What’s the real estate market going to do in 2019? Let’s talk about some of the bigger emerging trends in Sacramento and beyond. You can quickly scroll or spend a few minutes digesting things. Anything to add?
TRENDS TO WATCH IN 2019:
Affordability: We’ve had seven years of price increases without dramatic wage growth, so it’s no surprise one of the most pressing issues today is affordability. This is true for buying and renting.
Buyers gain power: It’s been a sellers’ market for years, but buyers have been gaining more power as price growth has slowed. Unless we see something happen to reverse the slowing, I expect buyers will continue to gain more power this year. If sales volume persists to slump, then it will turn into a full-fledged buyers’ market.
Uncertainty about future: For the past two quarters we’ve watched sales volume slough in many markets throughout the country. Was this simply a dull year or is it something more? Buyers seemed to take their foot off the gas pedal. Will they step back on? That’s the big question, and we’ll have to watch closely over the next two to three months to know how the market is going to unfold.
This is a poll I ran on Twitter yesterday. I know it’s only one random sampling, but it reminds me of an uncertain vibe I’ve noticed. When I ask people what they think the market is going to do I get quite a few, “I’m really not sure” answers. It seems like many people are floating the idea the market could be flat or experience something very modest – whether up or down.
Mortgage companies merge: In 2018 we saw some mortgage companies merge as a way to hold on in this market, and I expect we’ll see more of that in coming time. The reality is certain companies are struggling because the refinance market died off and sales volume was weaker last year.
Color: The word on the street is we’ll keep seeing color complimenting gray. For reference, the Pantone color of the year is Living Coral. I’m not saying this orange-ish shade is going to be splashed everywhere, but maybe we’ll see it at some point. In 2016 the color of the year was a shade of blue, and we’ve certainly noticed blue in kitchens. I suppose the color of the year could be like the cerulean belt scene in The Devil Wears Prada where we mock the color until years down the road we realize we’re actually wearing it… Not that I wear cerulean belts.
Looking for an exit: Some homeowners are concerned about a “bubble” and they sense the top is near, so they’ll be looking to exit “before it’s too late.” This doesn’t represent everyone, but some have been waiting for the right time to list and they’re feeling more ready. I expect this will be more pronounced for those in a place to downsize or move out of state. The struggle for others is it’s expensive to sell and buy again in the same market, so it becomes easier to stay put. For locals, I’d watch for Bay Area migration to Sacramento as the dream is to exit a higher-priced market and purchase in a lower-priced area. And Texas, we are the “Bay Area” buyers to you.
Overpricing: Sellers struggled with overpricing in 2018 and I expect they’ll continue to struggle – though hopefully not as much. It’s normal to see sellers want to price higher, but the problem lately has been sellers pricing for a more aggressive market from the past instead of today’s slower market. And of course sellers have been aiming for “unicorn” buyers instead of real buyers.
Laws for Cannabis: Recreational cannabis is now legal in 10 states and medicinal use is legal in more than 20 additional states. Whether you like it or not, this is a trend, and we’re bound to see more states jump on board as cannabis is normalized. I don’t say this as an advocate, but as an observer paying attention to potential impacts to the real estate market. Locally I’m expecting at some point to see other cities besides Sacramento change their zoning code to allow commercial cannabis cultivation. Think about it this way too. With so much talk of a coming recession, it’s hard to imagine city councils are not considering this move to secure future tax revenue.
Emergence of concessions: Sellers have been in the driver’s seat for years, so they haven’t been in the habit of giving credits to buyers or offering concessions, but this year could be different as buyers presumably gain more power. Sellers are going to have to get used to the idea that they won’t have multiple offers on every deal and they might have to offer credits, make repairs, etc… to get escrows closed.
Smart homes: As Wi-Fi doorbells, security cameras, smart thermostats, and voice-activated light bulbs become common, we’re only going to see more “smart” features in homes.
Energy efficient construction: Green is all the rage and we’re seeing laws change to usher in more energy-efficient technology. For instance, in 2020 in California solar panels are going to be required on roofs for new construction.
Flipping seminars: There will be no shortage of celebrity flipping seminars this year to teach the “secrets” of getting rich in real estate.
Pickier buyers: Buyers are patient about finding the right house, they’re more informed than ever about price trends, and they have higher expectations about condition and location. In a market where buyers seem poised to gain power, it only makes sense to see them grow more finicky as they have a greater selection of homes to choose from.
Crowded for real estate pros: We’ve seen explosive growth in the number of real estate professionals. This makes for a crowded and competitive market – especially in light of slumping volume. I’d expect 2019 to begin to weed some people out of the market if there isn’t enough pie to feed everyone.
Getting rid of appraisers: Over the past couple years we’ve seen an increase in appraisal waivers and there is currently a move to not require appraisals under a certain threshold. There is a clear agenda to start using “evaluations” instead of traditional appraisals. This is a big deal and removing one of the systems of checks and balances (the appraisal) as the market slows might not be the best idea ever… Read more here.
Creative financing: Last but not least, underwriting has been strict for years, but lenders are feeling the sting of the refinance market drying and sluggish sales volume. Do you think there might be more pressure to loosen lending standards to help fuel more business? Right now lenders hold tremendous power and what they do in coming time can shape the next few years. If they help buyers artificially afford higher prices through creative financing, that can only inspire price growth or stall the slowing trend. Sounds healthy, right?
I hope that was helpful or interesting.
Questions: What else do you think will be important in 2019? Did I miss something? I’d love to hear your take.
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Hey Ryan! Great perspectives. It will be interesting to see what happens this year. Things are always changing. I hope you have a fantastic year!
Thanks Jamie. Yes, things are always changing. I think at times we treat real estate like it’s a commodity that only goes up, but that’s far from the truth. It goes up, down, and sideways. The market is always moving.
It’s been a great start to the year. Things are getting busy and that’s the way I like it. Looking forward to connecting this year.
I’m glad your starting the year off strong! I’m looking forward to connecting with you on our new appraisal adventures this year!
Always lots of great stuff in your blog Ryan. That is a pretty complete list and I would be surprised if any of those trends did not hold true in 2019 real estate.
Thanks Gary. I appreciate it. Happy New Year!! Everyone always wonders about prices for the year, but there are so many other factors to consider (that will probably affect prices too). I’m anxious to watch what happens with listings in particular over the next couple months. I think that may tell us what we need to know. Of course interest rates have begun to turn down again, which will help fuel more interest in the spring market. Just in time. In my mind though low interest rates are only a band-aid on the problem of affordability. They are a temporary solution right now.
Terrific list of things to watch! It is hard to predict what exactly will happen but you have created a great list of things may have big impacts on real estate for 2019. Happy New Year!
Thank you Shannon. Happy New Year!! I completely agree on predicting. Nobody knows the future for certain (but people sure talk like they do).
Insightfully written information reflecting what I am hearing in the marketplace. Thanks for sharing! It is important to keep our finger on the pulse of the always changing real estate market!
Thank you so much Debbie. I appreciate it. I welcome your insight anytime too.
Once again, great observations, Ryan!
I have also noticed in the Roseville,Rocklin and Chico markets rentals and inventory have dropped due to the Paradise fire. Thousands of people searching for short and long term real estate we forced in to the market. This is a unique hyper local condition, but I can see it lasting through 2019.
Thank you John. I’m so glad you mentioned that. Fantastic. We will definitely see some residents from Paradise relocate to the Sacramento area this year. Vacancy rates are still really tight these days, but at least rents did not skyrocket last year like they did in the past. But it’s not an easy market to find a rental either. I still see agents posting weekly on Facebook looking for rentals for their clients.
Thank you Ryan for sharing your insights it is very helpful. I really hope that Appraisals do not go away, I think the need for great Appraisers will continue, because we do have areas with unique, semi-custom to custom properties in the region which a standard ‘evaluation’ norm doesn’t apply.
The Folsom market has become more balanced and healthy – we can sometimes get multiple offers on desirable homes in Folsom, nothing crazy like we’ve had.
Sacramento County Months of Inventory is just below 3 months; Average PricePerSQFT from last year was UP slightly from $223 to $233; Avg Days on Market is Up to 45. All healthy numbers, just different from past years. Sellers do have to be informed by the facts and Sellers I’ve worked with have been offering concessions and are realistic.
What I’ve been reading, a large group of Millennials will be turning 32 this year; they make on average $40k – $65k; are getting married; starting families and ready to buy a home. They still believe in the American dream of investing in real estate (they’ve seen their parents and grandparents build wealth from it). SF is priced too high; and flexible work options continues to attract Buyers into the Sacramento area. There is alot of Postive Updates coming; folks need to dive a little deeper to get to the truth.
Thanks Mati. I appreciate it. The stats are definitely up and I’ll actually do an annual recap hopefully next Friday. I have some cool images to share actually. In the midst of more modest numbers we can also see slowing, and that’s something we have to watch. Like many markets, there is both positive and negative news. I appreciate you mentioning Millennials. For a while there we were only hearing about Millennials not wanting to buy homes. That was the big narrative in the marketplace. I think part of it stems from older generations writing articles and dissing younger generations… The narrative has seemed to switch now thankfully, but I’d guess for many Millennials it’s more about not being able to buy rather than not wanting to buy.
I noticed you didn’t voice your opinion on the “Get Rich” schemed flipper seminars…..
Thanks Leeana. I did mention them, but you’re right I didn’t go into depth about what I think. This post was already getting long… 🙂
But while we’re on the subject, I would strongly advise anyone to be cautious about flipping seminars and to realize it’s not an easy market for flipping. Ten years ago we had dirt-cheap properties being given away by banks. In fact, in the first quarter of 2009 84% of all sales in Sacramento County were distressed. That is an insane stat. By “distressed” I mean either bank-owned or short sales. But now we are seeing about 1% of sales as bank-owned and 1% as short sales. The market is simply different now, so it’s so important not to employ flipping strategies that worked in a different market ten years ago. To be fair these seminars do talk about tax sales and they do have some wisdom, but I’d just say the public ought to be aware these seminars are really aiming to make money. Their goal is to get people to open their wallets for further education. You want to learn more? Do you need deeper knowledge? That’s going to cost a pretty penny…. Actually, not just a penny. It could easily be $2-10K more. Here’s a post I wrote: https://sacramentoappraisalblog.com/2016/05/31/an-open-letter-about-celebrity-flipping-seminars/
Great list of trends to watch for in 2019.
It’s interesting you mentioned buyers are becoming more picky about condition and quality, the two items that need an appraiser’s expertise and judgement. Yet, they are pushing for appraisal waivers and hybrids. I can’t help but think this is just the perfect storm brewing.
Thank you Taunya. Great connection there.
“SALT” Fed tax restrictions will be a new market stress … it will be interesting to see the CA effect.
Thanks Mark. Yeah, we shall see.