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up and down market

Does the market really change every seven years?

October 22, 2019 By Ryan Lundquist 19 Comments

The market changes every seven years. And now it’s ready to take a big turn. Have you heard that? Is there really such a thing as a “seven-year rule”? Is it legitimate? Let’s talk about it.

A FEW THINGS TO CONSIDER

1) Behavior: The market doesn’t have to behave a certain way every seven years. Bottom line. Case-in-point: We’ve had almost eight years of price growth in Sacramento in the current price cycle.

2) There is a cycle: Sometimes we only hear about the market being “hot”, but there really is a rhythm over years where prices go up and down. In many locations the market tends to change every decade or so, so I get why people believe in the seven-year rule. But keep in mind some markets are more flat over time rather than super cyclical like California (big point).

3) Talking in a range: I’m not a huge fan of being dogmatic about seven years, so I prefer to hear things like, “The market tends to change every 7-10 years or so.” Of course this type of statement might be totally off in some areas of the country, but in my market I get it when people say this because of historical data.

Now to some new images…

PRICE CYCLE IMAGES: I used the Freddie Mac Price Index to tell the story of the market over four decades. I like this price metric because it goes back 40 years. I’d love to use MLS instead, but that only goes back 20 years. Anyone have a different metric suggestion?

How long were the past few UP cycles before the market turned?

CALIFORNIA
1980s:  7.9 years
1990s: 10 years
Current:  7.5 years

SACRAMENTO
1980s:  7.1 years
1990s:  8.6 years
Current:  7.7 years

How long did the past few DOWN cycles last?

CALIFORNIA
1980s:  9 months
1990s:  5.5 years
2000s:  5.6 years

SACRAMENTO
1980s:  17 months
1990s:  5.9 years
2000s:  5.9 years

NOTE: It’s tempting to try to predict this next cycle based on the past few, but be really careful with that. There is no rule that says the market always has to behave the same.

Bonus (Adjusted for Inflation): I adjusted for inflation here to help compare dollar amounts over decades (and to satisfy econ / grad student friends who prod me about this). 

OTHER CYCLE CHARTS: I have other price cycle charts based on MLS data over the past 20 years. I have charts for Sacramento, Placer, Yolo, & El Dorado County. See my big monthly market update (scroll to “price cycles”).

I hope this was interesting or helpful.

MAKE THIS GRAPH FOR YOUR MARKET?

Do you want to know how to make a price cycle graph? I made a template to help you do this. Download my template and follow the instructions in the Excel file. If you make something, please tag me online or email me. I’d love to see what your market looks like. Here’s a video tutorial. Here are a few more tutorials also.

Questions: What stands out to you in the images above? Any other thoughts about price cycles?

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Filed Under: Market Trends Tagged With: california housing market, el dorado, excel graphs for appraisers, how to make a graph, market update, placer, price cycle, real estate bubble, real estate price cycle, Sacramento, sacramento housing market, trend graphs, up and down market, yolo

The frog and kettle of real estate financing

June 23, 2015 By Ryan Lundquist 8 Comments

Do you remember how easy it used to be to get a loan a decade ago? It was actually ridiculous how simple it was. Nowadays things are MUCH more stringent, yet at times it seems like we are gradually starting to head back to some more risky and creative loan products. It’s sort of like the frog and kettle, but with financing.

financing changes in real estate - by sacramento appraisal blog - image purchased and used with permission

Financing Moves Value: There are many reasons why home values go up or down in real estate, and financing happens to be one of the bigger layers in the market to make value move. This means when financing begins to change, we can ask why it changed, and also consider any future impact on values. A decade ago there were many options to finance 100% of a purchase, but those options disappeared from the scene for a few years. Yet as prices have skyrocketed in recent years, lenders have begun to equip buyers with more products to “afford” the higher market without putting any “skin in the game” so to speak (By the way, 29% of all sales last month in Sacramento County were FHA). There is certainly a time and place for diverse loan products, but new products can also help values continue to rise when it might be okay for values to cool.

I asked a group of loan officers what more risky products they are beginning to see or hear about coming back into existence. Here is what they said:

adrian petersen - loan officerAdrian Petersen – Loan Officer: It’s been a very interesting roller coaster ride in the lending world over the past decade. Some of the old products are beginning to surface again. Specifically the Fannie Mae My Community 97% for first time home buyers (no ownership in last 3 years) which only requires 3% down payment and can be gifted from family or employer. Also, the 85% Jumbo with no MI has also just re-entered the market. Although we have some very exciting products out there, it’s a good time to remember where we just came from…

stanfordSandy Donaldson – Loan Officer / Branch Manager: There are not a lot of risky products on the market per se due to many of the recent regulations. However, we have seen the conforming 3% down loan reappear. This is a conforming 30 year fixed rate product that requires only 3% down and that 3% can be gifted from a relative. We have also seen conforming loosen their standards on gift funds. It used to be that buyers needed 5% of their own money but now the entire down payment can be gifted on a standard conventional loan. We have seen FHA MIP premium go down substantially and mortgage insurance factors for conventional loans have also declined.

Matt the Mortgage GuyMatt Gougé – Loan Officer: Not only have I seen the increased advertising of ‘Stated Income’ loans in my social media news feed, but I have also heard discussions among some industry folks that there are Venture Capitalists pooling BILLIONS of dollars with the intention of buying up these alternative mortgage products. While these loans do carry extra risk and don’t have the same terms as conventional financing, there is a subsection of the market that will be well served by these products. In my humble opinion the area where people really get into trouble is when they start using loan products that adjust (either the rate or the fact that a certain term is ‘interest only’- or both) and/or have balloon payments. Signing up for a mortgage payment you can afford today that can increase 50%+ in 5 years is a recipe for disaster.

Brad YzermansBrad Yzermans – Mortgage Loan Originator: I think the reemergence of homebuyer assistance programs that require $0 out of pocket and allow a person to borrow up to 105% of the home’s value, along with higher qualifying income limits, is helping sustain home values and keep home ownership more affordable. Many people would consider these programs to be risky…..but they work!  In fact, 75% of all my buyers are eligible for one of the many different home buyer assistance programs we offer.

Dara Delgado Loan OfficerDara Delgado – Loan Officer / Mortgage Broker: In the last year, there have been several “niche” or non-QM loan products that have rolled out, that I have originated and closed. 1) 2 years seasoning from foreclosure, short sale, bankruptcies –allows a max up to 55% Loan-To-Value. 2) Self-employed borrowers allowed alternative documents (12 month bank statements) – adding all deposits, then dividing by 12 months = qualifying income –allows a max up to 65% Loan-To-Value. 3)  Asset Depletion loans (using substantial assets, to qualify, opposed to income). I have also seen various private money lenders roll out more aggressive product such as: Stated income for self-employed or wage earner borrowers – allowing a maximum of 75% Loan-To-Value. Private money lenders loan terms and costs, however are much higher than traditional or niche product loans.

People of Sacramento: By the way, I was featured in a series called “People of Sacramento Commenting on the News“. Nathaniel Miller of the Sacramento Bee is the brains behind this effort. Read more here. Photo: Kevin Fiscus.

People of Sacramento - Ryan Lundquist - Photo by Kevin Fiscus Photographer

Questions: What risky products do you hope won’t make it back? Any other insight or stories to share?

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Filed Under: Market Trends, Resources Tagged With: Appraised Value, changing financing, changing values, financing and real estate, loan officers, Q&A, real estate bubble, sacramento appraisers, up and down market, why values increase

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