Highlighting some market trends in Sacramento

Today I’d like to give you a little “play by play” commentary into a few Sacramento area neighborhoods. I’ll show some graphs, but then use them as a springboard to help highlight market dynamics. I’d love to hear your insight and thoughts in the comments below.

One-Acre Lots & a “Lone Ranger” Short Sale: Kapalua Estates is a gated community in Elk Grove (right next to Silvergate). This neighborhood was built roughly ten years ago and consists of homes on one-acre lots. As you can see, there have been some higher sales lately above $700,000 compared with the past several years. Yet there is also one short sale listing priced at $420,000 right now. How does an appraiser deal with a low listing? Does it set the pace for the neighborhood market? Sometimes home owners or agents get worried that one low listing will damage the neighborhood or an appraisal, but in this case I simply showed a graph like this in my report, and explained to the lender in the appraisal why I did not rely on the aggressively priced short sale listing for my value. After all, there have been zero sales below $500,000 in this neighborhood.

The Context of the Median Price: A report came out in The Sacramento Bee a few days ago about how the median price increased by 30% from June 2012 to June 2013. Did values really go up that much? Technically speaking, yes, if you only look at the median price. The market has had some incredibly rapid appreciation this year, but at the same time it’s important to understand the limitations of the median price. The 30% figure is actually padded because of 20% less foreclosures in the market, 9% less short sales and an increase in investor activity (which included many flipped properties at higher values). For reference, Sacramento and West Sacramento lumped together had a median sales price in June 2013 of $245,908 according to the Sacramento Association of Realtors (see PDF), so Zillow data is likely lumping in portions of Placer County and elsewhere to arrive at $265,000 (this is why they call it the “Sacramento Metro” area). In short, yes the median price increased by 30% last year, but this doesn’t necessarily mean that values actually increased by that much across the board since the median figure is padded. If you didn’t read the story in the SacBee, read it. It has some great nuggets.

NOTE on 07/27/2013: Check out Joel Wright’s blog for accurate numbers for the median price increases in surrounding counties. I don’t put much stock in Zillow numbers, but for purposes of a recently published article in The Bee stating 30% increases, it was worthy of conversation here (I probably should have made this point a little more clear). Joel actually shows a 38.1% increase in Sacramento County and a 24.1% increase in Placer County. My suspicion like I said above is that Zillow may be lumping these two numbers together (if they’re not though, then that is bad news for their numbers).

Properties Grow Differently: We give quite a bit of attention in the real estate community to increasing values, and right now we are beginning to talk about how the market is cooling a bit. It’s important to remember that not all property types experience the same rate of appreciation. For instance, property values are generally somewhere around 2002 levels right now (sometimes 2003), but in the case of a McKeon condo complex in the 95841 zip code, these condos are definitely lagging behind the single family detached market. Current listings are maybe priced around $75,000 at the most, but 2002 values were clearly between $100,000 to $120,000.

It’s a “Tight” Market: You can see how prices have seemed to become much tighter in the Elmhurst neighborhood over the past year or so as the market has improved. When I say “tight” I simply mean sales are more clustered together in a pack as opposed to being more spread out. This same “tightness” was also evident from 2003 to 2005 when the market was increasing. This tends to happen in real estate when a market is “hot” because there are often less distressed sales and buyers won’t penalize negative features as much as they would when a market is down or distressed.

Any questions or thoughts?

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