It’s a new year, which means it’s crucial to take a look at the housing market. If you work in real estate, ask yourself these two questions: What is the market doing? And who are your clients going to be this year? The truth is if we do the same thing each year without really considering how the market is evolving, it’s easy to miss out on being relevant to clients.
Here are some trends and tips on my radar as 2015 begins, and I wanted to share them because I thought some of them might be good conversation fodder for business plans or with clients. These trends are relevant for Sacramento, but I have a feeling they might be showing up in many markets across the country. Enjoy.
12 trends and tips for real estate professionals in 2015
- Buyers’ Market: The market is definitely morphing into a full-fledged buyers’ market. In light of more houses for sale, buyers simply have more options. This means properties will generally take longer to sell, and buyers will have more room to negotiate.
- Pricing Correctly: As the market changes and inventory increases, it will be paramount this year to price properties correctly. When a market grows soft, buyers tend to become more picky about pricing and making offers, which means overpriced listings will sit on the market instead of sell.
The Small Distressed Sales Pond: Foreclosures and short sales used to drive the market, but that’s not the case any longer these days. Being a distressed property specialist is still a relevant avenue of business, but it’s also a crowded pond to fish in. Remember that owners who went through a foreclosure or short sale several years ago may actually now be able to re-enter the market (these buyers are called “Boomerang Buyers”).- Equity Sellers: Some home owners do not realize how much the market surged in recent years. They may actually be surprised to know they have equity again after the recent increases from 2012 to 2014. This can open up options for moving up or downsizing.
- Dispelling the Want to Buy at the Perfect Time: With the advent of vast online real estate data, many buyers are watching the market carefully and wanting to time the market perfectly to be sure they are buying at a time when values are increasing. The reality is it’s not easy to pull this off. In fact, many home owners who purchased at the bottom of the market in early 2012 didn’t actually realize they were doing so. They were simply lucky and bought at a time they could afford. When I ask, “Do you realize you purchased at the bottom?”, their response is often, “Really? I had no idea at the time.” In short, in a market that is no longer rapidly appreciating in value, buyers need to focus on being sure they are comfortable with the price and monthly mortgage payments rather than looking for that perfect market moment to get rich in real estate.
Divorce: As the economy improves, divorce has been more common (the LA Times says so too). I easily did three times as many divorce appraisals last year compared with previous years. Divorce is a very difficult time in a client’s life, so it’s important to be able to serve clients in their time of need, and to be aware that divorce stats may be increasing as the economy heals.- FHA Buyers Increasing: Despite some in the real estate community saying FHA would not increase due to permanent mortgage insurance being required, it has definitely increased over the past 18 months in the Sacramento region. FHA has been a relevant product for many buyers since there is little money down required. Of course we can expect to see some more creative financing options emerge as the market softens, but in the mean time, if you are not in tune with FHA appraisal standards, it’s time to brush up so your buyers and sellers know what to expect. I have seen several properties recently trying to use traditional FHA financing that were blatantly not acceptable for FHA (maybe a 203K loan though). This is where knowing the standards becomes important.
- Rentals Hitting the Market: Some investors who purchased in 2012 and 2013 are beginning to sell their properties. I have yet to see Blackstone do this, but I have seen some smaller funds with 30-40 properties begin to unload. I talked with an investor recently who has a few dozen properties, and he wondered how strong the market is to sell. What would you say?
- Not as Easy to Flip: Everyone and their Mom wants to be a house flipper, but buying distressed inventory on MLS these days isn’t as easy as it used to be because there just aren’t as many low-priced foreclosures. Since there is less room to buy at a discount on MLS, it’s important for would-be flippers to explore alternative ways of picking up properties, and to be extra sure they are purchasing with enough room to rehab and sell. Being realistic about the ARV (After Repair Value) is key – especially in a price-sensitive market.
- Exit Before It’s Too Late: Some property owners are concerned about the future direction of the market, so they will be interested in selling this year “before it’s too late” (in case the market begins to decline in value).
- The Granite Wave: Having granite counters used to be such a custom feature a decade ago, but it’s become a bit stale in the current market. Don’t get me wrong, buyers still like granite, but at the same time there is a growing sense of the market becoming saturated with granite. What advice would you give clients about making a kitchen shine in today’s market?
- Standing Out: As housing inventory presumably increases this year, it will be important for properties to stand out from others to compete for a limited pool of buyers. When inventory increases, buyers tend to become more finicky about location, condition, and upgrades (which underscores the need to price properties correctly).
NOTE: These trends may not be present in every neighborhood or price range in Sacramento, or in every area of the United States.
I hope this was helpful in some way, and I hope you have a profoundly successful year in real estate. I look forward to watching the market carefully this year, and to all the discussions we’ll have together. May you have a very prosperous 2015.
Questions: Anything else you’d add? If you are not in Sacramento, are there some parallels here that also resemble your market? I’d love to hear your take.
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Great blog post as usual Ryan. What do you think about FHA’s return to the anti-house-flipping restrictions for 2015? I have agents asking me about this and I’m not sure it will be significant. I’m thinking it will just mean a little more holding time if the flip will need to sell FHA.
Thanks Gary. I have mixed feelings about the rule. I think the rule will be an inconvenience for investors. Yet at the same time, there is less cash playing the market right now compared to the past couple of years, which also means there are fewer houses being flipped. When crunching the numbers though, FHA sales volume is higher in the Sacramento area toward the lower end of the market (33% under $200K compared with about 25% of the entire market). Thus in the end some would-be FHA buyers toward the lower end of the price spectrum will miss out on properties since investors will be more prone to accept a conventional buyer instead of waiting 90 days for FHA. Realistically though since many investors are going to take 30 to 60 days to flip a property, and then have a property on the market for 30+ days, this means some properties will still easily qualify for FHA. Agents will simply say in MLS something to the effect of, “90 day flip rule expires on such and such date”. Ultimately, between flipping and marketing time, this rule may not be a huge deal for many properties, though realistically it is going to hurt some buyers (and investors). The irony though is why 90 days? Why not 60 days or 120 days? What’s magical about 90? Lastly, in some senses removing FHA as an option within 90 days of acquisition may help steer some buyers conventional and/or create more of a need for creative financing options that can get the deal done in the first 90 days.
That was a long answer. 🙂
Wow, thank you for such a detailed answer. I hope that I did not rob you of an entire blog post with that question. I think we are on the same page that the new FHA rules will not matter much.
No, thank you for the conversation. I will likely use the comment as a starting point for a blog post soon too. 🙂
Ryan, I am very interested in knowing what the new trend is for counter tops. If the granite wave is leveling out, what is showing as first choice to replace granite? Enjoyed your thoughtful post. Thanks!
Hi Sandra. Thanks for the comment. I’ve been seeing more marble lately, but also lighter colors of granite (instead of the dark gray granite that is just about everywhere). I’m seeing quite a bit of white subway tile on the backsplash too. I’d love to hear anyone else’s thoughts on this. Overall granite is still an asset, but it’s become the norm instead of a rarity, which will create space for change.
As an FYI, someone one my Facebook page suggested quartz and butcher block too.
Good catch on the LA Times article. I live here and I missed it.
I do see my competitors ad showing up in your post. How does that happen?
I have one ad from Adsense at the bottom of the post. I have real estate ads generally. I do not pick them personally, but once in a while I need to weed out an appraiser advertising. That’s not really what I want to go for. Can you email me the website used in the ad? (you can see by hovering over the ad without clicking). Then I can block that one if necessary. Thanks Mike.
Speculation is increasing that mortgage rates will rise in 2015. If you qualify for a $300k loan at 4% your borrowing limit drops to $267k at 5%, implying a 10% drop in buying power. If it happens that’ll be a big downward force on prices.
Thanks Jim. Many experts thought rates at this time would already be much higher than they are. At some point they simply have to rise, and that will definitely impact purchasing power as you said. This year what happens with inventory will be the most critical factor in my opinion, but what happens with interest rates will also play into how the market unfolds. We shall see. Thanks for the comment. I’m really glad you pitched that in.
Ryan, great post. I think your market is leading ours. In Tampa small investors are still buying rentals because the rental market is doing well and prices are still making sense for them.. I always look at what it cost to rent a house vs paying a mortgage. Right now it still cost less to buy than rent. A house in my area that will have a mortgage of $1100 will rent for $1300. I have used this as an indicator for the general direction of the market in the past and it has been correct so far. I don’t think our market is done appreciating but the pace is definitely slower and I see change in the air.
Thanks Jana. That’s a good thing to keep an eye on. It sounds like there is room for values to increase in your market. I think our market is poised for a traditional Spring too, so I wouldn’t be surprised to see an uptick over the next number of months. In terms of rentals, there are still properties locally out there that pencil, so investors are still buying, but it’s not like what it used to be two years ago at all. Some properties have gone beyond their rental value already.
Very true about granite Ryan. In one of my markets that was hurt bad by the economy and foreclosures investors have had a ball flipping homes and granite was installed in just about every one of them. With it being such a “common” feature now I can see other materials being used in order to set homes apart from the others.
That’s interesting to hear a similar thing in your market. I had an appraiser from New Jersey reach out to say the same thing about her market too. Builders began the granite craze when the “bubble” burst. Granite used to be a luxury feature, but then builders began including it as a standard item in order to attract buyers. Then the REO flood hit, and so many investors flipped properties by installing new cabinets and counters. It simply became the norm. I’m excited to see some changes in coming years. There is definitely room for creativity, though the market will dictate what happens.