Have you ever taken a selfie from a particular angle to make sure you look as good as possible? Be honest. Of course you have, and so have I. Well, housing stats can be just like selfies. It’s easy to pick the best angles (stats) to share while missing the real picture. Let’s keep this in mind as it’s tempting in real estate to gravitate toward “hot” headlines while missing the full story. Let’s kick around some ideas below and then take a deep look at the Sacramento market. Any thoughts?
1) Market hotness: It’s been blasted all over the news that Sacramento is going to be one of the hottest markets in the nation next year. The SacBee wrote about this a couple of weeks ago and I was actually quoted in the piece. In short, Realtor.com predicts we will see a 7% increase in value. The irony is price stats showed a 7% increase in 2015 and we’re on track to see something similar for 2016 in Sacramento. Thus I suppose Realtor.com could have just said “Sacramento will do what it’s done for two years in a row.” Zing. Remember, just because the median price went up 7% doesn’t mean actual values increased by that much. This is a huge point and we can talk about it in the comments if you wish.
2) Deciding to wait to sell: When sellers hear the market is “hot” or sense values are increasing, they sometimes wait to list their homes. Last week an agent told me an owner who was ready to get her property on the market called and said, “We’re going to wait because we just saw a story on TV that said the market is going to be the hottest in the nation next year.” On a related note I spoke with a client who is now concerned about his home increasing in value too much since he is going through a divorce. This reminds me of a video John Wake shared on Twitter. He was talking about San Francisco values and how sellers tend to wait to list their homes when values are increasing. The thought is, why list now when values are going to be higher next year? But then when values do eventually turn there can be a flood of houses hit the market as a “race to the exit”. Really good stuff from John.
3) VA appraisal fees just increased: If you haven’t heard, VA increased their appraisal fees from $450 to $600 in the Sacramento area. Unlike other loan programs, VA pays a standard fee for every appraisal. Just a heads-up.
4) Fannie Mae waiving appraisals: A few days ago Fannie Mae officially began a program to waive appraisals for certain refinances. In the background Fannie has been mining data from appraisal reports for the past two years for their Collateral Underwriter program, and with a database of millions of appraisals they can now eliminate the use of appraisals in some transactions. It’s like Fannie Mae in a small way is helping appraisers dig their own grave. I understand efficiency and how this makes reasonable sense for some transactions, but let’s not forget the very important role appraisers are supposed to play in a transaction.
Any thoughts?
SKATEBOARD GIVEAWAY: If you didn’t know, I love woodworking. Anyway, I made a skateboard and I’m giving it away in two days to someone local (or not local if you know we’re going to see each other soon). Keep it or re-gift it for Christmas. Leave a comment on Facebook if you want to enter the contest and I’ll pick a random name in two days (we don’t have to know each other).
—-—–—– And here’s my big monthly market update ———–—–
Two ways to read the BIG POST:
- Scan the talking points and graphs quickly.
- Grab a cup of coffee and spend time digesting what is here.
DOWNLOAD 71 graphs HERE: Please download all graphs in this post (and more) here as a zip file. Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.
NEW: I created a one-page market sheet to print and keep handy when talking about real estate. I’ll keep it around if it seems relevant (not sure yet). Is this a step in the right direction? Download here.
Quick Market Summary:
The market normally softens each year in the fall and we are definitely seeing that right now, but this fall isn’t as dull as some of the seasons we’ve seen in the past. Yes, it took 4 days longer to sell a home compared to the previous month and prices are down from the summer, but sales volume was up a whopping 18% in the region last month. If you didn’t know, sales volume has actually been higher for four months in a row in the Sacramento region. On the other hand, one of the big issues that just won’t go away is housing inventory is anemic as it’s about 20% lower than it was the same time last year. Of equal importance is interest rates have been ticking up, so buyers are anxious to get their rates locked and their appraisals in on time. As rates presumably rise more next year it will naturally soften values because higher rates take away purchasing power from buyers. Yet the big question is whether lenders will get more creative with financing to help buyers artificially afford higher prices. This reminds us how much power lenders have right now to direct the market.
Check out specific stats and graphs below for Sacramento County, the Sacramento Region, & Placer County.
Sacramento County:
- The median price is the same as it was in August 2007.
- Housing inventory is 22% lower than the same time last year (there is only a 1.36 month housing supply).
- Sales volume was 17% higher this November compared to November 2015 (up 2.5% for the year).
- There were only 36 short sales and 34 REOs in the county last month.
- It took 3 days longer to sell a house last month compared to the previous month (one year ago it was taking 3 days longer to sell).
- FHA sales volume is down 6% this year compared to 2015 (24.4% of all sales were FHA last month).
- Cash sales are down 11% this year (they were 11% of all sales last month).
- The median price is $325,000 and is down 2% from the height of summer, up 1.5% from last month, and 12% higher than last year.
- The average price per sq ft was $202 last month (down 1% from a few months ago, but 7% higher than last year).
- The average sales price at $349,659 is down about 2% from the height of summer (but is 8% higher than last year).
Some of my Favorite Graphs this Month:
SACRAMENTO REGIONAL MARKET:
- Housing inventory is 26% lower than the same time last year.
- It took 4 days longer to sell compared to the previous month (but 4 less days compared to November 2015).
- Sales volume was 18% higher this November compared to November 2015.
- FHA sales volume is down 6% this year compared to last year.
- Cash sales are down 8% this year compared to last year.
- REOs were 2% and short sales were 2.1% of all sales last month.
- The median price was $355,000 in November. It went down slightly from October but is down 3.5% from the height of summer (up 8% from last year).
- The average price per sq ft was $208.6 last month. That’s down about 1% from the height of summer and 8% higher than last year.
- Cash sales were 13.3% of all sales last month (FHA sales were 22%).
- The average sales price was $392,500 in November. It’s down about 3.5% from the height of summer but 8% higher than last year.
Some of my Favorite Regional Graphs:
PLACER COUNTY:
- The median price was $438,000 last month (highest point of year, but take that with a grain of salt).
- The average price per sq ft was $213 last month (down very slightly from the height of summer and up 6% higher than last year).
- It took 41 days to sell last month (same as previous month but 6 days less than one year ago).
- Sales volume was about 3% lower this October compared to October 2015.
- FHA sales volume is down 16% this year compared to last year.
- Cash sales were 17% of all sales last month (FHA sales were 13%).
- Cash sales are down 3.6% this year compared to last year.
- Housing inventory is 13% lower than the same time last year.
- Both REOs and short sales were each 1% of sales last month.
- The average sales price was $481,000 and is 8.5% higher than last year.
Some of my Favorite Placer County Graphs:
DOWNLOAD 71 graphs HERE: Please download all graphs in this post (and more) here as a zip file. Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.
Questions: Did I miss anything? What are you seeing out there? How would you describe the market? I’d love to hear your take.
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Great post Ryan and lots to talk about. You’re right, median prices can go up and values stay flat if more larger or newer homes sell than did in a previous period. It will be interesting to see what happens in the real estate market next year. What we have been seeing in terms of price trends cannot sustain (IMHO), but maybe we can squeak out another year. On another note, I wish you would have put one of your own “kissy face” selfies at the top of this post. I know you have a thousand of them 😉
Thanks Gary. I like the way you said that too. For years we’ve been talking about the need for wage growth and economic growth to drive the market. We’re still waiting for more of that.
I could have duck lips. Darn. Missed opportunity…. 🙂
On deciding to wait to sell, I think a lot of homeowners don’t realize that if they’re moving locally, the home they buy is going to appreciate in value just as much, so what’s the point of waiting then?
It’s even worse if you plan on “moving up” in housing to a bigger home in a better neighborhood, because 5% appreciation on a $500k home is twice as much money as 5% appreciation on a $250k home.
I think it all really depends on the sellers situation as to whether or not waiting is the best decision. If you’re leaving California for a fly-over state where homes cost 1/3 of the price, maybe waiting to get a little more is not such a bad idea because an extra 5% goes really far in the state that you’re moving to.
But for the vast majority of people who are moving less than 30 minutes away, you’ll just be paying more for the home you buy, and interest rates will most likely be higher a year from now, so you’ll be paying more to borrow the money for it as well.
I think you’re right about the way the media has portrayed it, making it sound a lot better than it actually is. I’ve seen an astronomical amount of listings on the MLS being withdrawn or canceled with the intention of re-listing in the spring, and they’ll probably just overprice their home even more next time and fail to sell again. We’ll have to see how it goes for the first quarter next year and how Trump’s first 100 days in office go before we’ll really know if that was such a smart strategy.
Thanks Wes. I appreciate your take. I agree sellers really have to consider their situation. Part of the reason why inventory has been sparse is some sellers have been sitting on a sweet 3.5% interest rate they got years ago when values were low. The trade-in value is so much higher now. Why sell and trade for a higher payment? That is a realistic financial question many are asking.
Yes the ‘mainstream’ narrative is exactly what you are articulated Ryan. People think that holding is some automatic equity pop. When will people learn that the economists have no crystal ball? In fact they seem to blow it more often than not. Must I reference Bernanke prior to the last meltdown? “There is no asset bubble…yada yada yada. Economists simply interpret data just like the rest of us do, nothing really special about it.
IMO we are seeing major pie in the sky prices from sellers right now. It is downright offensive to a logical buyer that has some sort of basic historical perspective on what a market cycle is.
A very obvious trend right now are the (I hate even using the word) flippers that have scored deals, tricked them out, then lowered, then lowered, then lowered, then lowered, and are still sitting. For a while all of the flips were trading. Now I can reference a whole host of them sitting on MLS after lots of reductions. If you factor in hard remodel costs, closing costs and fees, most of them are not even breaking even. That sir is an inflection point. I doubt we are going to burst out in the spring and these hairbrained flippers will be rewarded handsomely by a capable buyer. This is the ship turning IMO.
Can you carve us a crystal ball out of wood Ryan? If so I think it will auger for 2017 being the year this most recent real estate cycle went from euphoria to southbound. That is my guess, in writing. I stand by it. Maybe near the end of the year but 2017 nonetheless.
Sweet skateboard by the way, it’s nice to be a renaissance man.
Thanks Mr. Myagi. As always, I appreciate your take. I concur with you about flippers and I agree with you about magical pricing not happening where these homes all of the sudden sell after not having done so for many months. It’s as if some investors pick a number and hope it will sell (have they looked at the comps?).
I wonder if part of the problem is on the front end of the deals. What some investors may not consider is the bottom of the price market is much higher than it used to be in recent years. Thus in 2011 and 2012 an investor could purchase a beat-up bank-owned sale, put in $40,000 and then flip it for a huge profit. Now there is a new bottom of the price market since there are no more REOs and short sales hovering at the bottom (well, technically 2% of all sales are distressed as I mentioned above). This means the bottom of the market has risen substantially in price and has ultimately squeezed closer to the top of the market in terms of price. We could really say values have grown tighter together. In other words, there is less room to make a buck when trying to fix and flip like it was done years ago. Yet some flippers are still thinking its 2012 and trying to gun for huge profits (and we cannot forget the many flipping courses coming to town selling the dream to become a star).
My advice would be to look at the actual comps. Does it make sense to acquire the property, put in rehab costs, and then flip for profit? Is there enough room? Maybe not.
Thanks for putting something out there. I appreciate your take and your prediction is duly noted. My calendar is set to watch in 2017 now. 🙂 And yes, I can carve one out of wood…. I think.
PS Ryan, during the last downtown I used to love the website “Flippers in Trouble-Sacramento.” The guy who ran the site went on hiatus. It should be operational right now. Maybe a side gig for you? ha. Seriously though I can rattle off a bunch right now if you want to see the hemorrhaging.
I remember checking out that site. I wish he was up and running or at least left his content up. Too bad it’s not there. I also see the Sacramento Land(ing) blog is not active any longer. I’d love to see some more local blogs talking shop.
Agreed on SacLanding, that was a good read back in 05/06/07.
I think your points above are valid. As the market contracts (even if it isn’t this moment in time all sane minds can agree there will be a point) margins for Floppers get squeezed and at some point they all get smashed. Just like the condo conversion window which is a tiny fleeting moment as the market crests. After that you might as well not condo convert your firewalled units.
At the present moment, I think it is a certain type of person flopping (sorry I cannot say flipping–it conjures up too many painful memories of gold watches, leased cars, fast talk, and greased hair.) They are Vegas types. You have to be to ignore the historical low points the Sac valuation market can walk back to and still proceed with that strategy.
Sac does not have the demand drivers here (fortune 500 co’s, big universities etc.) that can justify the amount of cash chasing deals right now. In summary, it is dumb money. And a fool and his money are soon parted.
I partially agree with your point about looking to comps to justify a rehab purchase, however, as we know comps are backward looking. They just tell us what has already happened not what will happen. Therefore it would be smart to look at comps and then discount them by a percentage to arrive at a realistic conservative sales price. Going off of comps alone will crush you at some point when the market is shifting and the trajectory changes, which I think is either happening now or right around the corner.
For me, when I have done a quick reposition sale, I would knock 25% off my projected sales price (based on comps as you suggested) and then if it still pencils I would consider moving forward on a cash purchase. The ‘players’ today are not that conservative, they’re craps players.
That being said I am putting my money where my mouth is and have been selling a lot of my properties the last 12 months. I would never buy them for the prices people have paid. I wouldn’t have paid 1/4 of what they have paid. Seriously.
Thanks. I really enjoy hearing your take and I think it’s good for onlookers to see what people are saying out there in the trenches.
To clarify, choosing comps would involve looking at sales AND definitely looking at current listings/pendings. If we want to know the temperature of the market, we have to look to the listings/pendings. Bottom line. Sales are crucial because they tell us what someone was willing to pay, but we have to keep in mind a sale is a historical document that tells us about the past instead of the present. If I wanted to buy stock in Best Buy or Lowes, for example, I would be aware of what they sold for in the past, but what they are selling for today will tell me more about market value than something that sold 3-6 months ago. I find many in real estate tend to discount this idea, but it’s valid and how the market works. Thus in 2007 when values were screaming downward, if we looked to sales only we would miss the market. Why? Because the current market was found better in the listings that were actually getting into contract. Everyone and their Mom might be priced according to the sales, but if none of the listings are actually getting interest and closing, the market has moved south….
Amen.
I am excited to see what this spring looks like. But even more than that, winter of 2017 could be a mighty frosty one if my auger is on. If not I will eat my crow like a grown-up live on this blog. I don’t think I’ll be eating crow.
Let’s keep watching closely. I see the Fed increased interest rates yesterday. We’ll see what that continues to do to mortgage rates (and then see how lenders respond to less buying power. Thanks.
You’re right about seeing how lenders respond though. If they again resort to loose reckless lending to combat rate and price pressure, then my projections go out the door. In that scenario, the ensuing collapse will be so bad that we will be hunting squirrels for food and chatting on a real estate blog will be the least of concerns. I’m sure you don’t have any followers tuning in from Venezuela right now for example.
Let’s hope they don’t get reckless. Then again, they already know they can get bailed out by the government if they get in too deep….. Regarding hunting squirrels, let’s hope it never comes to that. 🙂
This wasn’t even on my shortlist of Flops. I literally just opened Realtor for the Fair Oaks area to see what was selling near my grandmother’s old house. From the cover photo I knew it was a sloppy flip. So I looked at the sales history. It’s getting very close to a haircut for this Flopper. Maybe by New Years.
My guess is properties like this start trading for the acquisition price to a new buyer except the new buyer will be getting all of the Flopper’s upgrades for free. That would be an appropriate mean reversion and I think it’s coming.
Property History for 7005 Linda Sue Way Fair Oaks
Date Price Price/Sq Ft Source
12/05/2016 Price Changed $299,900 $184 Sacramento
08/20/2016 Price Changed $319,900 $196 Sacramento
08/20/2016 Price Changed $329,900 $202 Sacramento
08/20/2016 Price Changed $339,000 $208 Sacramento
08/20/2016 Price Changed $345,000 $211 Sacramento
08/20/2016 Listed $349,888 $214 Sacramento
09/30/2015 Sold $188,000 $115 Sacramento
Thanks for sharing. I imagine the owner is sweating. It’s pretty common to see this phenomenon. Is it the market or is it a pricing issue? Or both? Those are always the questions I ask.
Whew.. looks pretty rough for a redo… multiple permit violations on record… bring your best inspectors, check for licensed contractors on flips….
Exactly right Jeff.
Bill McBride noted that Nov 2015 was down partially due to TRID implementation… another “selfie” take.
Great angle there Jeff. I appreciate you mentioning that. I dug further just now and see volume in November this year was higher than it’s been since 2012. November has been stale for the past few years and hovering between 1100-1200 sales for the most part in the county in 2013, 2014, and 2015 (but this year over 1400). Sales volume almost always increases from November to December too. In the past 15 years we’ve only seen volume not increase only one time. Of course this really means there were more buyers 30-60 days ago because the escrows are finally closing in December. Thus that last-minute rush to buy before Thanksgiving and Christmas in October and November really starts to show heavily in December stats. I’m curious to see what happens with interest rates rising too. Will it create a rush to the market to buy before rates rise? Big question. We shall see.
Thanks Ryan! for a very Informative post, Your Stats a very Good and it Help me alot to understand the Trends of the market.
Glad to help. Thanks.