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It’ll never sell that high (but then it did)

May 17, 2018 By Ryan Lundquist 8 Comments

There’s no way it’s going to sell that high. Have you ever thought that in real estate? Well, let’s talk about a property that many said would never sell at $4.1M, but then it did. I definitely have some takeaways about this lofty condo in Downtown Sacramento, and I hope non-locals will relate to the commentary. Then for those interested I have a huge market update below. Any thoughts?

A few things on my mind about this one sale:

1) Outlier: This sale is a total outlier. It is a big deal, but it’s also completely disconnected from the rest of the market. Can you tell based on the graph?

2) Thin history above $4,000,000: There have literally only been four residential sales ever above $4M in Sacramento County. EVER. So yes, it’s huge news to have a condo close this high, but at the same time let’s not think everything is now worth four million. Here are the sales:

a) Governor’s Mansion in Carmichael in 2004 at $4.1M
b) Sierra Oaks home in 2013 at $4.7M
c) Elk Grove estate in 2005 at $4.6M (sold $1.3M in 2011)
d) Downtown Condo at $4.1M

3) Lamborghini & Camry: Some have said things like, “I can’t afford the market any longer.” But this one “lone ranger” sale isn’t the new comp for everything in town. It’s tempting for sellers to price higher now, but it’s not like someone ten miles away is going to pay more at the $300,000 level because of a multi-million dollar condo sale. If my neighbor bought a Lamborghini, that doesn’t all of a sudden mean I have to pay more for a Camry…

4) An emerging market: There is definitely an appetite for high-end condos in Sacramento, so let’s expect to see this niche market find more expression in coming time. Ultimately the sales office at the Kimpton Sawyer Hotel has done well so far to sell units far above what many locals imagined. Of course the eventual test for these properties will be to see what happens when they hit the resale market in coming years without the benefit of marketing from a Beverly Hills sales agency.

I hope that was interesting or helpful. Anything to add?

-—-—- Big monthly market update (absurdly long on purpose) ———–

The market feels very normal for the spring. Well, I guess what I mean is all the stats are normal, but buyers are pulling the trigger very quickly and we’re seeing multiple offers on just about anything that is priced correctly. One of the bigger stories is sales volume so far in the beginning of 2018 is up 5% in the region. In fact, we’ve seen the strongest start to the year since 2013. Buyers have been starving for more inventory, so they’re gobbling up anything in site as long as it’s not overpriced. But part of the growth in volume these past few months could also stem from some buyers trying to get a slice of real estate pie before interest rates rise.

New recap images: Last month I introduced recap images. Here’s round two, though this month my data from last year is less complete since I tore my knee a year ago (I’m all better now). Anyway, what do you think?

Two quick things:

1) Inventory is increasing: We’re starting to see inventory increase a bit. For years it did nothing but decline, but toward the end of last year it seemed to flatten out, and so far this year we’ve seen some slight upticks. Granted, inventory this past month was only up 3% in the region compared to the same time last year, but that’s better than being perpetually down every single month.

2) The wrong comps with new construction: With more new construction lately, it seems like some sellers are using brand new nearby homes as “comps” for their older homes. Let’s remember the new ones often sell with a hefty price premium, so they really don’t make adequate comps. My advice? Don’t get distracted by the brand new stuff. Try to find older sales that are similar rather than assuming buyers are going to pay the same amount as a new home.

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

DOWNLOAD 52 graphs HERE: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

SACRAMENTO COUNTY (more graphs here):

SACRAMENTO REGION (more graphs here):

PLACER COUNTY (more graphs here):

DOWNLOAD 52 graphs HERE: 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 do you think of that $4.1M condo sale? What else are you seeing out there in the market? I’d love to hear your take.

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

Addicted to low rates, sending 2x4s, and a market update

March 14, 2018 By Ryan Lundquist 5 Comments

The market feels addicted to low interest rates. So what’s going to happen when rates rise? Let’s travel back to the late 70s for some insight and consider a few thoughts. Then I have a huge local market update for those interested.

A few thoughts about interest rates:

1) Addicted: We have a market that feels addicted to low rates. I guess that’s understandable since rates have been hovering around 4% for the past 6 years. On one hand it seems silly that buyers would freak out about rates near 4.5% because that’s historically low, but at the same time the market is sensitive about rate changes because we’ve become accustomed (or addicted) to low rates. Let’s remember rate changes can make a bigger difference at lower prices too because they can more readily impact affordability.

2) They used to be 18%: Some people say, “You kids are so lucky because when I bought my first house the interest rate was 18%.” There’s some truth there and let’s be in tune with history, yet prices used to be substantially lower too. You bought at 18%, but the price was $112,000.

3) Not the only factor: What interest rates do can end up impacting affordability, sales volume, housing supply, and prices. Check out a deep article by Freddie Mac to read through some of the potential changes coming. Yet let’s remember interest rates are not the only factor for housing. There are many other layers of the market that end up influencing value. We can’t forget about the job market, economy, a housing shortage, financing, creative loans, new construction, cash investors, etc… In short, interest rates are a big factor for the market, but they are not the only factor either. One more thing. Nobody knows the future. While it looks like rates are going to be increasing more, we could be saying something entirely different next year.

When rates doubled from 1977 to 1981 (from Freddie Mac):

1) Mortgage origination fell by 40%.
2) Annual single family home sales volume dropped by 36%.
3) New construction dropped by 51%.

History teaches us a huge change in rates can absolutely sway the market. Obviously an uptick from 4% to 4.5% is not the same thing as 1977, but the effect then reminds us to keep an eye on mortgage origination, sales volume, and new construction (and prices).

I hope that was interesting or helpful. Anything to add?

–——-——- Big monthly market update (it’s long on purpose) ———–——-

It’s starting to look like Spring. Prices are picking up, it took two less days to sell last month, and more listings are hitting the market. It was actually the strongest February of sales volume we’ve seen since 2013. The market has an aggressive feel with multiple offers (when properties are priced correctly), yet in some neighborhoods it almost seems like values have been a bit flat or subdued. Thus it’s a good reminder the market can feel aggressive sometimes without absolutely insane value increases. Keep in mind there are about 100 price reductions every day right now in MLS, and that means buyers are not willing to pay any price despite a housing shortage.

Sales volume is down (barely): There is lots of talk in the media about how sales volume is slumping nationally and is down 3% or more, but it’s only down 0.28% this year in the region compared to last year. It’s actually up from two years ago, which a big point in my mind. In Sacramento County sales volume is down nearly 1.5%, which is about where it’s been hovering lately. This isn’t a red flag for the market, but it would be if sales volume really started to slough. Moreover, knowing that rising interest rates can impact sales volume, this is important to watch over time.

The bottom vs. top: The bottom of the market has less inventory, more competition, and more upward pressure than the top. The highest prices above $1M have over a year’s worth of homes for sale. It’s actually fairly normal to have that much inventory at the high-end, though this month is a bit higher than the same time last year, so let’s keep watching that. Part of having so many listings at higher prices though is sellers are pricing at absurd levels that are totally disconnected from the market. It’s like everyone and their Mom wants to sell for $3M when very few sales in Sacramento fetch those types of prices.

Advice for sellers: Pay careful attention to similar properties that are actually selling in the neighborhood rather than overpriced listings. In other words, price according to the comps and listings that are getting into contract rather than listings that don’t really reflect the market. And don’t use price per sq ft to price your home either.

RENTS: I’ve been focusing more on rents and I’ll keep doing that if people like it. I have a rent folder in the download link below too (data from Yardi Matrix).

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

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

SACRAMENTO COUNTY (more graphs here):

SACRAMENTO REGION (more graphs here):

PLACER COUNTY (more graphs here):

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

Questions: How do you think rising rates will impact the market over time (if they do keep rising of course)? Anything I missed? I’d love to hear your take.

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Slumping volume, too many million dollar listings, & rising rates

February 22, 2018 By Ryan Lundquist 14 Comments

We love sensational real estate headlines, but here’s what tends to happen. We talk about something like it’s the biggest thing ever, it ends up being no big deal, and then we move on to the next thing. It sort of reminds me of Y2K because there was so much fear about worldwide chaos, but then nothing happened. All bark. No bite. Anyway, let’s talk about a few issues, and you decide if these are hyped-up “Y2K real estate trends” or not. Then I have a big Sacramento market update for anyone interested. Any thoughts?

Rising interest rates:

For years we’ve heard interest rates would rise, but nothing really happened. Well, now things have begun to change. It’s like Mom & Dad were threatening a punishment, but they never followed through, so we didn’t believe them…. until now. Interest rates are finally ticking up and it’s bound to make an impact on prices if the increase hits buyers in the wallet. What I mean is if buyers in mass can afford the increase, then it’s not a big deal unless buyers start showing resistance. An increase in rates won’t hit everyone the same either as buyers at the lowest price ranges will feel it the most. Keep in mind rising rates in the near future could actually lead to buyers rushing the market instead of withdrawing from it. What will happen? Nobody knows. Heck, rates are still incredibly low, and we don’t even know if they’ll continue to rise. But the Fed has been more forthright about coming rate hikes, so that’s why this feels like more than pure hype. Anyway, let’s see how this plays out and keep an eye on creative financing from lenders too.

Are there too many million dollar listings?

Headlines are talking about the high-end market softening in portions of the country. Locally I’ve heard that sentiment since inventory seems imbalanced at the top right now in the Sacramento region. It sounds alarming to think there is a year’s worth of million dollar listings, so it’s easy to conclude the high-end market is sagging. But last year at the same time we saw nearly the same number of listings. If you need to see the numbers, at the beginning of February 2017 there were 213 listings above $1M and this year there were 220 listings at the beginning of the month. It would be insanity to see twelve months of housing inventory at the lowest prices, but it’s actually fairly normal for January stats for the high-end. In short, it could be possible the million dollar market is softening, but for now let’s not use the number of listings alone as evidence.

Is sales volume slumping?

I’ve been noticing real estate headlines talking about slumping sales volume in many markets across the United States. For Sacramento County we actually had the strongest January since 2013, yet it is true that yearly volume is down 2.5%. This isn’t shocking news because nearly all of last year volume was down 1-2% depending on the month. Here’s the thing though. Sales volume in 2017 was slightly lower than 2016, but it was actually higher than 2015. This reminds us if we only look at one year of sales we might miss the bigger trend. Anyway, volume is also down in the entire region, though only by 1%. Overall it’s fair to talk about lower volume because that’s a fact, but it’s probably not fair to hype the issue too much – especially since volume is actually higher than 2015. Let’s keep watching though because it would be a huge deal if sales volume really did start to decline significantly.

Overpricing because the market is so “hot”:

In case you wanted some background noise while working, I did a Facebook Live Q&A last week with Realtor Justin Vierra and we talked about pricing for the “unicorn.” Overpricing is a real issue in today’s market. By the way, if anyone wants to do podcasts and interviews, I love that stuff. You can listen to our hour-long conversation here too in case you wanted more than just this clip.

I hope that was interesting. Anything to add?

–——-——- Big monthly market update (it’s long on purpose) ———–——-

Right now we’re in that weird place where sales stats are sagging from a slower fall season, but the market is heating up. For January stats we saw all the typical signs we’d expect to see. Sales volume declined, it took an extra day to sell, most price metrics sloughed, and inventory increased. The median price in Sacramento County actually has been fairly flat, but last week I talked about how the market really did slow down despite the flatness. Anyway, I have quite a few visuals below to help show how the market has moved in recent time.

Housing supply: Inventory is up a bit right now. It’s not much, but this January was up 6.5% in the region compared to last year at the same time. Over the past few months inventory has actually ticked up slightly, and that’s welcome news for the market. Yet before writing home to say the housing shortage is over (it’s not), let’s wait to see what happens during the spring market. I’m not overly impressed at a few months of slightly higher inventory around the slower fall months. Let’s watch the spring market, which will be the bigger test.

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

DOWNLOAD 62 graphs HERE: Please download all graphs in this post and more here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

SACRAMENTO COUNTY (more graphs here):

SACRAMENTO REGION (more graphs here):

PLACER COUNTY (more graphs here):

NOTE: I cut out a few graphs and data this month. If you miss something, let me know.

DOWNLOAD 62 graphs HERE: Please download all graphs in this post and more 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 in the market? Is the top softening? What are buyers saying about interest rates? Anything I missed? I’d love to hear your take.

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

Fake real estate trends & rising rents

February 14, 2018 By Ryan Lundquist 10 Comments

Let’s talk about fake news. No, not anything political. Let’s consider a couple of examples where it’s easy to misunderstand trends and then report fake real estate news. Then let’s look at how rent increases are fueling the 2-4 unit market. Anything to add? I’d love to hear your take.

Part I: This is Part I of my big monthly market update. Part II will come next week. If you need a few graphs now for marketing, send me an email. This post is long on purpose. Scroll or read in depth.

1) FAKE NEWS: The market is starting to turn because sales volume is down.

TRUTH: Sales volume declined by 21% last month in Sacramento County. That sounds dramatic, right? Should we be concerned? Is the market shifting? Nope. It’s actually normal to see volume drop like this between December and January. I circled January in red below as proof. This January was actually the strongest we’ve seen since 2013.

2) FAKE NEWS: The market is flat and didn’t have a price lull during the fall.

TRUTH: The median price has been flat in Sacramento County for six months, and normally it softens by about 5% during the fall, but that didn’t happen this year. So it’s easy to say that the market is so “hot” that prices didn’t dip, but that’s not true. Here’s the thing. Sometimes the median price ends up being a bit more flat despite the market showing a legitimate cooling. Besides, if we step back and look at the average sales price and average price per sq ft, both declined during the fall. Moreover, the median price in the region also declined. The moral of the story? Don’t put all your eggs in the median price basket.

3) *FAKE NEWS: Bay Area residents are buying EVERYTHING in Sacramento.

Truth: Bay Area folks are getting lots of attention and they should since there are over 20,000 new Bay Area residents migrating to Sacramento each year according to the Greater Sacramento Economic Council and Mercury News. That’s jaw-dropping to hear, but let’s pause and consider a few things.

* WHAT I AM NOT SAYING (update): I am not saying Bay Area buyers are not a factor in our market. They are. Bottom line. All I am saying is they are not buying everything. Thus it can be misleading news to perpetuate the idea that our market is being utterly gutted by Bay Area residents. As we have conversation about Bay Area buyers, let’s consider some of the points below. I find these fascinating for the sake of our conversation. Moreover, when we are talking about trends, let’s look to not only how the market feels, but actual stats too where possible.

A) Bay Area cash is not gutting Sacramento. Only 15% of all sales were cash in the region last year. Cash used to be about 30% during the “Blackstone” days.

B) Nearly 20% of sales in the region last year were FHA, which tells us first-time buyers are winning in this market – not just loaded Bay Area residents.

C) There are 20,000 new residents every year from the Bay Area, but there are only about 28,000 single family detached home sales in Sacramento per year. This tells us not everyone who moves here is actually buying. Of course if Bay Area buyers are picking up the slack of locals not buying, then that’s another story. If anyone has data to suggest that is the case, do share. For now though let’s admit not everyone who moves here is getting a mortgage.

D) I might be more bullish on thinking the Bay Area is dominating the purchase market, but having more than twenty thousands residents migrate to live in Sacramento is definitely putting pressure on rents. According to Yardis Matrix, rents are up 8.5% this year, and that translates to renters paying an average of $105 more each month for rent (or $1,260 more over the course of the entire year). Yikes.

4) NOT FAKE NEWS: Rising rents are heating up the 2-4 unit market.

TRUTH: An investor told me the other day, “Sacramento’s hot rental market is now the worst kept secret in the nation”. Such a headline quote (thanks Eliot). He is 100% correct because news of rising rents has seemed to permeate the marketplace lately. For years after the housing collapse prices seemed more subdued, but lately it’s been eye-opening to see how much demand there is for the 2-4 unit market. Yet many units hitting the market actually have below-market rents because the rents have not been raised in many years. This is why most of the time it seems like I cannot fully trust rental data in MLS because it reflects older rental contracts from years ago rather than the market today.

What the? There are also some lofty sales that leave us asking, “What the? It sold for how much?” I thought this recently when seeing a triplex sell for 1.8M in Midtown and a 4-plex at $850,000 in Curtis Park. A “lone-ranger” outlier sale might reflect the “hot” market in some senses, though remember a high sale could also be a trophy property, have a subdividable lot, or maybe a buyer overpaid in light of needing to do a 1031-exchange.

I hope this was helpful or interesting.

Questions: What do you think of the “fake” real estate news above? How much of an impact are Bay Area buyers really making? What are you seeing in the rental market? Did I miss something?

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

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