sacramento regional appraisal blog

Moving money, duplexes, & unicorns.

February 26, 2020 By Ryan Lundquist 21 Comments

Moving money, duplexes, and unicorns. This sounds like a seriously boring blog post, but this is fascinating stuff and I hope you walk away with insight and maybe some ideas for where to focus business if you work in real estate. If you’re not local, are these trends happening in your market? I challenge you to find out.

Increasing 1031 Exchange Sales: Here’s an image to show all 1031 Exchange sales in the Sacramento region over the past two decades. In short, a 1031 Exchange is a way an investor basically swaps one property for another to minimize the tax burden. Often investors from outside a market will move money into a lower-priced market too, but that’s not always the case. Anyway, here are all 1031 Exchange sales on one graph. I know, there are way too many dots here. But do you see two main clusters? There were more sales in the last rising market cycle and there are more in today’s market.

I spoke with a 1031 Exchange guy and he echoed this is exactly the trend he is seeing out there. When a market is rising, investors tend to move money. I will say the stats here are not perfect because these are only sales where agents have input a 1031 happening. However, I believe most importantly we still have an accurate trend to see about the frequency of 1031s happening. For what it’s worth, about 85% of these exchanges were single family homes, so clearly investors wanting to park money in Sacramento aren’t just looking to the 2-4 unit market.

Brand new duplexes: This might not seem like a big deal, but here are four recent duplex builds in Sacramento. This hardly seems like a trend or worth mentioning, but being that there are literally about a dozen new duplex sales over the past ten years, it’s a big deal to see four right now. The good news for today is it’s possible in some situations to build a duplex and make the numbers work. We have a severe housing shortage in California too, so seeing more multi-unit properties is definitely something we desperately need.

Unicorn advice: If you are going to build a duplex, keep your costs down somehow and do something modern as it seems like units with a modern / contemporary feel are the ones selling at the top. Also, sometimes we see out-of-town investors pay more for two-unit properties. That’s a very real dynamic. Know that unicorn buyers are out there and when I see 2-4 unit properties sell for too much it’s often a Bay Area buyer (or 1031 Exchange). But be careful about pricing too high because that’s a quick way to get zero offers (seriously). My advice? Price for the market instead of the unicorn.

REGIONAL DUPLEX SALES: Here’s a quick look at two-unit (duplex) sales over the past two decades in the Sacramento region. I committed graph sin by not explaining “region” on the image (it’s Sacramento, Placer, Yolo, El Dorado county). What do you see?

A DIFFERENT TREND: When looking at Midtown and Downtown there is clearly a different trend. The rest of the two-unit market hasn’t quite seemed to eclipse where prices were in 2005, but that’s absolutely not the case in Midtown. It just goes to show the market isn’t showing the same trend everywhere.

Anyway, I hope that was helpful. Thanks for being here.

Questions: What stands out to you about the images above? What have you noticed about the duplex market? Anything to add?

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Horses aren’t allowed & a big market update

January 14, 2020 By Ryan Lundquist 19 Comments

The other day a client asked me to include a statement in my appraisal that horses are allowed on the property. It was a huge lot, so it seemed like that might be okay… But I said NO for a very specific reason. Let’s talk about this and then for those interested let’s take a deep look at the local market.

A conversation with the city:

Me: Are horses allowed in the Tahoe Park neighborhood?

City: No. You need agricultural zoning for that to work. City of Sacramento code says: “It’s unlawful to keep, harbor, or maintain any bovine animal, horse, etc… on any parcel located in the city.” There are some locations that will work in the northern part of the city due to agricultural zoning, but not this location.

Me: What if it’s a really large lot though?

City: No. You need agricultural zoning.

Me: What if it’s an emotional support horse? (I wish I asked)

The point: On paper it might look like a horse property, but what does zoning allow? That’s the question. This is a good reminder to call the city or county to verify what is legally possible. To be fair owners can sometimes obtain a variance, but otherwise horses weren’t going to fly in this tract subdivision.

Class I’m teaching on Jan 16th: I’m doing a big market update at SAR from 9-10:30am. We’ll talk through the market, tips for talking to clients, and ideas for where to focus business. I’d love to see you there. Sign up here.

Any thoughts?

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

This post is designed to skim or digest slowly.

A QUICK LOOK AT CONTENT

Recap of 2019
Loans & cash over the past decade
The number of sales in 2019 vs 2018
Distressed sales in Sacramento County
Sales above $1M over the past eight years
Sales below $100K over the past eight years
Sales volume “recovery”
Not a crash, but on the lower side
Price growth is slowing down
Comparing last year vs this year
Price Cycles
Housing supply is anemic
More visuals for surrounding counties

Scroll down to see what captures your interest. There are a number of new visuals too. I used a different format. What do you think?

DOWNLOAD 145 visuals: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

1) Recap of 2019: The year ended up feeling somewhat normal after a painfully dull last half of 2018 that left us wondering what would happen in 2019. Price gains were modest, there were slightly fewer sales compared to the prior year, and it typically took several days longer to sell in most counties (besides El Dorado taking over ten days longer). Here are some trends to watch in 2020.

2) Loans & cash over the past decade: These visuals are brand new and I hope you like them. Conventional financing has taken off this past decade, right? FHA used to be more common until conventional products began offering lower down payments. There was actually an uptick in FHA though this year, so let’s keep watching that. Cash sales are not a big factor in today’s market despite sellers thinking they are.

3) The number of sales in 2019 vs 2018: There were more sales at higher prices and less at lower prices. This makes sense for a market that showed upward price movement.

4) Distressed sales in Sacramento County: It’s astounding to think that 84% of sales in Sacramento County were distressed in early 2009, whereas now we have fewer than 1.5% bank-owned sales and 0.5% short sales. People keep asking me if we’re poised to see these numbers start increasing again. Technically there’s really no place to go but up since distressed sales have bottomed out. But I wouldn’t expect these to increase dramatically because there’s no mechanism in place right now that would trigger mass-distressed sales. There is not the ticking time-bomb of adjustable rate mortgages or an economic collapse. But if we had a devastating economic downturn or some other huge issue, that could change things. There are definitely voices that talk about a coming “wave” of distressed properties, but this wave has not materialized despite prophecies for many years. Granted, bank-owned sales are up very slightly this year, but it’s not statistically significant. I’ll keep you posted with any changes.

5) Sales above $1M over the past eight years: This is a fascinating way to look at the market. I know there are many colors, but here is the number of sales above $1M for each respective year. What’s the trend?

6) Sales below $100K over the past eight years: On the other side of the price spectrum, here are sales below $100K. There aren’t too many these days. I know, everyone wants to go back to 2012. But the problem is financing was hardly available back then to so many people who had a foreclosure or short sale on their record. So even though prices were right so to speak, financing wasn’t.

7) Sales volume “recovery”: We’ve begun to see sales volume come out of a funk as it was down for over a year. However, there’s an asterisk to this news because we’ve seen sexier volume over the past few months, but we’re also comparing these recent months to a REALLY dull season last year. So of course the numbers today look better. My advice? Take this news with a grain of salt and save rejoicing for the spring season if we see this trend continue.

8) Not a crash, but on the lower side: As I said above, we’ve been having a definitive sales volume slump since mid-2018, but lately volume has been stronger. The number of sales this year has basically been down about 3% or so from last year in the region, though when looking at the past five years we can see volume is down closer to 5% or so. But here’s the thing. Sales volume this year was still on the lower side of normal (and even higher than 2014 which was a dull year). This is a good reminder to look at stats in a wider context instead of having tunnel vision stuck on one or two years. For reference, when the market crashed in 2005 we saw a 40% drop in sales volume over one year.

9) Price growth is slowing down: Price growth has been slowing, which basically means prices aren’t rising as quickly as they used to. Though technically the monthly and quarterly data below show higher price growth this year. Does that mean the market has been more aggressive? Has it begun to rebound? Not necessarily. I recommend being hesitant about sharing this positive-sounding news because the market was REALLY dull last year. Thus when we compare monthly and quarterly numbers today with dismal stats from 2018 it can really inflate the figures.

10) Comparing 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 three months they’ve been higher. This is likely due to stats sagging last year during a dull 2018 fall season. I know, I keep mentioning that. Additionally, mortgage rates went down a few months ago and we’re likely seeing some of the effect of that.

11) Price Cycles: Markets go up and down. That’s just what they do. Here’s a look at the past few price cycles in various counties. This is a fascinating way to see the market. Do you see the price deceleration in this current cycle? Also, in El Dorado County I pulled my stats just two days ago and the median price was down 0.1% instead of at 0% in my recap image above (that’s why the numbers are slightly different).

12) Housing supply is anemic: There isn’t much on the market right now, so buyers are hungry for good product. Remember, the spring market usually comes alive in the sales stats by March, but this means the market really started to move in January and February when these sales from March got into contract. Anyway, inventory looks to be mirroring what we saw a few years prior to last year’s dull season as you can see in the image directly below. There should be more homes hitting the market in coming months if we have a normal seasonal rhythm. Sellers, there’s nothing wrong with listing in January or February either. If you sense demand is there and especially if rates go down, you’ll have a captive audience.

13) More visuals: I know, there are too many visuals already. But here’s more. I never post them all either, so check out the download if you wish.

SACRAMENTO REGION (more graphs here):

SACRAMENTO COUNTY (more graphs here):

PLACER COUNTY (more graphs here):

EL DORADO COUNTY (more graphs here):

DOWNLOAD 145 visuals: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

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.

Questions: What stands out to you about the market last year? What are you seeing right now? Anything to add?

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My real estate mind never shuts off

December 3, 2019 By Ryan Lundquist 23 Comments

My real estate mind never shuts off. Even when I’m on vacation I can’t help but notice interesting things and think through value issues. Anyway, last week I took a family road trip through Southern California and here are some things that caught my eye. Enjoy if you wish.

INSIGHTS WHILE ON VACATION

1) Vibrant colors: Imagine this pink color in a newer tract subdivision of stucco boxes with earth tones. In that scenario the market could have a negative reaction to such a loud color, but in certain areas vibrant colors are accepted. This reminds us the market isn’t the same in every location or price range. By the way, check out this pink house near Austin in case you missed it earlier this year.

2) Prices are relative: These new townhouse units in San Diego start at $1.2 million. That’s wild considering the starter model is less than 1,200 sq ft. In Sacramento we don’t tend to see such small units command this price point. For reference only 2.5% of the entire regional market in Sacramento this year has sold above $1M. It’s a good reminder that prices are relative to their location. But still, I think this underscores the struggle of affordability in California too.

3) Views can be temporary: This unit has a view of the ocean for now because there’s a vacant lot in front of it that allows this view to happen. My advice? Whenever purchasing a property near vacant land, be sure to check out the zoning and/or the probability of a zoning change. This will help you know what can be built because a vacant lot doesn’t always stay that way…

4) Unique architecture: This is a new build with a modern Arabic architectural feel. It’s a gorgeous custom home and there aren’t too many like it from what I can tell. What would you do for comps on this one?

5) The rage of contemporary homes: I see contemporary or “modern” architecture popping up all over the place in many major cities throughout the country. But while contemporary is clearly a growing trend, it’s not everywhere either. For instance, we don’t tend to see homes like this built in rural markets or lower-priced areas, but we do see it near major cities. On a personal taste level, this isn’t for everyone. But then again, it doesn’t matter what you or I think. What does the market think?

6) A location with an asterisk: This is a killer view, but there’s one big issue. Is it possible to demolish the unit in front? If so, how high could a new structure be? This is a critical issue to consider when choosing comps as we have to consider the permanence of a view when assigning value to a property. We see stuff like this happen all the time when an owner backs vacant land until a developer builds a store. I recently appraised a house that had a lake view only because of a vacant lot across the street. But said vacant land was purchased and it’s now likely to see a change in the view.

7) Funky driveway: I’ve not seen a driveway like this before. I’m not sure if it’s just ornamental or if there is a practical use for this design. What do you think?

8) A door that pops: I often get asked for ways to help increase curb appeal. I’m not saying painting your door is going to sway value, but when there is a limited budget I tend to tell people to focus on lots of little things instead of just one big project. In other words, try to increase the “bling” of a house in small ways rather than only remodeling the kitchen. This is why I like painting a door because it’s an inexpensive and practical way to give a house vibe or even charm. As always, know your market. If nobody is doing this, maybe don’t do it.

9) A house of a convicted murderer: I made this image just before vacation and I wanted to sneak it in here. I’ve been watching a series on Hulu called The Murder of Laci Peterson. If you recall, Scott Peterson was convicted of murdering his pregnant wife about 15 years ago. Anyway, this home has sold a few times, so I figured it was worthwhile to visualize on a graph. Does it look like the most recent three sales sold with a diminished value? Or does it seem like the sales fit into the market without any big negative reaction? We talk about homes with stigma all the time, and all I’m saying is it’s important to consider whether a notorious owner in the past or something that happened at a house can make a difference in the value. In this case we don’t actually know for sure where the wife and child were killed. Here are some more thoughts on fame and real estate if you’re interested.

10) Unique homes & unique comps: If you’re trying to pull comps on a unique home, you’re not likely to find something exactly the same. My advice? Look through years of sales for clues on how the market responds to unique properties. Try to find something that is similar in appeal or uniqueness rather than hastily picking the three most recent similar-sized ranch home sales over the past few months. Those SALES might not be COMPS.

Anyway, that was my vacation. And now my trip is a tax write-off since I blogged about it. Right? 🙂

I hope you enjoyed my trip as much as I did.

Questions: Are you similar to me in not being able to shut off your mind? What pictures stand out most to you? I’d love to hear your take.

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Peaking prices & rosy real estate narratives

September 13, 2019 By Ryan Lundquist 10 Comments

People tend to freak out when prices slow down. What’s going on? Is the market crashing? But every year around this time we start to see the market soften. Let’s talk about this, and then for those interested I have a big market update.

1) Slowing is normal: Prices have likely crested for the season in many areas of the country. What I mean there’s a good chance we’ve more or less seen the highest prices we’re going to see for 2019 as the market is starting to show its descent from the high-altitude spring season. This happens EVERY. SINGLE. YEAR. It doesn’t mean it’s not competitive either. It just means it starts to take longer to sell, the number of sales begins to shrink, and prices tend to taper.

2) The rosy real estate narrative: It can be a struggle for many people when hearing the market is slowing. It’s like we are only allowed to talk about real estate in glowing terms and our talking points must fit into a rosy narrative. So when there’s any hint of news that sounds even slightly negative, it feels like something is wrong. What do you mean prices aren’t going up? Wait, they’re softening? Does that mean the market is about to turn? Remember, just as it’s not always sunny outside, real estate isn’t always burning hot either.

3) The mistake of misinterpreting slowness: On the other side of the coin we tend to see lots of doom and gloom conversations around this time of year as the market softens. My advice? Know what is normal for the fall season so you can assess whether it’s a normal seasonal slowing or something more. In other words, let the stats speak to you and inform your real estate narrative. Otherwise you may be swayed by sensational headlines or get sucked into a real estate culture that sometimes struggles when things aren’t ultra-positive.

Any thoughts?

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

Now for those interested, let’s talk about Sacramento trends. If I had to sum up the market I’d say things have felt a little more normal lately. Granted, low mortgage rates are like a steroid helping the market feel normal, but nonetheless stats have been about what we’d expect for this time of year – which is unlike the dark season we experienced last year at the same time.

DOWNLOAD 80+ 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:

Stats feel mostly normal
California will now have rent control
Year-over-year price growth is stronger
Don’t be like Michael Jordan
Volume was down slightly in August
Listings are seriously anemic
Pendings are strong right now
Sales volume is down 9% this year
The market is slowing for the season

THE LONGER VERSION:

Here are some of the bigger topics right now:

Normal and cresting prices: We’re seeing about what we’d expect to see right now with prices starting to soften. I’d say prices have likely crested for the season. It’s possible we could see some price metrics bounce up slightly due to low mortgage rates, but that usually doesn’t happen beyond August much. Besides, any sales from September really reflect older pendings from July and August anyway.

Rent control: Statewide rent control in California was just passed by the legislature. There is going to be a learning curve for the real estate community on how to deal with this from a value perspective too. We may need years to really understand the effect on the housing market. Keep in mind this only applies to 2-unit+ properties built prior to 1995 (it does not apply to single family homes). Also, this doesn’t mean rents won’t increase either because landlords can legally raise rents 5% plus inflation each year.

14th bubble anniversary: The real estate “bubble” popped fourteen years ago in Sacramento in August 2005. In other parts of the country the market started to turn in 2007, but we started to tank in 2005. So happy anniversary, I guess.

Michael Jordan’s house: In 2012 Michael Jordan’s house was put on the market for $29 million and after seven years it still hasn’t sold. It’s now listed for about $15M. This just goes to show buyers aren’t willing to pay any price – even if the owner is famous. This is a great object lesson for sellers today who are prone to think they can command whatever price they want since inventory is low. Nope. Buyers are extremely sensitive to paying the right price and they’re more informed than ever. If you want to sell you need to price it right. Bottom line.

Slowing doesn’t mean it’s cold: The market isn’t slow, but it’s starting to show signs of slowing for the season as it’s taking longer to sell, most price metrics declined from July to August, and sales volume looks to be starting to slough for the year as it normally does. This doesn’t mean the market is cold though. Not at all. It’s just not as hot as it was during the spring. Over the next month I’d expect the market to heat up a bit though since kids are back in school and vacations are done. There is usually a last run on the market before the holidays arrive.

Almost 8 years of price increases: In the current real estate price cycle we’ve had about eight years of price growth so far. When I say eight, some people correct me with seven, but that’s not accurate if you count every year since 2012. I also have a chart like this for Placer, Yolo, & El Dorado County in my monthly download.

Stronger price growth: Prices are up about 4-5% from last year, which is a change from a more subtle 2-3% we’ve been seeing for most of the year. What’s going on? Part of the growth could stem from low mortgage rates fueling buyers to play the game, but let’s remember too last year was a dull time in the market, which means it’s going to be easier on paper this year to see glowing stats (more on that below). Let’s not make too much of one month of data.

Really sparse listings lately: The number of listings has been noticeably down. I mean, we’re seeing multiple hundreds fewer per month these days. Technically housing inventory as a metric is on the lower side of normal these days, but there have been fewer listings hitting the market (remember, inventory as a metric measures the relationship between listings and sales rather than the number of actual listings). I’ve been thinking about what’s going on here for a number of months and I’ll admit I don’t have it all figured out. Part of it of course is pendings have been stronger, which naturally means there’s fewer available listings. And maybe some would-be sellers refinanced into a lower rate rather than selling. I don’t think this is the byproduct of the iBuyer model with so many listings selling privately instead of coming to the market, but some properties certainly sold this way. Mostly I would guess this is related to sellers feeling uncertain about the market. Just as buyers had their moment last year where they backed off the market a bit, maybe sellers are feeling it’s their turn? There could be other reasons. This is something I’ll keep watching to understand over time. I’d love to hear your take here.

Warning about glowing stats ahead: Hey stat nerds, this is important. Over the next few months if we have fairly normal numbers they could end up looking glorious since last year the market was in a slump. If you remember, when mortgage rates shot up in 2018 buyers began to put their foot on the brakes and it felt like there was a dark cloud looming for about six months. Anyway, when you’re pulling stats over these next two quarters, just remember the numbers might technically look glowing this year compared with last year. My advice? Take stats with a grain of salt and compare multiple years of data rather than give laser focus to last year.

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

FOUR ISSUES TO WATCH:

1) SLOWER GROWTH: The market continues to show price growth, but the rate of change is slowing. This sounds offensive to some because the narrative in real estate is often that the market is always blazing hot. But let’s remember “slow” is not a dirty word in real estate.

2) A QUICK RECAP: All year prices have shown a modest uptick at about 1-3%, but this past month the stats look a bit sexier. Part of this could be due to lower mortgage rates, but some of it could be due to the market showing weakness last year (which helps pad today’s stats).

3) VOLUME SLUMP: Volume was lower last month compared to August 2018, but not by much. The bigger story though is volume is down in the region by 9% over the past year. Moreover, volume has been down in the region for 14 out of the last 15 months. Overall despite a lower year of volume, it’s still not outside of a normal low range (see 2014 and 2015).

4) PRICES SOFTENED IN AUGUST: The market generally slowed in August in terms of price growth. This is why I’m saying prices feel a bit flat (even though they’re up from last year). This is fairly normal for the time of year, and sometimes we see prices bounce up and down as summer comes to a close. Stay tuned. Let’s keep watching.