Sacramento Region

Buyers have a bit more power in today’s housing market

September 21, 2021 By Ryan Lundquist 17 Comments

Are buyers finally gaining more power? Yes. The truth is the market is still ultra-competitive, but there is a slightly better chance buyers can get into contract these days and maybe not pay as much above the asking price (maybe).

Big (Free) market update: On September 23rd from 11am-12pm I’m giving a market update for CornerStone Title Company. This is for the real estate community only. Sign up here.

Teaching my favorite class: On September 28th from 9am-12pm I’m teaching my favorite class at SAR called How to Think Like an Appraiser. It’s three hours, which sounds painful, but I love this one because we have space to dig deep into comp selection and adjustments. Sign up here.

BRAND NEW VISUAL:

I’m excited about this visual because it focuses on a dollar amount. I could be wrong, but I don’t think anyone has published this in my area.

FOUR TAKEAWAYS:

1) Freakishly high: Over the past few years buyers on average were NOT paying above the original list price, but that changed this year. In fact, in June buyers paid $25,000+ over the original list price in the region. I know that almost seems low because we’ve been hearing stories about properties selling $200K over asking, but this is the average and it represents over 2,800 sales.

2) An average of $11,211: Last month buyers on average paid $11,211 above the original asking price in the Sacramento region.

3) Fall prediction: In a normal year buyers pay less during the fall and it looks like that’s what we’re heading toward since two months in a row we’ve seen a softening from the height of the seasonal market in June. Ultimately unless something unexpected happens to reverse the seasonal slowing we’re experiencing, we should continue to see buyers on average pay less above the asking price over the next few months. This doesn’t mean it’s not competitive though (see #4).

4) Still not normal: The good news for buyers is the market is slowing for the season, but the harsh news is the trend is still more aggressive than it should be for the time of year. So it’s like the car was going 130 mph and now it’s going 90 mph. It’s still speeding. For instance, buyers paid above the original list price in August even though that’s not common (see above). As I keep saying, the market is showing seasonal slowing, but that doesn’t mean the market is slow. In short, buyers ought to enjoy having just a little more power in today’s marketplace, but it’s important to realize the market is still tilted toward sellers.

MORE VISUALS:

I hope this was helpful. Thanks for being here.

Questions: What are you seeing out there with buyers and sellers? What advice would you give for pricing a property right now?

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Are appraisers keeping up with rapid price growth?

March 10, 2021 By Ryan Lundquist 31 Comments

Rapid price growth. That’s what we’ve been seeing lately in many markets across the country. I’d like to share some stats below for my local market and then talk about whether appraisers are keeping up or not.

RAPID PRICE GROWTH:

The orange line at the top left is the median price these past two months in the Sacramento region. The gap between 2021 and previous years is quite wide, which shows prices have gone up quickly.

SOME CHARTS INSTEAD:

If you’d rather see some numbers instead of line graphs, here’s a quick market recap. Check out that 17% price growth lately. Holy Batman!! I typically share one big market post each month with lots of visuals, but this time I’m only going to talk about prices. I’ll have much more next week and I’ll put some stuff out on Facebook, Twitter, and LinkedIn. Oh, and sometimes Instagram.

RAPID PRICE GROWTH IN NEIGHBORHOODS:

Here are a few local neighborhoods to show how much the market has turned up lately. One of the things I do as an appraiser is calculate price change by following the trendline over time and comparing it to actual sales and pendings in the neighborhood to be sure the trendline is legit. Here’s a video tutorial for how to make a scatter graph like this. See my graphs tab too for other tutorials for gettin’ visual.

Here’s an example where I appraised a unit in a small gated community with VERY few sales, so it wasn’t easy to understand what the market was doing. This is why I looked at the entire zip code in blue and gave strong weight to a couple neighborhood sales that also sold a few years ago too (I connected a line between these sales (green and orange).

ARE APPRAISERS KEEPING UP?

So the question becomes, are appraisers keeping up with the market? I’d say YES and NO. Here are a few things on my mind.

SMOKING PRICING CRACK: Some offers are disconnected from reality, so we SHOULD NOT be seeing appraisals anywhere near the contract price. We have a market where buyers are sometimes making irrational offers.

WORD ON THE STREET: I’m hearing stories of appraisals coming in at or above the contract price and ones that are lower than the contract price. It’s not all one thing, though I think the negative stories get the most attention.

THE JOB: An appraiser’s job is not to “hit the number” or make the deal work. The appraiser’s role is to reflect the market and assess risk for the lender. It’s not about whether the buyer wants the house. It’s about whether the lender should make the loan. Thus an appraisal should be a reflection of what buyers would reasonably pay as opposed to an outlier buyer willing to pay more than anyone.

BRAKES OR GAS: Appraisers are not a brake pedal or a gas pedal for the market. They are more like a mirror to reflect the market. I mention this because at times when rapid appreciation happens, it is what it is. Even if an appraiser is baffled by how much current comps and pendings are up from last year, it’s not the appraiser’s job to hit the brakes by coming in lower. There is no such thing as a market only being able to increase by 1% each month either. Look, if the market is going up quickly, the appraiser needs to adjust up and call it a day while of course supporting all adjustments and conclusions in the report. And to my colleagues, we are NOT number hitters and should NOT be letting the contract price influence us (just in case you think I’m saying that).

SALES vs PENDINGS: It’s essential for appraisers to measure the difference between sales and the current market. Sales are like historical artifacts that tell us what the market used to be like 30-90 days ago when they got into contract whereas pendings are going to be a clue into what buyers are willing to pay in the current market. How has the market changed since the price was established for the comps (more or less the contract date)? That’s exactly what appraisers need to measure and precisely why appraisers need to look at both sales and pendings / listings.

BIG ADJUSTMENTS: At times lately I’ve given some hefty market adjustments. For instance, when appraising a home in Rancho Cordova I used a really similar sale from July that sold at $365,000 and the market was willing to easily pay about $40,000 more today. That’s over 10% growth in a very short time period, but that’s what the trendline showed on my graph (see above). This rapid growth was also very clear when comparing recent sales to older sales and looking at higher pendings.

LONE RANGER PENDINGS: It’s important to not base our perception of value on one “lone ranger” pending sale. So if all the comps are at $500,000 and there is one pending at $575,000, I’m not automatically making a $75,000 adjustment up. What I want to look for is a group of pendings to tell me where the market looks to be going. Thus if I see pendings are $510,000, $512,000, $520,000, and $575,000, I can see the market is increasing and I’m going to have to figure out what my market conditions adjustment needs to be by making graphs and understanding from agents the terms of the pendings. What is the contract price? Is the seller offering any concessions back to the buyer? How many offers were there? And these days, is there an appraisal waiver or removal of the appraisal contingency? In short, there is a story to understand about each pending and sometimes the pending might reflect the market well and other times it might be something to throw out because it’s too high OR too low.

YIKES, NO ADJUSTMENTS: A friend showed me an appraisal on her house from one week ago and the appraiser correctly stated the market was increasing in value. But three out four sales did NOT have any adjustments up to account for the market increasing. I’m not saying appraisers need to always adjust every comp, but I was scratching my head wondering why an upward adjustment was not given since the market absolutely went up in value since these properties got into contract 30-60 days ago. Basically, in this case it looks like the so-called appraised value in early March was more like a reasonable value from mid-January and early February because that’s when the comps got into contract and there were no adjustments up to account for the difference. In short, when stuff like this happens, appraisers are definitively behind the market.

THOUGHTS ON COMPLAINING: On real estate forums lately I often hear agents say stuff like, “Appraisers are a joke. Show me two appraisers and I’ll show you two different values.” I get it. But let’s be real. If I asked two agents to give me a value on a house, how many different values do you think I’d get? The answer is the same. We’d see two values and sometimes the difference would be really wide. I say this respectfully and humbly because value is difficult AND there is no such thing as only one value either. There is always a reasonable range, so it makes sense to see two appraisals not come in at the same level. BUT if they’re too far apart, then clearly someone botched value…. On a side note, it’s easy to fall into the trap of speaking down to other real estate professionals, but let’s raise the bar. There is certainly a place for complaining, but don’t make it a lifestyle or shtick. This goes for the way agents talk about appraisers and the way appraisers talk about agents. Sorry for the sermon, but this is something I believe strongly. You won’t hear me disparage another group because I am a professional. I’d rather listen, educate, elevate, and of course admit when I’m wrong.

OTHER: This post is starting to be a dissertation, so I’ll stop here. What am I missing? What would you like to add? Any helpful nuggets to share?

Questions: What are you seeing happen with appraisals right now? What stands out to you most about the stats above? I’d love to hear your take.

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Why your home isn’t worth 16% more today

November 4, 2020 By Ryan Lundquist 9 Comments

Home prices have been massive lately, but there is an asterisk. It’s easy to look at glowing stats and say, “Dude, prices are up 16%, so my house is worth 16% more.” But lofty county or regional price stats don’t always show up the same in a neighborhood. Let’s talk about this.

TWO REASONS WHY PRICES ARE SO HIGH ON PAPER:

1) The top & bottom: There have been more sales at the top of the market and fewer sales at the bottom. In fact, when comparing the past four months this year with last year, we’ve seen 20% fewer sales under $400,000 and 75% more sales above $750,000. Here is a brand new visual to show the change in various price ranges. If you’re not in Sacramento, is this happening in your area too?

The effect: Having a big change in volume at the lowest prices and a hefty change at the top has simply boosted price metrics. Thus on paper price stats are really high compared to last year, but when pulling comps in a neighborhood we don’t always see anywhere close to this sort of explosive growth.

Here’s another way to look at the same data:

2) Larger homes: I’ve mentioned this before and I’m not trying to beat the dead horse, but during the pandemic buyers have been purchasing noticeably larger homes over the past four months. Do you see the spike? In short, having larger homes has boosted price stats, so when talking about growth it’s good to remember that part of the reason for higher prices is due to larger homes selling more often.

The takeaway: There is no mistaking the market has increased in value quite a bit this year. I’m not saying it hasn’t. I’m just saying if we’re not careful it’s easy to get infatuated with lofty regional price stats which can sometimes blur our vision for a neighborhood market. My advice? Know why the numbers are the way they are and focus on comps instead of county or zip code stats. Moreover, don’t expect the market to be the same temperature with every location, price range, or property type.

I hope that was interesting or helpful.

Questions: Have you seen some neighborhoods where prices have risen greatly and others where growth is more subdued? Did I miss anything? Any stories to share?

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The blazing hot market & uncertainty

March 13, 2020 By Ryan Lundquist 4 Comments

The market has been white hot, but there is also lots of uncertainty right now too. Let’s talk about this and take a deep dive into the latest stats for those interested. I’d love to hear your take in the comments.

A few things I want to mention:

1) Layers: There are many layers that make the housing market move and sometimes unexpected things happen. Who would have thought we’d be talking about rates at 3% or a virus?

2) Dumpster fire: Social media is like a raging dumpster fire right now in light of coronavirus posts. It’s been unreal, so I’ve had to distance myself from scrolling too much. Can you relate?

3) Keeping my blog name: This won’t become the COVID-19 Appraisal Blog, but we’ll talk about the virus as needed as it relates to housing. No fear. No hype. Objective thoughts and analysis. Ultimately it’s important to have honest housing conversations and consider things that could affect the future.

4) Be at peace: I’m profoundly aware of the need to remain calm and have a sense of peace, but I’m also aware that probably won’t happen by accident. This might seem odd to mention, but I want to encourage everyone to find ways to cultivate peace right now in uncertain times. If you need ideas too, reach out. This is way more important than anything else I talk about, which is why I’m mentioning it.

Anyway, that’s what’s on my mind. Now for those interested let’s take a deep dive into local housing trends.

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

This post is designed to skim or digest slowly.

THE SHORT VERSION:

Prices are back to summer
Has coronavirus affected the market?
Watching for a coronavirus effect
Lack of confidence
More competitive at lower prices
More multiple offers
The market is accelerating
Mortgage rates & Debbie Downer
You still have to price it right
Sales volume is lackluster
Back to the nominal peak
More visuals for surrounding counties

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 LONGER VERSION:

Back to summer: The median price in Sacramento County jumped $20,000 from January to February. I know that sounds sensational to see a $5.3% increase, but keep in mind the median price was $385,000 at the height of summer last year, so the bigger story is we basically got back to where summer was plus a few percent. It’s pretty common by March or so to see the median price back to where it was during summer, but in a more aggressive year this can happen in February. On paper the market is glowing, but the big elephant in the room is the coronavirus, so let’s talk about it.

Has coronavirus affected the market? Someone called me yesterday and asked if coronavirus has affected the housing market. I wrote about this last week and I basically told the guy we don’t have any real data yet. So far in Sacramento this year the market has felt competitive and any threat of an outbreak has seemed to be hampered by the sexiness of low mortgage rates. However, we haven’t really had many COVID-19 cases manifest locally and people haven’t been too concerned. Though this week social media began to panic and it seems like we’ve reached an inflection point as events get cancelled, people are practicing social distancing, and familiar faces like Tom Hanks have the virus. In short, it seems like many people have shifted to take this more seriously and in terms of real estate that’s something that could easily affect buyer and seller behavior in coming time. I realize a focus on real estate right now seems trivial when talking about a pandemic, but that’s what my blog does. In short, let’s pay closer attention to the stats in coming weeks especially.

Watching for a coronavirus effect: If we’re looking at recent sales, it likely won’t show us an effect of the coronavirus because sales tell us what the market used to be like when properties got into contract 30 to 60 days ago. If we begin to see an impact it’s going to start with what buyers and sellers are thinking right now, which will translate into what they do. Thus it’s important to listen for seller and buyer sentiment and to watch whether sellers are listing their homes and whether buyers step aside with a “wait and see” stance. More specifically, I recommend watching the number of new listings hitting the market, expired listings, price reductions, the number of sales happening, days on market, the number of pendings, number of multiple offers, credits being offered, etc… It’s tempting to look at prices as a gauge for any COVID-19 effect, but prices are the last place a trend shows up.

Lack of confidence: The big deal happening right now is consumers are losing confidence. On one hand the stock market doesn’t technically mean much for most buyers trying to qualify for a mortgage because their income isn’t based on Wall Street. But losing money in a 401K over time can certainly lead to less confidence about making other big financial decisions. So far the housing market has felt hyper-competitive this year locally because of low rates, but that can change quickly depending on how consumers feel about the economy, job market, and of course health. I know, housing is a need, so it’s different than choosing whether to eat out right now or not. But it’s also true buyers and sellers don’t always feel the need at every moment to pursue buying and selling. Like I said last week, markets don’t like uncertainty, so infusing more uncertainty into the economy and housing market is a big deal for how the market feels and what the market does. In all of this we’d be wise to avoid hype and sensational ideas. Let’s look to data to inform our perception of what is actually happening.

Okay, back to some stats.

More competitive at lower prices: Buyers know this. It’s been hard to get into contract lately – especially at lower prices where the market is more aggressive. Let me show you this with a bunch of yellow dots representing the sales price to original list price ratio. If you’re not familiar with this metric, when a property sells at 100% it means it sold at exactly the price it was listed. Likewise when the ratio is 103% it’s a sign a home sold three percent higher than the list price. Anyway, when looking at all February sales there are more properties selling above 100% at lower prices. This tells us homes are getting bid up more at lower prices. Duh, thanks Captain Obvious. I know this isn’t a surprise, but it’s fascinating to see visually. Here’s a big takeaway though. NOT everything is selling for more than the list price – even at lower prices. I know it doesn’t seem that way in the trenches of escrows, but there is no denying this reality when looking at the stats.

More multiple offers this year: This has been the most aggressive beginning of the year in several years. Technically the market saw 27% more multiple offers this year compared to last year at the same time.

The market is accelerating: For a long while I’ve been talking about how the market is slowing because that’s what the stats were showing, but I’m changing my tune because the market is accelerating again. Here are two images to consider. When we look at the median price in the region based on the previous twelve months, price growth has clearly tapered. It’s like you’re driving on the freeway and you take your foot off the gas pedal. You’re still moving forward, but you’re not going as fast. But when we look at the past 90 days in each respective year it’s obvious the market is starting to accelerate again.

SLOWING TREND:

SPEEDING UP LATELY:

Mortgage rates & Debbie Downer: This year the market has felt dramatically different than last year and the culprit is low mortgage rates. Having rates between 3 to 3.5% has been like injecting a steroid into the housing market because it’s made things super competitive. For some it’s helped create more affordability or at least incentive to get into the game, but this also artificially inflates prices and it’s not sustainable. I know I sound like Debbie Downer, but such low rates are a bit like injecting Cortisone into a bad hip. It feels good for a while until it wears off.

You still have to price it right: It’s tempting to think the market is so aggressive that you can price however you want. Nope. It’s still a price-sensitive sellers’ market. Even though it feels crazy right now due to low rates, buyers are still in tune with prices and not willing to offer any price out of desperation. Case-in-point: Here is what just about every neighborhood looks like. The longer a home is on the market, the further it tends to sell from its original price. It seems in most areas bidding wars happen in the first seven days and if the market is not biting at your price you better give serious consideration to doing a price reduction. If the market is speaking, it’s time to listen.

Sales volume is lackluster: Prices have been glowing and we’re seeing multiple offers, but sales volume is lackluster. On in more positive terms we could say the number of sales is pretty normal – but definitely on the lower side of normal. In the region we seem to have a new rhythm these past two years of 26,000 sales, but that’s clearly down from 28,000 in previous years (see image). Some say more new homes is the reason, but new construction hasn’t been that robust. Moreover, sales volume started to suffer as soon as mortgage rates shot up in 2018, so to me lower volume has more to do with buyers backing off (and affordability). With that said, we’ve been seeing fewer listings this year especially, so over time this can lead to fewer sales too.

Back to the nominal peak: The median price is officially back to where it was at the peak of the market in 2005. This honestly doesn’t mean anything because there isn’t any formula for the market where a “pop” or change happens when reaching a certain price level. But as a guy watching data closely for so many years, the numbers geek in me has been waiting a long time to see this happen. But again, it doesn’t mean anything. Technically when comparing value today with a date in the past it’s important to factor in how the value of the dollar has changed over time. If we use an inflation calculator the value of the dollar in 2005 at $395,000 would actually be worth $520,000 today. This is seriously anal and most people could care less about this technical conversation, but I wanted to mention it because it’s worth knowing. Also, I’ll hopefully avoid persecution on Twitter from the economics community. For me there is a practical takeaway here though because you’ll not hear me say stuff like, “Values are back to 2005”. Nope. Technically they’re not. But the nominal price is back to 2005, so that’s why I say things like, “Prices metrics are back to where they used to be.”

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

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Please enjoy more images now.

SACRAMENTO REGION (more graphs here):