Some perspective as real estate “bubble” conversations emerge

Lots of real estate “bubble” talk lately. Have you noticed? It’s a hot topic for the public and real estate community as housing affordability is becoming more of an issue since values have been on the rise for the past four years. Even Hollywood is getting in on the action with movies hitting the screen about the bursting of the “bubble” ten years ago (thanks Jonathan Miller for the heads-up). Anyway, this isn’t another post on whether we are in a bubble or not, but rather some things to keep in mind for the real estate community as bubbly conversations emerge. I’d love to hear your take in the comments below.

real estate bubble - image bought and used with permission from 123rf dot com by sacramento appraisal blog

Enjoy the tips. Anything you’d add?

Things to keep in mind during real estate “bubble” conversations:

  1. Predicting is Dangerous: Predicting the future of real estate is sort of like predicting what Justin Bieber is going to do next. What will the Biebs do next month or next year? Nobody knows. The same is true in real estate, and it’s okay for real estate professionals to simply say, “I don’t know what the market is going to do. My crystal ball is broken. But I can tell you what the market is doing right now and what it seems poised to do.” Seriously, if you work in real estate, this is probably the best and most honest answer you can give.
  2. Remember that markets change: At some point in the future values are going to decline, and at some point in the future they are going to increase. Of course we want to avoid incredibly steep declines, but otherwise it’s normal for real estate values to go up and down, and we should therefore expect that. We seem to have a mindset that prices should only increase, but that’s just not realistic. That would be like saying every day should be sunny or each day of a marriage should be only positive and filled with bliss (nothing is always positive).
  3. Be in tune with the slow fall season: When the market slows during the fall, it only exacerbates bubble talk. The past three years have seen a very definitive dull market in the fall (at least in the Sacramento area), and we need to respect and embrace that slow seasonal reality (and price accordingly). It’s sort of like when work is slow, it’s easy to get depressed or even think the business is going under. Well, it’s the same deal with the cyclical real estate market.
  4. Never promise equity: It’s easy to say things like, “This house will be worth much more in two years, so it’s a good time to buy,” but can anyone really guarantee that? If you never promise value to your clients, they can never come back and say, “You told me the market was going to increase and it didn’t”. This was exactly what many real estate pros told buyers using 100% financing last decade. “Hey, the market is going to increase, so don’t worry about that adjustable rate. You can refinance out of it in two years.” Interestingly enough, today’s FHA buyers are sometimes told, “You can get in the market with FHA now, and just refinance into a conventional loan when the market increases.”
  5. Focus on affordability: Everyone wants to buy at the lowest point in a market, but very few people actually pull that off. In fact, many times it’s simply an accident when it does happen. Ultimately people ought to buy when it makes sense for their wallet and lifestyle, and that is a fantastic point to emphasize because it respects where people are at in life rather than telling people when they should do something. If you have clients who want to buy, then honor their desires by helping them understand what affordability looks like with whatever market is in front of them.
  6. Become great at explaining the cake: Value in real estate is like a multi-layered cake since there are many “layers” in a market that impact prices. See my cake image here and use it (I love this analogy). It’s easy to think of real estate in terms of being only about supply and demand, but it’s also about interest rates, the economy, cash investors, financing, affordability, jobs, consumer confidence and so many other “layers”. In short, when one layer of the cake changes (such as inventory or financing), it can change the entire cake (the market).
  7. Hone your pricing skills:  How can you get better at pricing, pulling comps, or making value adjustments this year? It can be challenging to price when a market slows or declines because values might actually be lower than the most recent sales and listings indicate. Thus I recommend getting some training this year, taking some stellar CE, or connecting with some locals who you think are getting it right (By the way, if you’re local, I teach a 2 or 3-hour class called “How to Think Like an Appraiser”. May I do a training in your office?)
  8. Change what you say about the market as the market changes: It’s easy to speak fluently in clichés or say the same thing about the market for years. Agents do this by saying “it’s a good time to buy and sell” even if it isn’t, and appraisers do this by always indicating in their reports that values are “stable” with a “balanced” supply of inventory (even if that’s not the case). When we look closely at trends and begin to see what the market is doing, we can change what we say to our contacts and clients. Moreover, we might even price more effectively and give better real estate advice.
  9. Bubble Obsession: Values were massively inflated ten years ago, yet we still have this obsession about getting back to “the good ‘ol days”. Was it really that good to see huge price increases only to have the housing market collapse around us? Do we want to get back there? Nah, I think we can do better. This is why I recommend real estate professionals to be aware of bubble issues, but also find other interesting things to talk about and share. I’m absolutely not saying to ignore the market or be dishonest, but only find a balance so we don’t perpetuate a fear or worry about what may or may not happen to values in the future.
  10. Consider your future clients: One of the best things to do when considering the future of real estate is to think about who your clients might be as the market changes. Based on the way the market is moving, who do you think your clients are going to be in 2016 and 2017? What will your database need over the next two years? Are they going to be looking to buy, sell, rent, get married, get divorced, invest, do a short sale, get back in the market, remove PMI, sell a parent’s home, move up, build an accessory dwelling for an aging parent, downsize, settle an estate….?

I hope this was helpful.

Thank you sincerely for reading. I cannot tell you how much I appreciate you letting me share a few thoughts each week.

Questions: What is point #11? Which one resonated with you the most? Do you think we’re in a “bubble”? (I’ll share my thoughts if someone asks)

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The slowing, competitive, & price-sensitive market in Sacramento

Slowing down. Competitive. Price sensitive. Still more aggressive than last year. These are all ways I would describe today’s housing market in Sacramento. Let’s unpack the latest trends today to really see the market so we can better understand it and explain it to clients.

slow but competitive market in sacramento - image purchased and used with permission from 123rf - sacramento appraisal blog

4 Hours to write this post: This post usually takes easily 4-5 hours to write each month. Keep in mind I create 50-60 graphs and then break down the trends into bite-sized talking points. I honestly LOVE doing this, and the goal is to be able to use the information for life and business. Why am I mentioning this? I just wanted to let you know how much I value helping us stay in tune with the market. New readers, the three other monthly posts are short, sweet, and general, but this one is long and hyper-local.

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 54 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: Last month I talked about how the market has been slowing down. Sometimes when we say “slow”, it can really freak people out. But it’s actually very normal for real estate to soften during the later summer and fall after a more aggressive buying season in the spring. Moreover, when the market does change, it’s simply an opportunity to price more efficiently and explain the changing market to clients. The danger is when we say the same thing about the market all year long despite the trends really not being the same. What are some of the signs of slowing? It took 4 days longer to sell a home last month than the previous month in the Sacramento region. Housing inventory increased slightly in the surrounding four counties last month. The sales to list price ratio decreased by 1% last month. The median price in Sacramento County has been the same for four months in a row. The median price in the Sacramento region has declined by 1% over the past few months. I could go on and on. Of course let’s remember that sales volume is up by a whopping 10.9% so far this year in the region, and housing inventory is actually 22% lower right now in the region compared to the same time last year. Ultimately it’s still very competitive out there as buyers are hungry to get into contract before interest rates rise too much or while they feel like they can still afford the market (that’s so 2004). All year the market has been remarkably price sensitive too, which means buyers have been hesitant to write offers on overpriced homes. As housing supply presumably continues to increase over the next few months, watch out for price reductions to continue to increase, unrealistic expectations from sellers, and buyers gaining more power.

Sacramento County Market Trends for August 2015:

  1. The median price has been hovering at $290,000 for 120 days.
  2. It took an average of 34 days to sell a house last month (up 3 days from July).
  3. Last year at this time it was taking an average of 40 days to sell a house.
  4. FHA sales were nearly 27% of all sales in Sacramento County last month.
  5. Sales volume is 9.7% higher so far in 2015 compared to last year.
  6. Sales volume was 15% higher in August 2015 compared to August 2014.
  7. There is a 1.76 month supply of homes for sale (slightly lower than July).
  8. Housing inventory is nearly 27% lower right now compared to August 2014.
  9. The average price per sq ft is 185 (5.5% higher than last August).
  10. The average sales price is $319,636 (slightly lower than past two months).

context for median price - by sacramento appraisal blog

CDOM in Sacramento County - by Sacramento Appraisal Blog

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

inventory - August 2015 - by home appraiser blog

price metrics since 2014 in sacramento county

number of listings in sacramento - August 2015 - by home appraiser blog

sales volume in Sacramento County

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

  1. Sales volume was up 12.8% in August 2015 compared to August 2014.
  2. Sales volume for the year is up 10.9% compared with 2014.
  3. The median price at $328,825 is up 6% from last year, but down 1% from the past two months.
  4. It took an average of 39 days to sell a house last month (4 days longer than last month).
  5. FHA sales were 23% of all sales in the region last month.
  6. There is 2.05 months of housing inventory (up from 1.98 last month).
  7. The average sales price is $367,545 (4.2% higher than last year, but down slightly from two months ago at $370K).
  8. It took 3 less days to sell a house this August compared to August 2014.
  9. FHA sales volume has increased by 30% in 2015 compared with 2014.
  10. Housing inventory is nearly 22% lower right now compared to August 2014.

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

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

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

months of housing inventory in region by sacramento appraisal blog

breakdown of sales in sacramento placer yolo el dorado county

interest rates inventory median price in sacramento regional market by sacramento appraisal blog

Placer County Market Trends for August 2015:

  1. Sales volume was up 11.7% in August 2015 compared to August 2014.
  2. Sales volume for the year is up 17% compared with 2014.
  3. The median price in Placer County is $402,900 (increased from last month, but it’s been hovering from $390-400K generally).
  4. Cash sales were 18.5% of all sales last month (very normal level).
  5. It took 46 days on average to sell a house last month (6 more days than July).
  6. Last year at this time it took 1 day longer to sell a house.
  7. FHA sales were 19% of all sales in Placer County last month.
  8. There is 2.35 months of housing inventory (up from 2.17 months in July).
  9. The average price per sq ft is 201.8 (been hovering around this level for a few months).
  10. REOs were less than 2% of all sales and short sales were roughly 2.5% of all sales last month.

days on market in placer county by sacramento appraisal blog

Placer County sales volume - by sacramento appraisal blog

months of housing inventory in placer county by sacramento appraisal blog

Placer County median price and inventory - by home appraiser blog

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

Regional market median price - by home appraiser blog

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

Quick Pricing Advice:

  1. Remember it is normal for the market to cool off during the latter part of the year. Knowing seasonal cycles and communicating them is key.
  2. Price according to the most recent listings that are getting into contract rather than the highest sales from the spring. Remember, it’s normal for housing inventory to increase during the fall, so this will only allow buyers to be more picky.
  3. The market is still very price sensitive, which means buyers are not biting on overpriced listings despite inventory and interest rates being relatively low.
  4. 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 54 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?

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The smell of gentrification in Oak Park

Gentrification is either a dirty word or something wonderful depending on who you ask. One of the best examples of gentrification locally is the Oak Park area of Sacramento. Let’s take a deeper look at this neighborhood that is in the process of change. I’d love to hear your take in the comments below.

Oak Park high sale

Seriously, $428,000? When telling a few locals on Twitter last week that a property on 34th Street recently sold for $428,000, the responses were mostly, “What the heck? Really? Wow!!” I know that doesn’t sound like much for certain areas of the country, but it gives pause for Oak Park because it seems symbolic of what is happening in the neighborhood as well as indicative of values that have risen dramatically in recent years.

What is gentrification? According to Merriam Webster, it is the process of renewal and rebuilding accompanying the influx of middle-class or affluent people into deteriorating areas that often displaces poorer residents.

1) Neighborhoods Have Life Cycles:

Growth: A period during which there are gains in public favor and acceptance. Demand increases.
Stability: A period of equilibrium without marked gains or losses. No real obvious change.
Decline: A period of diminishing demand and acceptance.
Renewal: A period of rejuvenation and rebirth of market demand.

2) The Good & Bad: Blight needs to be cleaned up, so it’s a good thing when that begins to happen in neighborhoods. However, it’s a bad thing when native residents are displaced because they can no longer afford the neighborhood.

An Example of Gentrification: The Oak Park area of Sacramento has been gentrifying for more than a decade. In some portions of the neighborhood there are signs of revitalization as residential properties are rehabbed, chain link fences are removed, and commercial businesses along Broadway are starting to attract outsiders (which is something that rarely happened in previous years). Overall a shift in attitude is taking place, and that is being reflected with greater demand and higher home prices. There are “gentrification pockets” so to speak in various areas of Oak Park, but not all areas.

Oak Park Sales in Sacramento - by Sacramento Appraisal Blog

Here are all Oak Park sales over the past 6+ years. This graph shows all portions of Oak Park including North Oak Park (not Med Center). These are residential sales from MLS (no private sales). The highest sale in Oak Park recently closed at $428,000. On one hand this sale is higher than anything else, and that gives us pause, but on the other hand it is larger in size and new homes tend to command a value premium.

Oak Park and Med Center Sales in Sacramento - by Sacramento Appraisal Blog

Med Center Thoughts: North Oak Park has been a very hot market, and some would say the line between Med Center and North Oak Park has been blurred in recent years, meaning higher values of the Med Center area have trickled throughout North Oak Park. If you are a buyer, would you pay a premium for Med Center or do you not care? As an appraiser I like to graph Med Center separately because some properties in Med Center can still command a premium. However, the graph does show the highest prices in Oak Park are more readily competing with Med Center prices.

SNL’s Gentrification Skit: By the way, if you haven’t seen Saturday Night Live’s skit on gentrification, they nailed it. Watch below (or here). There is some language, so be careful about kids being present.

Questions: Any thoughts, stories, or points to share? I’d love to hear your take. How has your perception of Oak Park changed over the past decade? Do you think there is a price difference between Med Center and North Oak Park? What are the strengths and weaknesses of gentrification?

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Why it’s important to pay attention to listings in this market

Listings are important and we should pay attention to them. Why? Because they can help us understand the direction of property value. If listings are priced higher than the most recent sales, for example, the market is likely increasing. If they are priced lower, the market is probably declining or cooling off. If they are about the same, the market is likely more stable.

rosemont sales

It’s been interesting to watch real estate unfold over the past couple of months in Sacramento. I’m beginning to see more graphs like the one above in Rosemont where listings are priced more consistently with the most recent sales. In many neighborhoods listings are still being marketed slightly higher than sales over the past quarter, but the gap between recent sales and current listings is definitely getting thinner as the market has been shifting lately. In light of an uptick in inventory, less cash sales and an increase in interest rates, this is understandable. Moreover, this year we may experience a bit more of a typical real estate season where the market cools off a bit as Summer fades away. This “cooling” didn’t happen last year at all since incredibly low rates drove competition just as investor cash (Blackstone and others) devoured the market from late Summer through the early Winter. Last year was definitely not “normal”. This year could be different. We shall see.

Any thoughts or stories to share?

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