Quick signs of the Fall real estate market arriving in Sacramento

Fall is here. You wouldn’t know it so much by the weather though since it’s still been hot in the Sacramento area. Seriously, my family has not even used our heater once yet (have you?). But the real estate numbers are a different story because they are showing a very definitive seasonal trend as the Fall market arrived on time over the past 30 or so days. Let’s take a look at 9 quick talking points to help understand and explain how the real estate market is unfolding right now in Sacramento County. I hope this helps.

Quoted in the SacBee: By the way, I was quoted in the Sunday morning edition of The Sacramento Bee in a story, “Sacramento area home could set record with 6.5 million listing“. Check it out if you wish.

photo by reggiewilliams on Instagram

Two ways to read this post:

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

GRAPHS

1)  The median price has been about the same for 6 months:

median price and inventory since 2013 - by sacramento appraisal blog

The median price technically declined from $275,000 to $269,951 last month, but take that with a grain of salt since the 2% boost in median price to $275,000 in September felt like more of a statistical fluke than anything. Overall the median price has been about the same for 6 months in a row.

2)  Prices overall are softening (which is normal for Fall):

price metrics since 2014 in sacramento county

Does the median price being the same for 6 months mean prices are stable? Looking at several metrics helps answer this question. Both the average sales price and average price per sq ft took a dip last month. Overall prices are softening in Sacramento County as well as the entire region (more on that in two days).

cooler price in Fall - by sacramento appraisal blog

Remember, it’s normal for prices to cool off during the Fall. The market as a whole is is slowing down, which is one thing, but let’s not forget the reality of our seasonal real estate cycle.

3) Inventory is at 2.5 months (about the same as last month).

inventory in sacramento county  Since 2011 - by sacramento appraisal blog

inventory during fall - by sacramento appraisal blog

Overall inventory is a hair under 2.5 months of housing supply, which means there are about two-and-a-half months worth of houses for sale right now in Sacramento County. This is about where the peak of inventory was in 2013. If the market unfolds “normally” over the next two months, we should see an increase in inventory.

4) Sales volume is down 8.8% in 2014 (but up 4% from October 2013):

sales volume october to october in sacramento county

sales volume in fall - by sacramento appraisal blog

It’s normal to see sales volume decline during the Fall months, so it was not a surprise to see slightly less sales in October compared to September. It is true that volume is actually 4% higher than it was during October 2013. Whiles this is obviously not a huge percentage, it’s still good to see slightly more volume. If you remember, last year was a very dark time in real estate in light of the looming government shutdown and the market having a very strong reaction as cash investors began leaving in droves. Keep in mind some savvy buyers are trying to scoop up properties right now during November and December since they know they are gaining more power to negotiate, but realistically many potential buyers are not shopping aggressively these days since their focus will soon shift to turkeys and holiday gifts. Likewise, some sellers have pulled their listings from the market since they didn’t sell at their desired prices. In fact, beginning several weeks ago price reductions have gone from about 400 per day in MLS to closer to 200. This is a byproduct of a slower Fall season (this is normal).

5) Cash sales are down 40% in Sacramento County in 2014:

cash sales and volume in sacramento county - by home appraiser blog - Copy Cash sales since 2009 in Sacramento County by sacramento appraisal blog

Cash purchases are down by 40% this year, which is really the X-factor for why sales volume has been more sluggish this year. Over the past couple years cash served as a steroid to increase values, but since investors took their foot off the gas pedal, the market has been attempting to figure out how to be normal. What does it look like for real estate to be more driven by local demand instead of an artificial demand from buyers outside of Sacramento? At the same time, cash purchases still represent about 1 in 3 sales under $200,000 (but it’s normal to have more cash at the lower end of the market).

6) Buyers are still gaining power in the market:

FHA and cash sales since 2009 in Sacramento County by sacramento appraisal blog

Less cash has created more space for both FHA and conventional offers to thrive. This has been great news for buyers. FHA has taken back an additional 4.5% of the market in 2014, which effectively means just over 23% of all sales in 2014 have been FHA (as opposed to 18.9% of all sales last year at this time). Keep in mind almost 33% of all sales used to be FHA a few years ago, so there is definitely room for buyers to absorb even more of the market. Did you catch that stat? As the market unfolds to become more of a buyers’ market in coming time, we can expect to see more FHA, conventional, and VA deals. In short, if you are not familiar with FHA appraisal standards, it’s time to get up to speed.

sellers lagging behind the trend in Sacramento County

Part of buyers gaining power in Sacramento’s housing market is due to overpriced listings from sellers. While price reductions have slowed down a bit over the past 30 days as less listings are hitting the market, there are still many overpriced properties. Sellers, remember that the mind of the buyer has changed drastically over the past six months. Buyers are simply not pulling the trigger unless properties are well-priced for their condition and location. As I’ve been saying, I recommend pricing according to the most recent competitive listings that are actually getting into contract. The image above shows how many sellers are lagging behind the trend of the market and not quite in tune yet with the change that took place. The market has been very flat and has been softening over time, yet some sellers have tried to “test the market” at higher price levels (which hasn’t worked out too well for many).

7) It’s taking an average of 45 days to sell a house in Sacramento:

CDOM in Sacramento County - by Sacramento Appraisal Blog

It took 4 more days to sell a home last month compared to the previous month. When it starts taking longer to sell like this, it’s a sign of the market slowing down (as well as a normal seasonal trend). Remember that it was taking 90 days to sell a home just a few years ago. Generally speaking, the higher the price, the longer it is taking to sell. Take the properties under $100K with a grain of salt since there were fewer sales in that price segment.

months of housing inventory by sacramento appraisal blogRemember too that not every price range is experiencing the same trend, which is a powerful point to communicate to your clients. The image above shows how inventory is not the same at every price level. Inventory is still relatively low, and while it’s easier to get into contract than it was in early 2013, it’s still not easy in some price segments.

8) Distressed sales remain very low at around only 6% of the entire market:

REOs and Short Sales in Sacramento County

There were only 85 REO sales last month and 79 short sales in the entire county. So is it a good time to be an REO agent or short sale specialist? Both are still relevant avenues of business to a certain extent, but remember to let trends inform what type of business you pursue. Who might your clients be next year if the market continues to shift to a buyers’ market?

9) Interest rates declined over the past month:

interest rates by sacramento appraisal blog since 2008

Many experts thought interest rates would be hovering around 4.5 to 5.0 by the end of 2014, but it doesn’t seem like that’s going to happen. Of course only The Fed knows how things will unfold, but keep watching this trend since lower interest rates can end up pulling in buyers who are sitting on the fence (and thus lowering inventory and creating more pressure on values to increase). Ultimately at some point the real estate market needs to be more driven by the local job market, but for now it looks like a band-aid (temporary solution) of lower interest rates is bound to help fuel the market a bit more.

10) Other graphs for context:

context for median price since the real estate bubble by sacramento appraisal blog Median price and inventory since 2001 by sacramento appraisal blog Since the bubble burst by sacramento appraisal blogI hope this was helpful. I’d love to hear your take below.

Sharing Trends with your Clients? If you want to share graphs online or in your newsletter, please see my sharing policy. Thank you for sharing.

Questions: How else would you describe the market?

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7 tips to NOT stress out when the real estate market changes

Change can be stressful. That’s obvious. I don’t know about you, but I’ve picked up on a slightly stressed vibe when talking with the real estate community lately. We had such an aggressive market for the last couple of years, but now that things are slowing down, it can feel a bit stressful for some. For what it’s worth, I wanted to share a few thoughts for anyone who is feeling edgy right now about the market.

stressed guy - image purchased by sacramento appraisal blog

7 tips to NOT stress out when the real estate market changes

  1. It’s normal for markets to change: This is what we tell our clients, and this is what we need to tell ourselves. Real estate markets are constantly morphing, so we should expect change and plan for it too.
  2. Sellers will eventually catch up to the market: Right now sellers have been lagging behind the trend, meaning they’ve been wanting to price their properties higher than the market will bear. Sellers will eventually catch up to the market though, which will help put sellers and buyers on the same page. Kevin Cooper and Tom Lichtenberg reminded me of this point last week.
  3. Find some optimism: There are always two sides to stats. Sellers might look at a softening trend as a threat, but on the positive side buyers have more opportunity to afford the market and actually get into contract. I’m not saying to turn a blind eye to stats or perpetuate real estate spin, but simply keep things in perspective.
  4. Think about your marketing strategy: When you consider how the market is moving, who are your clients going to be next year? Now is the time to work hard and diversify your clientele if needed. Also, when a market changes, sometimes that means employing different strategies instead of doing the same thing that worked last year.
  5. Keep connecting with people: Business is about people. When we start to stress about market trends, the focus is removed from the most important thing. People. Yes, watch trends carefully, but be sure to let them serve and guide you instead of stress you out.
  6. Try to keep your emotions grounded: The plight of any self-employed person or sales professional is that our emotions are often contingent on how business is going. If things are booming, we feel great, but if things are slower, we feel down. The key is to find a way to stay grounded and put your confidence in something bigger than work. I’d love to hear what you do. I’ve yet to meet someone who does not struggle with this to a certain extent.
  7. Know the context of your stats: Lastly, when a market changes we can often look at stats with tunnel vision rather than the broader picture. For instance, on one hand it’s taking 40% longer to sell a house in Sacramento compared to last year, but four years ago it was taking twice as long than it is now. Additionally, inventory more than doubled in the past 18 months, but it’s actually at a fairly normal level right now.

Three graphs to provide context for the current market:

CDOM in Sacramento Region

Regional housing inventory in Sacramento

I hope this was helpful.

Questions: Which is your favorite point? Any other points you’d add?

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The real estate market continues to soften in Sacramento

uncle ricoHave you ever met someone stuck in the “glory days” from high school or some other period of life? The best example I can think of is the character Uncle Rico from the 2004 film Napolean Dynamite. This guy could do nothing but think about his former life as a quarterback, and how if he could just go back in time, he’d win the state football championship. He simply couldn’t move on because he was fixated on the past. But isn’t that sort of like what is happening in real estate today? Many sellers are stuck in the mindset that the market is still aggressive like it was in the “glory days” of 2012 and the first half of 2013. But the market has changed. Let’s take a look at ten quick talking points to help explain what the Sacramento market is doing, and why it is moving the way it is. I hope this is helpful for you and your clients.

Two ways to read this post:

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

free market trend graphs from sacramento appraisal blog

1)  The median price has been flat for FOUR MONTHS in a row:

median price and inventory since 2013 - by sacramento appraisal blog

The median price has been $270,000 for four months straight in Sacramento County. Can you see why many in the real estate community have been describing the market as flat? Remember of course that not every neighborhood or property type in Sacramento is experiencing this same flat trend, but there is no mistaking the market has been leveling off.

But Trendgraphix Showed an Increase? Trendgraphix in MLS shows the median price increased from $270,000 to $272,000 this month, but unfortunately that’s not an accurate number since they pulled their data a bit too early before all sales from August were entered into MLS.

2) Average sales price has also been flat:

price metrics since 2014 in sacramento county

If you need wisdom, don’t just ask one person for advice, but seek the council of a few. It’s the same in real estate. We need to be careful to not just look at the median price to determine what the market is doing. Let’s also take a look at the average price per sq ft and average sales price in Sacramento County. Of course we can check out other metrics too, which we’ll get into below.

price metrics in sacramento county

As you can see, the past few months of each metric above shows the market is flattening out. The market tends to cool down as summer fades away, but just as I said last month, the cooling began early this year, so it will be interesting to see how the Fall unfolds.

3) Distressed sales are still very low:

REOs and Short Sales in Sacramento County

REOs and Short Sales Percentage and Volume in Sacramento County

There have been slightly more bank-owned sales over these past few months, but any uptick has minimal at best. There is no “foreclosure flood” that has hit the market as REO sales were still just barely over 5% of all sales last month. Short sales have persisted to decline, and only represented about 6% of the market last month.

4) The number of listings has been increasing (so have price reductions): 

Active listings in Sacramento County by sacramento appraisal blog

number of listings in sacramento - July 2014 - by home appraiser blog

There were slightly more listings in August compared to July. If the market unfolds like it did last year, listings will increase again in September, but then begin to decline as a part of the normal cooling season in Fall (we’ll see what happens though). The psychology of buyers has been changing drastically over the past two months as buyers are gaining more power from sellers. Buyers seem more prone to believe time is on their side, they are aware of price reductions, and they are generally not willing to pay top dollar unless it is truly warranted. The market has been inching toward a buyer’s market over the past 15 months, but these past few months there were some very big strides taken toward a buyer’s market. In August there were seemingly about 400 price reductions every single day in MLS. For every new listing that came on the market, it seemed there was about an equal number of price reductions. What does that tell us?

5) Inventory increased again last month and is now at 2.4 months:

inventory in sacramento county - by sacramento appraisal blog

Inventory is now at 2.4 months of housing supply (up from 2.2 month last month). This means there are 2.4 months worth of houses for sale right now in Sacramento County. Inventory for the Sacramento Region increased from 2.5 months to 2.65 months, but I’ll get into that on Tuesday when we look at the regional market and Placer County.

months of housing inventory by sacramento appraisal blog

number of listings in sacramento - by home appraiser blog

Inventory is one of the X-factors for setting the tone of the market and the direction of values. Housing inventory is still relatively low, but the market is very soft despite having less than 2.5 months of housing supply. Our market has been tapering off being on “steroids” (cash investors and 3% interest rates), and now we’re seeing how strong the local market really is now that regular non-cash buyers have to support the market. By the way, as you can see above, inventory is not the same at each price level. Generally speaking, the higher the price, the higher the inventory.

6) Sales volume is down 11% from last year:

sales volume in Sacramento County since 2008

Sacramento County has seen about 11% less sales volume so far in 2014 compared to 2013, and sales volume in August 2014 is down 14% from August 2013.

7) FHA sales were 23% of all sales in Sacramento County last month:

FHA and cash sales since 2009 in Sacramento County by sacramento appraisal blog

FHA and cash sales under 200K in Sacramento County by sacramento appraisal blog

Cash is down and FHA is up. That’s been the story over the past few quarters. Last month 23% of all sales were FHA, while the month before saw 25% of all sales as FHA. This 2% decline shows up on the graph above, but take it with a grain of salt until we add in an extra month of data to round out the quarter. It’s actually nice to see that FHA buyers under $200,000 have been over 30% of the market over the past few months. This is fantastic news since first-time owner occupant buyers can finally get into contract again after getting beat out by cash investors when the market was really hot. If it’s been a while since you’ve brushed up on FHA appraisal standards, be sure you get in tune with FHA minimum property requirements.

8) There have been 44% less cash purchases in 2014 compared with 2013:

cash sales and volume in sacramento county - by home appraiser blog - Copy

Cash sales since 2009 in Sacramento County by sacramento appraisal blog

Did you know there have actually been more non-cash purchases so far in 2014 compared with 2013? At the same time there have been about 44% less cash sales during this same time period. Remember, if cash volume was still as high as it was last year, inventory would be incredibly low, and the market would feel much like it did in early 2013.

9) It took 3 days longer on average to sell a house last month:

CDOM in Sacramento County - by Sacramento Appraisal Blog

On average it’s taking 40 days to sell a home in Sacramento County and 42 days in the Sacramento Region. Last month it took 37 days to sell a home in Sacramento County, and it’s not a surprise to see the days on market increase since the market has been slowing. Forty days is still relatively quick to sell a home because just a few years back it was taking an average of 90 days to sell in Sacramento. Keep in mind many properties are still selling quickly if they are priced correctly. Generally speaking, the higher the price, the longer it takes to sell. There were only 7 sales above one million last month, so take the 1M+ stat with a grain of salt.

10) Interest rates are hovering in the 4% range:

interest rates by sacramento appraisal blog since 2008

Interest rates took a very slight dip last month, and they’ve been hovering in the lower 4s all year. The Fed still hasn’t given any indication they will raise rates aggressively since we all know that would be a disaster for the market because of how fragile the housing market and economy still is. It would be an equal disaster to lower rates aggressively too since that would create more upward value movement, and we really need the job market to catch up to the housing market, don’t we?

Was this helpful? I hope this was helpful for you and your clients. My goal each month with writing such a big post is to help illuminate what the market is doing, and in turn help explain why the market is moving the way it is. The real estate market has many “layers” that impact value, which is why it’s important to take a look at so many trends at one given time.

Summary: The market is slowing down, and it’s simply not the “glory days” of 2012 and 2013 any longer. While this is not cheerful news for some sellers, it’s great news for buyers since they are gaining more power to negotiate. Part of the market softening is normal since values tend to cool as the summer fades away, yet part of it is the market adjusting and trying to figure out how to be “normal” and cope without outside cash investors acting as a “steroid” for values. In closing, a few months ago we talked about signs to look for when a market begins to get soft, and many of these things below have been happening.

signs-of-a-soft-real-estate-market-by-sacramento-appraisal-blog-530

Sharing Trends with your Clients? If you want to share graphs online or in your newsletter, please see my sharing policy. Thank you for sharing.

Questions: How else would you describe the market? I’d love to hear your take.

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

What market value looks like in real estate

What is market value? Does it depend on who you ask or is there a definitive answer? Let’s take a look at an image below to help illustrate Fannie Mae’s definition of market value – which is what appraisers use in their reports. Knowing how to think about and explain this definition can be really helpful when working with buyers, sellers, and appraisers – especially in a market with many overpriced properties right now. I created the image below, and I hope it’s a helpful visual.

KEY POINT: One buyer might be willing to pay more than anyone, but how much would most buyers pay? If you lined up 100 buyers, what would most of them pay for the property? That’s what the appraised value should represent.

what market value looks like - sacramento appraisal blog - 530

The Definition of Market Value from Fannie Mae: Market value is the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he considers his own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

NOTE: There are other definitions of value that appraisers use for different types of appraisals, but most mortgage finance transactions will use Fannie Mae’s definition of value.

I hope this was helpful.

Question: Any thoughts on stories to share? I’d love to hear your take.

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