Every week I get asked about solar panels. Do they add value? Should I price my listing higher? Will buyers pay for it? These are big questions and there’s no quick answer. But here are some things I think through and bring up when people call. This is just over ten minutes. Then for those interested, I have a huge market update to talk through the kinda sorta normal spring market.
Solar Video: Watch the video by clicking the image above (or here).
A Podcast I did with Norm: If solar isn’t your thing and you need a podcast to listen to, I just talked with Norm Shriever about appraisals, owning islands, Zillow, my Dad bod, etc… Listen directly on YouTube if you wish.
As always, thanks for being here.
—–——– Big local monthly market update (long on purpose) —–——–
Spring is feeling fairly normal so far. What a difference from the doom we felt in the latter half of 2018. Let’s talk about it.
THE SHORT VERSION:
- Prices are up from the fall
- Prices aren’t up much from last year
- There’s lots of competition if priced right
- Sales volume has slumped for 11 months
- There are 2,500 less sales this year
- So far the spring has felt fairly normal
- This post is long on purpose. Skim or pour a cup of coffee.
DOWNLOAD 80+ visuals: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).
THE LONGER VERSION:
Here are some of the bigger topics right now:
It feels flat around here: Prices are definitely up from the big lull we had during the fall season, but they’re not up by much compared to last year. This is why I’ve been describing the market as flat. Most price metrics in the region are up only 2-3% over the year. In the region we’re seeing prices about level with the height of last year, though in Sacramento County we’re slightly above. This could obviously vary by neighborhood.
A more normal spring: I was talking to a real estate agent today and she said, “You know, it just feels like a normal spring.” I tend to agree. Stats are showing normalcy and we’re seeing what we’d expect to see at this time of year. Prices are up, inventory is down, sales volume has ticked up from the fall, it’s taking less time to sell, and pending sales have been strong. This doesn’t mean the market is perfectly healthy, but from a stats perspective it’s been fairly normal.
2,500 less sales this year: On one hand sales volume has recovered this spring to almost normal levels, but over the past year volume is actually down 8.5% in the region. I know that doesn’t sound like much, but think about it this way. There were 2,500 less sales this year in the region compared to last year. While this isn’t the sign of a market meltdown, it’s definitely something we have to watch. At best I would say this is an off year, and at worst it’s a symptom of the market starting to change in more significant ways (which we will only know as time unfolds). In short, don’t write home over this yet, but keep an eye on it.
Zillow: Last week Zillow announced they’ll be entering the Sacramento market by the end of the year. This is huge news, but it’s really what we expected. These days there are a handful of tech companies trying to challenge the traditional real estate model by buying privately from sellers and then re-listing on the open market. There’s lots to say about this and I’ll have some posts in the future. For now I just wanted to say I find it ironic that as much as Zillow loves to tout their accuracy rate, they won’t be buying properties based on the Zestimate. Otherwise I imagine lots of overvalued owners would jump at the opportunity, right?
Low rates are the x-factor: At the end of 2018 it seemed like the market was ready to take a dive, but lower rates this year have helped bring buyers back into the market and sustain higher prices.
Real estate is like the stock market: When I say the market is slower I get a little pushback at times. The idea is, “Dude, I just had 14 offers on my house. How dare you say the market is slow!!!” Look, it’s impossible to describe every neighborhood and price range with just one statement. This is why I say the real estate market is like the stock market. While the market as a whole might be doing one thing, not every stock is experiencing that same exact trend. In the same way, not every neighborhood, price range, or property type can be explained the same way.
Do cannabis dispensaries increase residential value? I did an interview last week with CBS 13 to talk about a study that claims cannabis dispensaries increase the value of surrounding residential properties. You can click the link to hear my take. In short, it’s true that vibrant commercial sectors can help increase value. But I’ve never met a buyer who said, “I’ll pay more because of a dispensary down the street.” In my experience locally at least, many people don’t even know dispensaries are there unless they’re cannabis connoisseurs. In short, I tend to be skeptical of studies like this.
Hey girl, let’s have bubble talk: Prices are just about back to where they were fourteen years ago when the market collapsed in 2005. In fact, most price metrics in Sacramento are within 1-3% of the peak. This means with just a little more modest price growth we might be having “Hey girl, we’re back” (yes, that was a Ryan Gosling reference (sorry)).
Keep in mind the market in 2005 was much different than today and there is no such thing as a formula where the market “pops” if we reach 2005 levels. Technically speaking, current values aren’t actually anywhere near 2005 when we consider inflation. But you know, very few buyers actually think about inflation like this – unless they’re economists, grad students, real estate geeks, etc…. In case it helps, here’s a post I wrote about buyers worried about another housing bubble.
Appraisals coming in lower: I’m hearing from some contacts of appraisals coming in lower than the contract price. As the market slows, this is something we’ll likely see more frequently if properties are getting into contract at prices that cannot be supported by market data. Of course some appraisals may legitimately come in too low, and I’m not naive about that. Whatever the case, I’d advise sellers to price realistically and in some cases pick the strongest offer instead of the highest one.
Price sensitivity: Literally half of all homes last month had multiple offers in the Sacramento Region. This reminds us buyers need to bring strong offers. But sellers ought to price correctly too. Buyers are not desperate and willing to pay unrealistic prices, so I advise aiming for the market instead of that one mythical buyer who will overpay for some reason. Remember, the market is very competitive, but that doesn’t mean prices are going crazy.
I could write more, but let’s get visual instead.
FOUR BIG ISSUES TO WATCH:
1) SPRING GETTING HOT: The market is heating up for 2019. We’re seeing price changes, lower inventory, and increased sales volume. So prices are up from the dull fall, but they’re also flat as you can see under #4.
2) SLOWING MOMENTUM: Despite the heating, stats show the market is slowing down when we look at the rate of change by year. Looking at monthly, quarterly, and annual numbers helps give a balanced view of things.
3) SALES VOLUME SLUMP for 11 months: It’s important to look at sales volume in a few ways to get the bigger picture. Here it is by month and year.
SACRAMENTO REGION:
Key Stats:
- April volume down 8.2%
- Volume is down 8.5% over the past 12 months
SACRAMENTO COUNTY:
Key Stats:
- April volume down 6.8%
- Volume is down 7.2% over the past 12 months
PLACER COUNTY:
Key Stats:
- April volume down 4.3%
- Volume is down 8.9% over the past 12 months
EL DORADO COUNTY:
Key Stats:
- April volume down 2.4%
- Volume is down 12.5% over the past 12 months
4) LAST YEAR VS THIS YEAR: Check out the price metrics below. Can you see why I’m saying prices seem flat lately? This may not be true in every single price range or neighborhood of course, but this shows us price momentum is slowing. With that being said, it’s still okay to say the market is “hot”. It is. But I’d say competition is hotter than price appreciation.
NOTE: Take El Dorado County data with a grain of salt. Stats change significantly month by month.
Quick note on how NOT to use my content: Please don’t copy my post verbatim or alter the images in any way. I will always show respect for your original work and give you full credit, so I ask for that same courtesy. Here are 5 ways to share my content.
Now here are a bunch of images. Please enjoy.
SACRAMENTO COUNTY (more graphs here):
SACRAMENTO REGION (more graphs here):
PLACER COUNTY (more graphs here):
EL DORADO COUNTY (more graphs here):
DOWNLOAD 80+ visuals: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).
Questions: What are you seeing out there? What do you think prices are doing? What are you hearing from buyers and sellers lately?
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Good info Ryan. It is important that homeowners understand that cost doesnt equal value and that the solar salesperson may have overstated the value that solar might bring. Keep up the good work bro!
Well said Mark. Thank you so much. Really appreciate it. Hey, I’m going to SoCal next month. We should grab a drink.
Living closer to a drug dealer raises values?
Please wake me up when the nightmare is over.
Otherwise, good post as always.
Haha. Yeah, CBS reached out wanting to talk shop and my initial question was, “Who funded this study? Marlboro Greens?” I never looked into it, but I’m highly suspicious. I do find it fascinating when studies try to correlate one type of business with prices, but my BS alarm also rings pretty loudly too…. I’m just highly skeptical. One of the things I said in the interview was that most people don’t actually even know dispensaries are there. For instance, there is one very close to McKinley Park in East Sacramento (and there are really only 30 in Sacramento total). It’s hard to think a dispensary would mean much for value if it’s not on the radar of most of the market…
Am I missing something or does this not look right?
For the Sacramento Region, the median home sales price increased by $8,575 or 2.1%, from $409,925 to $418,500, between March and April of this year.
Yet, when we look at each county, we see numbers that are much higher. Most notably, in Sacramento County, which accounted for just under two-thirds (1,488) of the 2,315 homes sold in the four-county region, the increase was more than double the region at $19,000 or 5.2%, from $365,000 to $384,000. Placer County and El Dorado County posted month-to-month gains of $24,000 or 5.0% and $36,000 or 7.2%, respectively. All three counties account for 2,215 or 95.6% of the homes sold in the region in April.
So why is the regional increase so much less?
Also, can we infer that the remaining 103 or 4.4% of 2,318 homes sold were in Yolo County? If so, is that the entire county or just the City of West Sacramento?
Hi Terrence. I suppose this is a situation where we look at the market in both parts and whole, and it’ll tell a slightly different story depending on how we slice it. I don’t see any conflict here as the numbers are always slightly different in every area, and when we put them together as a whole they may collectively tell a different story to a certain extent.
Keep in mind Sacramento County has much lower prices and home sizes compared to some other areas. For instance, on average homes in Sac County were 1,767 sq ft last month whereas homes in the region were 2,318 sq ft (and homes in Placer county were 2197 sq ft). This is the byproduct of having a much older housing stock in Sacramento as opposed to larger newer homes built elsewhere. Thus some of the growth in Sacramento could be at lower price points, and when we throw that into the entire region it might not sway the overall collective prices as much. Or maybe what we see in Sacramento ends up being a little more balanced out or tamed so to speak by stats in the entire region.
Let’s remember too there are few sales in Placer and El Dorado County, so I don’t trust their numbers consistently. In fact, in Placer County a couple months back the median price was lower than the previous year. But with only a few hundred sales, we just can’t give too much weight to that figure. I was actually giving a presentation in Placer County today and I told the office they need to take Placer data with a grain of salt at times. It’s important to be sure to look to Sac and regional data instead of strictly Placer. Otherwise we’re not going to see the full trend of the market because data can be wonky from one month to another.
On a related noted, Sac County was exactly flat two months ago. Sometimes we see this happen where we’ll have very little increase and all of the sudden the next month seems to almost have two months of price growth padded into month. In my mind this is exactly what we saw with Sac County these past two months. So on paper we see a large uptick, but it’s almost like it included the past two months. It’s as if sales stats were catching up to the real trend of the market. It’s hard to say why that happens sometimes, but it does. So over these past two months we literally had a flat median price in March, but then it went up by 5% in April. That’s a lofty jump for one month, but really it almost feels like it was two months together. It’s funny how that works. Now we’ll see what happens in the next few months….
One more thing. I’m always aware that the median price last year could have been wonky for some reason too, which skews numbers. Thus if it was a little higher for whatever reason last year and a little lower this year, it could skew numbers a bit. So we have to consider dynamics that happened this month, last month, and even last year at the same time. There is always a story to understand, and there are always reasons why the numbers are the way they are. Thus for me I tend to not put too much weight on just one month of data for this reason. It’s why I said a couple months ago to not take Placer data too seriously and why we’ve had to also wait and see what’s up with Sacramento too being literally flat last month.
The rest would include all of Yolo County, which would be West Sacramento, Davis, Winters, etc…
I always appreciate your excellent market updates! A lot of work goes into them. I am seeing the same thing in the Cleveland market. Things are slowing a bit. Much more normal (in the grand scheme of things) than the past three years have been. Things are good! Not too hot, not too cold. ? I hope it stays this way for a while. Time will tell. Nice take on solar panels. I wish I lived in an area in which we had high demand for them, because that would mean we had more sunshine. Fantastic blog as always!
Thanks Jamie. It happens to be gloomy in Sacramento today. We randomly have a week of rain, which is really uncommon here. So I’ll be thinking of you I guess…
I appreciate hearing about your market. Things are always changing. Like anything, we can’t always see prices do just one thing – whether go up, go down, or remain flat.
Sorry to hear about the gloomy skies out there. Oddly enough it is sunny here today. Thanks for sending some sunshine on many levels my friend! The market is like the weather, to your point. Always changing!
This is unrelated to this post but I am curious if someone who has gained a tremendous amount of equity since 2013, living near downtown Nevada City, should consider selling now because of the fire/insurance rate increase risk having an impact on long term appreciation.
We would be willing to ride the wave of flat prices or a recession over 20 years but do not want to end up with a huge loss because of the insurance rate increase or a fire in our community.
Hi Christina. Thanks for reaching out. I really appreciate it. This is a tough question because it hinges on knowing the future. Right now we are living in unknown territory and we don’t know exactly how the insurance market is going to unfold. It’s really ugly right now since prices are extremely high, and I think the market is figuring itself out too in terms of any impact on price in light of insurance costs. Will there be pushback from buyers eventually? Will people not want to move to more rural areas? Or will buyers wanting to live there anyway simply pay more because of the lifestyle? Frankly we just don’t know yet how this market is going to unfold. If we have insane fires in future years, it may not get better. But if fires stop and insurance gets more affordable for whatever reason, then it’s likely to not make as big of an impact. In my mind there is uncertainty here, so unfortunately I don’t have strong advice. I think you’re going to have to decide what you think the future holds. What’s going to happen to insurance prices? How will buyer sentiment and activity change over time? I wish I had a definitive answer for you….
I do have a colleague in Nevada City though. Let me ask him if he’ll pitch in some thoughts here (and it’s cool if he totally disagrees with me too).
Hi Christina. I’m in a very similar boat. I’m local appraiser in Nevada City, and we bought our home near downtown Nevada City in 2013 too.
I agree that homeowners insurance is a massive issue throughout the foothills right now and it’s difficult to forecast what the future holds. If insurers pull out altogether from the rural foothill market, the CA ‘fair’ plan will significantly affect buyers buying power and will impact the market as a whole. I’ve discussed it a little with some friends in the insurance industry, and their theory is the more insurers pull out, the more of a void it leaves, and eventually, an insurer with a higher risk tolerance will be willing to insure in the area. Probably at a higher cost, but that’s how capitalism works. Thankfully we were renewed this year, and I know there are local insurance brokers that are finding companies willing to insure in Nevada County.
On the flip side, I know of someone who has acreage in South County that was not able to find fire insurance and their total insurance costs with the Fair Plan are $8,000/yr. It seems like the closer you are to downtown GV/NC the less fire risk there is, and insurance companies are rating individual properties based on their location and risk.
Unfortunately, it’s impossible to know what the future holds, but if the next few years we have less damaging wildfires, you should see things start to improve.
Excellent commentary. Thanks so much Brian. I really appreciate you pitching in thoughts as a guy who lives and works in the county. I think we’re on the same page too. I did a blog post a couple months ago about insurance costs in other parts of the region. I suppose over time we can watch prices, sales volume, and inventory levels to get a sense of any impact to the market too.
For any onlookers, here’s that insurance post.. https://sacramentoappraisalblog.com/2019/03/19/that-place-where-insurance-real-estate-collide/
Thanks for your feedback guys! I would love to see a few years of the fires settling down and things getting back to the old normal. Also, this spring storm is really interesting and maybe this will become more common too.
We have been obsessively mowing this over and just had a bit of a revelation since my first post. It is possible that someone who lives in town could actually see appreciation, based on the insurance issue, because the demand for close-in houses in Nevada City that have relatively more affordable insurance would increase. I think as people who are displaced by not being able to afford rural properties, but are attached to the foothill lifestyle, would try to figure out a way to stay here. We’ll see but I am starting to feel a little more optimistic based on the fact that we are in town.
Thanks Christina. Feel free to continue to bounce ideas around. I appreciate this conversation. It’s a big decision. If we only knew the future..
Hi Ryan, that was a good post you did on Solar Panels. As with hay bale homes, I try to gather data from the market to support adjustments. For the record, I have not read the full study.. January 2015, The U.S. dept. of energy – Lawrence Berkeley National Laboratory released a study on Rooftop – Solar panels. They Followed 3,951 solar equipped homes and 18,871 homes without solar panels. The purpose of the study was to determine or reveal what effect solar panels have on a home’s selling price. The data spanned 2002 – 2013. In this study, the average cost for solar panels was $2.87 – $3.85 per watt to install, the average cost of the panels was $16,800. After reviewing the data of over 22,000 homes, they found that homes with solar panels sell for $15,000 greater than those without solar panels. Good study, no underwriter can dispute. But as always, I ask the owners what the cost is for solar panels, in my market area, and most say $25,000 to $35,000 (about $1,000 per panel) Straight solar panels, tied into the local utility. No storage.
Thank you so much. I’m impressed with your stats and the way you’ve thought through this.