sacramento regional appraisal blog

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.

NOTE: Take El Dorado County data with a grain of salt. Stats change significantly month by month.

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.

Please enjoy more images now.

SACRAMENTO REGION (more graphs here):

SACRAMENTO COUNTY (more graphs here):

PLACER COUNTY (more graphs here):

EL DORADO COUNTY (more graphs here):

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).

Questions: What are you seeing out there? What do you think prices are doing? What are you hearing from buyers and sellers lately?

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A massive garage & paying too much attention to prices

August 13, 2019 By Ryan Lundquist 16 Comments

I saw a massive garage while on vacation that I just have to share. I also have some quick thoughts on focusing too much on prices. Those are the two things on my mind. Then for those interested let’s dive deep into the market.

I took almost two weeks off and part of my vacation was to drive to Boise to visit family. Of course my real estate mind doesn’t shut off when out of town, so I was blown away to see a brand new neighborhood with nearly every other house having a massive RV space in the garage. This one actually has two separate RV spaces. I’ve never seen two spaces like this in my market. Have you?

I’ll admit the neighborhood looked a little odd from the street because of the amount of space dedicated to garage doors. It didn’t look bad per se, but it was definitely different. And for the record, I would use both spaces for a massive woodworking shop. Forget the RVs.

Migration garage marketing plan: This is actually brilliant marketing because the builder is clearly appealing to the retiree crowd. In fact, when talking with a few neighborhood residents, they tell me there are lots of ex-Californians as well as people from Texas and North Carolina. This reminds us of the reality of migration. Who is coming to the market? And who is leaving? Those are two vital questions to ask to know a market.

And a quick thought on prices…

Focusing too much on price? Price is THE obsession in real estate, but focusing too much on price can actually cause us to miss the real story of the market. It’s common to hear stuff like, “Prices are up, so the market is doing great.” I get that, but what if we had a market where there are fewer buyers, but those who are buying are still paying higher prices? This is where fixating too much on prices would cause us to miss what’s really happening. After all, if sales volume is sliding, it could be a sign of buyers stepping away from the market, which is a much bigger issue (that will eventually show up in prices if the trend continues). My advice? Pay attention to prices, but give equal or more focus to what is happening with current listings and sales volume. Are buyers absorbing the listings? What are they saying about the market? How is volume changing? Is the number of sales normal or not right now? These are some of the questions to keep asking.

Any thoughts?

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

Now for those interested, let’s talk about Sacramento trends. Prices have been a bit flat, but the bigger story here is the sales volume slump streak of fourteen months has ended. If I had to pick a few phrases to describe the market it would be competitive if priced right, modest price growth, lower volume, and fairly normal stats for the spring / summer so far.

DOWNLOAD 70+ 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:

Prices feel a bit flat
The volume slump streak ended
July looks fairly normal stat-wise
Pendings are strong right now
Sales volume is still down this year
The market is slowing for the season
Mortgage rates are like a steroid
Inventory is sparse (but not in El Dorado County).

THE LONGER VERSION:

Here are some of the bigger topics right now:

The volume slump streak has ended: We had a fourteen month streak going, but it’s now done. For fourteen months in a row we’ve seen sales volume down compared to the same month last year until this month where sales volume was up about 4% in the region. It was a strong month for most local counties, though El Dorado County was down 15% from last year.

Modest price growth: Price metrics in the region are up about 2-5% or so this year compared to last year depending on which price metric we’re looking at. In short, this is pretty modest price growth overall, which has been the narrative all year (did you hear that sellers?).

Not surprised by slowing: At this time of year we tend to see prices begin to cool and it takes longer to sell. This is exactly what the stats are showing us below too. This comes as a shock to some, but if you follow real estate closely there’s a rhythm to the market, which means we can expect this slowing EVERY. SINGLE. YEAR. In short, in a normal seasonal slowing we tend to see most of these things below happening to greater degrees as we inch closer to the holidays. This is a good reminder that low mortgage rates and sparse inventory aren’t a trump card to buck a traditional seasonal slowing. And if you want proof, it took three days longer to sell last month in the region compared to the previous month.

Rent control: The City of Sacramento approved a rent control measure today. This is huge news and it’s absolutely something to watch. I’ll be talking lots about this in coming time as the trend unfolds. I actually ran a Twitter poll the other day about rent control.

Inventory is down overall (mostly): In the region we have less than two months of housing supply. This is actually down from last year. In short, inventory is sparse on one hand, though on the other hand the new normal is low inventory. It’s tempting to say stuff like, “It’s normal to have a 5-month supply of homes for sale,” but that’s simply not true for today. Maybe it used to be the norm, but for now our new normal looks to be somewhere between 2 to 2.5 months of housing supply.

Multiple offers: When I talk about the market slowing it can sound confusing because the market feels really competitive when properties are priced right. In fact, you’ll probably get a few offers if you price it correctly. But if you overprice you can very easily get zero offers (really). Here’s a stat I’ve been tracking each month. As you can see nearly half of all sales had more than one offer last month. But then again, nearly half of sales didn’t too.

Inventory is GROWING in El Dorado County: Inventory has been shrinking in the market, but not in El Dorado County. This is a new graph I made and I hope you like it. I know it’s busy, but can you see recently how inventory has been shrinking everywhere besides El Dorado County? I may unpack this in a deeper blog post at some point, but this is definitely something to watch. Part of it could be due to the struggle of obtaining affordable fire insurance also.

Just kidding about rates never going below 4% again: It’s unreal to hear about mortgage rates at 3.5%. Remember just a couple years ago when everyone and their Mom were saying, “Rates have bottomed out.” Just kidding. They didn’t. On a serious note, low rates can act as a steroid to help get buyers off the fence and play the market. It helps buyers also artificially afford higher prices too, which isn’t the healthiest sounding thing in the world.

Property tax appeal season: If you didn’t know, it’s now property tax appeal season in the region. Most counties allow residents to dispute their property taxes between July and late November or early December (Placer County is mid-September). Here’s how the process works. Not many people honestly pay attention to their property taxes in an up market. It’s just true. But I advise for all property owners to stay in tune to be sure they are paying a fair share and no more.

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

FOUR BIG ISSUES TO WATCH:

1) SLOWER GROWTH: The market continues to show price growth, but the rate of change is slowing. This almost 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. Moreover, do you know what sellers need more than anything right now? They need to price for the real market today rather than the ultra “hot” market of yesteryear.

2) A QUICK RECAP: All year prices have shown a modest uptick. What I mean is prices are up from last year, but not by much. Keep in mind the lowest price ranges are likely the “hottest” market in town too.

3) VOLUME SLUMP: Up until this past month the number of sales slumped in the region for 14 months in a row (and 13 months in Sacramento County). Sales volume was strong in July though and actually up. This year volume is still down about 9% in the region though. Overall despite a lower year of volume, it’s still not outside of normal low ranges (see 2014 and 2015).

4) PRICES SOFTENED IN JULY: The market generally slowed in July in terms of price growth. This is why I’m saying prices feel a bit flat. 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.

NOTE: Take El Dorado County data with a grain of salt. Stats change significantly month by month.

Please enjoy more images now.

SACRAMENTO REGION (more graphs here):

SACRAMENTO COUNTY (more graphs here):

PLACER COUNTY (more graphs here):

EL DORADO COUNTY (more graphs here):

DOWNLOAD 70+ visuals: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: What are you seeing out there? What do you think prices are doing? What are you hearing from buyers and sellers lately?

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

It’s just NOT a cash market like it used to be

April 17, 2019 By Ryan Lundquist 6 Comments

Investors are playing the market like Monopoly and buying everything in sight… Well, that’s what many sellers think. But it’s not true. Like many markets across the country, in Sacramento we’re actually seeing significantly less cash today than during the heyday of investor activity a few years back.

The Big Takeaway: It’s not an aggressive investor market like it used to be around 2012 when investors really were buying everything, so it’s important to price for today’s trends instead of a rapidly moving cash market from the past.

The Mistake: Sellers tend to aim for that one elusive cash buyer from the Bay Area, but we have nearly 50% less cash today in the Sacramento region compared to 2012. The market is competitive still, but we’re not seeing huge price gains like we did when investors were running the show 5+ years ago.

Three Graph Takeaways:

1) Cash happens at every price point.
2) Cash is more common at lower prices.
3) Sorry if these graphs are confusing.

Now some visuals:

1) A View Without Dots: Let’s start with a graph without dots. Keep in mind this same trend is seen below. It’s just not so easy to see in the midst of over 70,000 sales on one image…

2) A Panoramic View: Here’s all single family detached sales in Sacramento County (not condos).

3) More Cash at Lower Prices: It’s not easy to see the trend here, but cash purchases are concentrated more heavily at lower prices. Keep in mind in 2018 we really only had close to 15% of sales go cash. This is what it looks like on a graph…

4) Big Cash-Only View: Here’s all cash sales since 2012 at the bottom of the market in Sacramento County under $1M. Can you see a higher concentration in 2012 (a thicker black)?

5) A Closer Cash View: Here’s a view of cash purchases under $500,000 to help see the trend a little better.

6) A Close-up for 2019: Here’s a look at 2019 only. When we zoom in we can clearly see that cash is present, but not dominating the market. By the way, who can tell me why this visual has lines like this? The reason is simple, but kind of cool to see on a graph.

Conventional & Bay Area Buyers: Let’s remember some investors these days are using conventional financing because of such favorable terms. So in this regard I look at cash stats with an asterisk. Also, cash is a bit higher in Placer County and El Dorado County these days, and some of that stems from Bay Area buyers (not that Bay Area buyers aren’t also targeting places like Elk Grove, Midtown, etc..).

New Market Video: Here’s a video I put together to talk through the competitive and flat market. Here’s what I mean:

I hope that was helpful or interesting.

Questions: What are you seeing out there? If you are not in Sacramento, is the trend similar in your area?

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The booming FLAT market & rate addiction

April 11, 2019 By Ryan Lundquist 9 Comments

The market is getting hotter, but it’s also pretty flat. Let’s talk about this as well as low rate addiction. Then for those interested I have a huge local market update.

Two things:

1) Competitive but flat market: The spring market is definitely competitive. Real estate agents are saying it’s “hot” and they’re right because buyers are hungry, sales volume is up, and it’s taking less time to sell. BUT prices also seem a little flat. I know, that sounds crazy since there’s so much competition, but it’s what the stats are showing. Let’s remember it’s possible to have a market with lots of competition while prices are more subdued or sideways. In other words, just because it’s competitive doesn’t mean prices are going nuts.

2) Rate addiction: Lower rates in 2019 have brought buyers back into the market after a big slump in 2018. It just goes to show how sensitive our market is to rate changes. In other words, it seems the market is struggling to move forward in glory without low rates. Sounds healthy, right?

Any thoughts?

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

Spring is feeling fairly normal so far and March was actually a strong month. Let’s talk about this.

THE SHORT VERSION:

Price growth is definitely slowing
Sales volume has slumped for 10 months
Volume was strong in March though
Choose comps wisely
I’m now publishing El Dorado County stats
Most metrics are doing what we’d expect for the spring
This post is long on purpose. Skim or pour a cup of coffee.

DOWNLOAD 70+ graphs: 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:

Here’s some of the bigger topics to consider right now.

Slow or flat price growth: The median price in Sacramento last month is actually the same as it was one year ago. It’s been a very long time since we’ve seen that happen. Otherwise most other price metrics in the region are up slightly between 2-3% over the year. This is a very modest change over twelve months and it reminds us price momentum is slowing. In many areas it seems prices are hovering around or lower than they were during the height of summer. But keep in mind this isn’t totally abnormal for the spring either because sometimes the new year immediately picks up right where it left off during the height of summer and other times the stats don’t get back to where they were until about May or so. Thus in some senses we’re still waiting to see how this spring market is going to unfold.

A more normal-ish spring: Overall most metrics look normal for the time of year. Prices ticked up again from the fall lull, it took eight less days to get into contract from last month, and there just isn’t that much on the market right now. Part of having an anemic number of listings is normal because the market doesn’t tend to hit its stride until April, but we’re also seeing the byproduct of buyers devouring listings because of low rates.

Choosing comps today: When a market is showing slower price growth it’s important to be realistic about comps. Sellers often want to get super aggressive, but I have some quick advice. Don’t. Give strong weight to similar properties that are getting into contract, and don’t price like it’s the rapidly increasing market from yesteryear. It’s not. Remember, in some areas you might pull comps and not see much price difference at all from the summer of 2018 or even from the spring of last year. Sellers, please remember you are not guaranteed price growth, so don’t price like you’re entitled to it.

Improving volume, sort of: Sales volume definitely made a rebound last month from the profound dullness we saw these past two quarters, yet it was still down 5.7% in the region from last March. And it’s down 7.2% over the past twelve months. Think about it this way. Being down seven percent doesn’t sound like much, but it means there’s been more than two thousand less sales this year in the Sacramento region compared to last year. It sounds bigger when we think of it that way, right? While volume improved this past month, we’ve still had ten months in a row of lower volume, and that’s the bigger story. Moreover, the first quarter was down 10% in the region compared to last year.

Pendings show us the market: Sales from March tell us more about what the market used to be like in January and February when these homes got into contract. So we have to look to the listings and pendings right now to understand where the current market is really at. As of now pendings look pretty strong, which suggests we’ll have another month of stronger volume in April.

Less offers (but actually more): Multiple offers are down about 12% in the region this year compared to last year, but the number of multiple offers actually increased from February to March. This is exactly what we’d expect to see happen in the spring, so don’t write home over it. But it’s still interesting to see.

Price sensitivity: One out of every two homes are getting multiple offers in Sacramento County, and it’s a reminder buyers need to bring strong offers. But sellers ought to price correctly too. Buyers are not desperate and willing to pay unrealistic prices, so I advise aiming for the market instead of that one mythical buyer who will overpay for some reason.

Waiting: We’re waiting and needing a few more months of data to see how this year is going to unfold. It’ll be most interesting to see if we get a little more price growth too (beyond just rebounding from the dull fall). The verdict is not in yet for this year, and there is still an element of uncertainty because we have a market that feels heavily driven by low rates for the time being.

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

BIG ISSUES TO WATCH:

1) SPRING GETTING HOT TECHNICALLY: The market is heating up for 2019. We’re seeing price changes, lower inventory, and increased sales volume. So prices are up from the dull fall, but they’re also flat as you can see under #4.

The median price is actually down in Placer County, but I’d suggest waiting a few months before making a big deal out of that since Placer County doesn’t have many sales each month, so data can be a little more volatile Yet this hasn’t happened in a long time either.

2) SLOWING MOMENTUM: Despite the heating, stats show the market is slowing down when we look at the rate of change by year. Looking at monthly, quarterly, and annual numbers helps give a balanced view of things.

3) SALES VOLUME SLUMP for 10 months: It’s important to look at sales volume in a few ways to get the bigger picture. Here it is by month and year.

SACRAMENTO COUNTY:

Key Stats:

March volume down 4.9%
Volume is down 6.2% over the past 12 months

SACRAMENTO REGION:

Key Stats:

March volume down 5.7%
Volume is down 7.2% over the past 12 months

PLACER COUNTY:

Key Stats:

March volume down 5.5%
Volume is down 7.7% over the past 12 months

EL DORADO COUNTY:

Key Stats:

March volume down 8.9%
Volume is down 9.0% over the past 12 months

4) LAST YEAR VS THIS YEAR: It’s been a LONG time since we’ve seen some metrics almost identical to what they were last year. Can you see why I’m saying prices seem flat lately? This may not be true in every single price range or neighborhood of course, but this shows us price momentum is slowing. With that being said, it’s still okay to say the market is “hot”. It is. But I’d say competition is hotter than price appreciation.

Quick note on how NOT to use 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.

Now here are a bunch of images. Please enjoy.

SACRAMENTO COUNTY (more graphs here):