What’s your housing shtick?

It’s easy to fall into the trap of saying one thing about the housing market. Just as a comedian has a shtick, or regular performance, we can get into the routine of talking about real estate based on one big idea about what the market is doing or will do. Let’s consider some examples. Which one(s) are you? Any thoughts?

37841087 - overhead of office table with notebook, computer keyboard and mouse, tablet pc and smartphone. copy space

Doom & Gloom:  The market is going to crash like it did 10 years ago.

Corrector:  Values will correct but not implode.  

One-Metric Wonder: The market will turn as soon as this one thing happens.

Normal: The market is normal and not in a “bubble”.

Mr. Buzzword: The market is headed toward a “shift” in the future.

Polly Pollyanna: It’s always a good time to buy and sell. Everything is always good.

Specific Year Guy: This year is going to be the one where values turn.

Mrs. Cyclepants: The market has a 7 year cycle and it’s about up.

Foreclosure Prophet: Another foreclosure wave is coming. Just wait.

Headline Regurgitator: This person says whatever the latest headlines say.

Spinster: Any negative aspect of housing is spun into something positive.

The Feeler: I feel like the market is strong and will be in the future.

Crystal Ball: This is exactly what the market is going to do.

Broken Crystal Ball: Nobody knows the future including me.

If we’re honest we might identify with several shticks above. That’s okay. I’m not saying there’s something wrong with that, but let’s be challenged to consider what we say and not get locked into conveying only one thing about the complex housing market. Moreover, let’s be cautious about imposing clichés and ideas on the market because it’s easy to miss trends that way. At the same time let’s not be naive by refusing to consider the future. My advice? Pay attention to the numbers and know them well enough to quote, know what is normal and not for the time of year, remember that values might be moving differently in various price ranges and neighborhoods, and find ways to talk about current values in specific terms while keeping an eye on the future (instead of focusing entirely on the future).

My knee & market update post: Some of you may know I hurt my knee in a snow tubing accident 10 days ago. I have an MRI next week, but for now the doctor thinks I may have torn my meniscus. Anyway, I normally do my big market update between the 10th and 15th of the month, but I can’t swing it this week since I took last week off and I’m basically playing catch-up with all my reports this week. I’m just grateful to be at my desk again. Anyway, I will be 100% up and running (not literally) next week, and I’ll get to my big update then. Thanks for your understanding.

Questions: Which shtick stands out to you most? Any others to add? Did I miss something? I’d love to hear your take.

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Are we really back to “bubble” prices?

We’re back at the peak of the market. Well, that’s what some of the national indexes are saying. So imagine yourself in line at Starbucks and someone remarks, “I heard on CNN we are back to bubble prices.” What would you say? Let’s look at some of the “national” trends below and then kick around a few thoughts. I’d love to hear your take in the comments.

bubble-prices-image-purchased-from-123rf-sacramento-appraisal-blog

Case-Shiller National Index: This index shows the “national” market is about where it was during the peak of the index in 2006 (source).

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Freddie Mac National Price Index: This index shows the “national” market is about where it was during the peak of the index in 2007 (source). 

freddie-mac-price-index-united-states-sacramento-appraisal-blog

Freddie Mac California Price Index: The “national” index in gray shows we are back to the peak of the market, but the state index in black shows California is still about 5% below the peak (source).  

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Freddie Mac Sacramento Price Index: The national index in gray shows we are back to the peak, but the local Sacramento index in black shows we are still a ways off (source).

freddie-mac-price-index-sacramento-sacramento-appraisal-blog

Some quick thoughts:

1) I want to buy in the national market: There is no such thing as a national market, which makes “national” indexes only so valuable (or sometimes totally useless). As Jonathan Miller says, real estate is local and we have thousands of local markets instead of one national market. Therefore we ought to be naturally cautious about national metrics (see Barry Ritholtz rip NAR’s affordability index). In short, I watch “national” indexes, but I look to the local market for the real trend.

2) Different Peak: The “national” market peaked around 2007 depending on which index you’re looking at, but Sacramento peaked in 2005. Media outlets often talk about the housing “bubble” bursting in 2007 when in fact that wasn’t true for many markets (including Sac).

3) Current Values: Many Sacramento neighborhoods are still a good 10-15%+ below the peak of the market, though some classic areas are getting very close (while other depressed areas have much further to go). I included some neighborhood graphs below for reference.

4) Condos & Land: Let’s remember not all property types trend the same way. For instance, the condo market has struggled since the housing “bubble” burst. Owner occupancy rates being too low have stalled many complexes from obtaining financing, which has stalled value increases too. Vacant land is also far below where it was at the peak because there is less new construction today and we don’t have land speculators like we did 10+ years ago. 

Specific Neighborhoods (Are we there yet?):

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east-sac

4-plex-carro

del-paso-manor

curtis-park

I hope this was helpful.

Questions: Are there any national metrics you pay attention to? Any you’d recommend avoiding? Did I miss something? I’d love to hear your take.

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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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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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