull 2018 fall season. Additionally, mortgage rates went down a few months ago and we’re likely seeing some of the effect of that.

4) VOLUME SLUMP: We’ve been having a definitive sales volume slump since mid-2018, but lately volume has been stronger. In other words, sales volume has been up for three out of the past five months. This is something to keep on the radar. It’s not a volume meltdown, but it’s definitely been a slower year.

5) LAST MONTH vs THIS MONTH: The market looks pretty flat in some categories from October to November. But in other ways we still see the market slowing. For anyone who says we are not having a seasonal slowing, please look closely at all the images in this post. We are. It just hasn’t been as dull as some other fall seasons.

NOTE: Take El Dorado County data with a grain of salt. Stats change significantly month by month. Also, if you’re in Placer, be careful about only looking to Placer data because limited sales can mean numbers jump around quite a bit from month to month.

Thanks for respecting my content: Please don’t copy my post verbatim or alter the images in any way. I will always show respect for your original work and give you full credit, so I ask for that same courtesy. Here are 5 ways to share my content.

Please enjoy more images now.

SACRAMENTO REGION (more graphs here):

SACRAMENTO COUNTY (more graphs here):

PLACER COUNTY (more graphs here):

EL DORADO COUNTY (more graphs here):

DOWNLOAD 90 visuals: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: What sort of predictions are you hearing (or making) right now? What stands out to you about the market? Anything to add?

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Street names & hot stats with an asterisk

November 13, 2019 By Ryan Lundquist 17 Comments

I have two things on my mind. Street names and super “hot” market stats. Then for those interested I’ve include my big monthly market update below.

Two things:

1) Street Names: Just for fun, could a street name actually affect value? I mean, if it was really off-color, would buyers pay less because of a name? In my mind it seems iffy because I’ve never seen a name that would actually deter buyers. Yet the middle schooler in me can think of some examples that might work… Anyway, after a conversation on Twitter, here are some of the more random street names in Sacramento. What funny or odd street names have you seen?

2) Hot stats with an asterisk: Last year we experienced a REALLY dull market in many places across the country. If you remember mortgage rates ticked up and it was as if a dark cloud was looming over the housing market. I’m bringing this up because stats last year were depressed. Thus when comparing last year to more glowing or normal numbers today it can make recent price figures look really sexy. My advice? Over these next few months be aware of more sensational data due to lackluster stats from last year. Otherwise if we’re not careful we might end up thinking the market is much hotter than it actually is.

Any thoughts?

—–——– Big local market update (long on purpose) —–——–

This post is designed to skim or digest slowly.

Summary: The numbers are “hot” this month. Prices are up to a greater extent than they’ve been most of the year, inventory is down, pendings are strong, and sales volume has been up too. Part of the reason why the numbers are so stellar is because last year’s numbers were dull, but some of the hotness stems from low mortgage rates a few months back too. In other words, strong pendings from the summer finally closed in October.

DOWNLOAD 90+ visuals: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

THE SHORT VERSION:

It’s been a normal fall so far
FHA buyers have been hungry
Zillow bought their first house
Anemic housing supply
Celebrity flippers are coming
Rent control doesn’t apply to every property
Market crash vs recession
Strong million dollar market
Slowing price momentum
Overpricing is still an issue

THE LONGER VERSION:

Here are some of the bigger topics right now:

Normal fall so far: Not all fall seasons are created equal. What I mean is some falls are duller than others, and this year so far has seemed to be a stronger season. Granted, prices are still softening like we’d expect, but it’s nothing like the painfully dull fall we had last year when some thought the market was about to take a big turn.

Hungry first-time buyers: Last month FHA was 21% of the market in Sacramento County. It’s been over two years since we’ve seen a month with 21% of the market go FHA. For years FHA has been declining because there are conventional products that can readily compete, but so far in 2019 FHA is up 5.6% in Sacramento County.

Zillow’s first purchase in Sacramento: About a month ago Zillow entered the Sacramento market and they just closed on their first house. It was a $560,000 private sale in Carmichael. On a related note, a piece came out in Forbes this week about iBuyer models paying close to market value. Look, we need to remember the credits these companies are getting from owners are padded into the purchase price. So instead of reducing the price to account for repairs, iBuyer tech companies are keeping the price higher and getting a credit for repairs within the purchase price. This is a huge advantage because it makes it look like the price is even closer to fair market value.

Anemic housing supply: Last week the big news was sellers are spending an average of 13 years in their homes instead of 8 years. As a result we’re seeing fewer homes hit the market. This is surely in part a consequence of eight years of historically low mortgage rates. We now have millions of owners with less incentive to list because they’re sitting on a low rate with equity.

Celebrity flippers are coming on strong: A few weeks ago I couldn’t sleep and I snapped this image while watching television at 4am. This flipping program aired simultaneously on four major networks. My advice? Be careful. We all want financial freedom, but you can spend thousands of dollars on these seminars to obtain “secret” flipping knowledge you can probably get for free.

Rent control does not apply to single family homes in Sacramento: I have an exhaustive Q&A post on rent control coming soon, but for now I wanted to mention something important. Rent control in the City of Sacramento only applies to properties within city limits with two units or more that were built prior to 1995. It does NOT apply to single family homes. However, if an investor owns ten or more properties under an LLC (and a couple other scenarios), rent control can apply. Keep in mind California has some differences between Sacramento rent control. Here’s an overview of rent control in California with a video link to a lawyer talking through rent control dynamics.

Ready for the market to crash because of a recession: Some prospective buyers are waiting for a recession in hopes of the market crashing, but real estate doesn’t always crumble when a recession happens. In fact, sometimes prices even rise. Here’s a video I made to talk through the past five recessions in Sacramento. This is a huge topic right now.

Strong million dollar market stats: The million dollar market has been growing. We really are in a market of outliers where we’re seeing some of the highest prices ever (Sellers, don’t overprice because of this). For reference, the top three sales ever in East Sacramento have all sold this year.

Slowing price momentum: Overall price growth has slowed down from years ago. This isn’t a shocker because I’ve been beating this point to death for the past couple years at least. What I mean is prices are moving forward still, but it’s not the type of rapid growth we saw in early 2013.

The plague of overpricing: Sellers these days are fixated on glowing stats and they’re often thinking the market is more competitive than it actually is. It’s like sellers are saying, “The market is SO hot and I’m going to get tons of offers,” but then buyers are like, “OK, boomer” (sorry, had to fit that in). Seriously though, overpricing is an enormous problem for sellers among all ages, price ranges, and locations. My advice? Price according to similar homes that are actually getting into contract. Remember, the market in later November and December is usually the slowest time of year. If you’re priced right you’ll likely get one or two offers, but if you’re priced too high you’ll likely get zero.

I could write more, but let’s get visual instead.

FIVE THINGS TO TALK ABOUT:

1) SLOWER GROWTH: Price growth has been slowing. This isn’t my idea or agenda. It’s what stats are telling us. This market is still very competitive when priced correctly, but it’s not a market with hefty price appreciation.

NOTE: Two of the categories above are showing slightly more price growth in 2019 compared to last year. But remember, when looking at data for October or the past 90 days, we have to consider how dull the market was last year.

2) PRICE CYCLES: Here’s a look at the past few price cycles in various counties. This is a fascinating way to see the market. What do you notice?

3) LAST YEAR vs THIS YEAR: All year long most price metrics have been up about 2-4% each month compared to last year, but this month they were a little stronger. This is likely due to stats sagging last year during a really dull 2018 fall season. Additionally, mortgage rates went down a few months ago and we’re likely seeing some of the effect of that.

4) VOLUME SLUMP: We’ve been having a definitive sales volume slump since mid-2018, but lately volume has been stronger. In other words, sales volume has been down fifteen out of the past eighteen months. But sales volume has been up for three out of the past four months. This is something to keep on the radar. It’s not a volume meltdown, but it’s definitely been a slower year.

5) PRICES ARE SOFTENING FOR THE FALL: The market generally slowed in October, which is expected for the time of year.

Please enjoy more images now.

SACRAMENTO REGION (more graphs here):

SACRAMENTO COUNTY (more graphs here):

PLACER COUNTY (more graphs here):

EL DORADO COUNTY (more graphs here):

DOWNLOAD 90+ visuals: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: What’s the wildest street name you’ve seen before? What market trend above stands out to you the most? Anything to add?

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Thoughts on PG&E and the housing market

November 7, 2019 By Ryan Lundquist 41 Comments

I’ve been asked quite a bit to talk about what’s happening with PG&E. It’s mind-blowing to think close to one million households have had spurts without electricity lately in California. I don’t think anyone saw this curveball coming, so let’s talk about it. Please pitch in your thoughts below too.

Here are a few things on my mind.

Prolonged vs isolated incident: Whenever something changes in a market we tend to immediately ask about the impact, but the truth is we don’t always have answers – especially at first. It’s important to remember a few power outages aren’t likely to alter the perception of sellers and buyers in a market. But if we begin to see a prolonged issue, then that’s a different story.

The market will adapt: Generators haven’t been easy to find in the Sacramento area despite all the radio ads, but at some point if power outages become prolonged the market will simply adapt and generators will become commonplace. Thus properties with some sort of system to retain power are going to be more marketable. Remember though, if a generator isn’t a permanent part of the house, it’s really personal property, so it’s not going to be included in the appraised value.

Uncertainty: People like stability and so does the housing market. A friend in a rural area recently said she doesn’t know if she can take PG&E outages for the next ten years. I feel for her and I think her sentiment captures the struggle many residents have right now of living in the tension of not knowing the future.

The market hasn’t stopped: It’s important to note the housing market hasn’t stopped. There are still properties trading hands. In fact, here’s current pendings in Placer, El Dorado, and Nevada County. I realize this isn’t the perfect image because only portions of these counties are having outages. Nonetheless, this is a quick glance to highlight the market is still moving. With that said, we’re at the beginning stage of this new issue and my sense is we’re in a stand-by period where owners and buyers are watching and waiting to see what the future holds.

Migration: Unplanned power outages could drive some residents to leave rural areas (or even suburban areas having issues). I think this is especially true for anyone who has already been flirting with the idea of leaving California. This could be the final straw. But for many rural owners they’re going to stay because they love their lifestyle (of course as long as there are solutions for keeping the power on during outages).

Solar: There’s lots of buzz about solar becoming a bigger trend in outlying areas. My advice? Just be sure the solar system is actually going to work if the power is out. And don’t make a rash decision about installing an expensive solar system if there is a more cost-effective solution too.

Insurance costs: Fire insurance has skyrocketed in outlying areas in recent time and it’s been a huge struggle. Just yesterday I had a real estate agent tell me a client was paying about $800 for an annual insurance plan and now the bill is $3,000 for the year. What a burden – especially for those with a fixed or lower income. Thus throwing in a new layer of power outages really doesn’t help boost appeal for outlying areas. Insurance is certainly a hardship, but at least it is a known factor. What is especially challenging with power outages is their frequency in the future is not known. This is where an element of uncertainty can be more stressful than insurance costs for some households.

Stories vs stats: When something new happens in a market there is a season where we have stories from the trenches of escrows and eventually these stories become stats. In my opinion right now we have limited data and we need more time to understand what the market is doing. With that said, when it comes to areas with rising insurance rates I’m noticing housing supply has ticked up at a higher rate in El Dorado County compared with the rest of the region, and sales volume has seemed to slump more in El Dorado County also. This includes the entire county of course and at some point I may parse only fire insurance areas (this is not as easy to do as it sounds). Anyway, let’s keep watching.

I hope this was helpful. I’m so sorry to friends who have been struggling with power outages. By the way, if any appraiser friends need space to plug into wifi if your power goes out, please hit me up.

Million Dollar Market: On a different note, here’s a quick rundown of the million dollar market in the Sacramento region if you’re interested.

Questions: If you live in PG&E territory, what have you been experiencing? What are you hearing from residents? What did I miss?

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

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