Price growth has been unreal lately in many parts of the country, but here are some things to keep in mind before pricing for the moon…
Six things to keep in mind:
1) County stats don’t translate perfectly: It’s easy to look at county or zip code stats and think, “Dude, my home is worth 14% more now because the median price is up by 14%.” But the market isn’t that rigid where price growth for a larger area applies equally to every parcel.
2) Picking and choosing: If we’re not careful we can pick and choose stats that benefit us the most. For instance, someone in Placer County this month could be tempted to focus on the region at 14% instead of Placer data at 6.4%. My advice? Look at all the stats instead of fixating on glowing numbers.
3) Larger homes are padding the stats: During these past few months we’ve seen buyers focus on noticeably larger homes, so it’s important to take this into consideration when interpreting huge price growth. At the least larger homes represent some of the heightened price growth lately.
4) Not every property type has the same trend: The truth is not every type of property is going to be showing the same price growth. Thus price trends could be different for vacant land, entry-level homes, the million dollar market, attached homes, 55+ communities, 2-4 units, commercial units, etc…
5) Hot Pockets: The real estate market is like a Hot Pocket taken out of the microwave a tad too early. Some portions are blazing hot while others are only warm or frozen. Like a Hot Pocket, we can say the real estate market is “hot” overall, but it’s definitely not the same temperature in every neighborhood or price range. For instance, the City of Davis seems to have very subdued price growth over the past couple of years, but East Sacramento has been a far different story with large increases. My advice? Price according to similar homes that are getting into contract rather than projecting zip code or county stats on a property.
6) It’s NOT all about prices: The question I get asked the most is, “What are prices doing?” I get it, but if we want to understand a real estate market it’s important to look to other metrics too like inventory, sales volume, days on market, SP/OLP ratio, etc.. Besides, sales are like historical artifacts that tell us what the market used to be like 30 to 60 days ago when these homes got into contract. If anything sales tell us more about the past than the present. If we want to understand the market right now it’s critical to see what’s happening with the listings and pendings (which will be future sales in about 30 to 60 days).
I hope that was helpful or interesting.
NEW VIDEO TUTORIAL: I made a graph last week to show the seasonal market and lots of people responded saying they’d like a tutorial. Here it is.
Thanks so much for reading my post today.
Any thoughts?
———————- (skim or digest slowly) ———————–
MARKET SUMMARY: For anyone interested, here are some tidbits for social media, newsletters, or in case you want to win the real estate category on Jeopardy.
– We have 20 days of housing supply in the region
– There were 41% more multiple offers this September compared to last year
– Monthly inventory is lower than it’s been in 15+ years
– There are 53% fewer listings in the region right now (not a typo)
– Sac, Placer, Yolo, and El Dorado counties all have less than one month of housing supply. Each respective county is lower than it’s been in 15+ years.
– We saw the highest number of sales for September in Sacramento County in 11 years (since 2009).
– The million dollar market has grown this year in the region. 3.3% of homes have been above one million in 2020 compared to 2.5% last year.
– It took 9 fewer days to sell this September in the region compared to last year at the same time.
– Demand has increased dramatically lately from local buyers as well as Bay Area buyers. This is part of why we’ve seen heightened pending contracts, higher prices, lower inventory, more multiple offers…
– Normally the market at this time of year would be cooling more substantially by now, but the spring buying season has been sort of extended. Yet before saying it’s simply buyers making up for the sluggish pandemic market in the spring, let’s not ignore the power of low mortgage rates. It’s no coincidence we’re seeing a hyper-competitive market over the past 90 days as mortgage rates have gone below 3%.
– In the background it looks like sales volume and pending contracts are starting to flatten. I talked about this last week. Normally during the fall season we see a dip in all metrics. That really hasn’t been the case so far, but seeing volume flatten could lead to other metrics dipping at some point.
– So far this fall season reminds me of 2012 where the market was incredibly aggressive. Prices kept going up that fall, yet there was a hint of a normal seasonal trend too as there was a dip in sales volume. We’ll see what this fall holds. For now it’s anything but cold.
WAY TOO MANY VISUALS:
You are welcome to use these in newsletters and social media with proper attribution. Scroll quickly or digest slowly.
SACRAMENTO COUNTY:
EL DORADO COUNTY:
PLACER COUNTY:
SACRAMENTO REGION:
I hope that was interesting or helpful. Thanks for being here.
Questions: What are you seeing out there right now? Anything else to add about prices?
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Beautiful Stats this week! and what stands out to me – the Hot Pockets reference! That really sums it up!
Thank you. I’m so glad we’re on the same page about the important role Hot Pockets play in the housing market too… 🙂
On a side note, I’ve heard some chatter about a Hot Pockets shortage lately. I haven’t fully investigated it, so I don’t know if it’s just hearsay, but it wouldn’t be a surprise since it seems like there is a shortage of everything else these days…
I’m going to use the Hot Pocket reference today. Thank you Ryan.
Yes!! Thanks Gary. 🙂
Hahaha love the Hot Pocket analogy! And Thank You, thank you for the tutorial! I learned a lot about changing graphs, and will be using your tutorial often. You are the Graphs Master!
Thank you Pia. You are too kind. Keep me posted if you end up having any questions on the graphs.
As always great information Ryan, Thank you.
Thank you very much Rick.
Looking back through past assignments I have completed a higher percentage this year in the Wilton/Slewhouse Rd. area with proposed new construction of large custom homes on acreage.
I have several 2-4 Multi-family and two 5+ apartments assignments, already more this year than last. Several vacant land sales assignments with residential and commercial overlays having proposed 2-4 family residential improvements. In several urban neighborhoods I beginning to see more flipping of 2-4 Multi-family (anecdotical).
With the constant increase in rents NPV and IRR point to the multi-family where investors see opportunity.
Thanks David. I really appreciate hearing your take. It would be fascinating to study vacant land and residential permits this year vs last year (or a few years). For a while 2-4 unit volume seemed subdued this year – at least during the beginning of the pandemic. But like the single family market September was a strong month. I actually recently measured a 4-plex flip in Midtown. If you ever see something interesting, I’m open ears. Thanks again.
Great post, Ryan. As you point out it is very important to use location specific data as well as data on properties that are similar to the one in question. Of course, this is similar to the process we follow in picking out comps as well. We are in the same boat in the Birmingham area with limited inventory and increasing prices. We do have some new construction asctivity but no nearly enough to meet the increased demand.
Thanks Tom. While we don’t have a national market per se, we sure do have some similar trends happening in many areas across the country. Great job on your post today too regarding comp selection.
As a retired RE appraiser, I often utilized DOM and Ask price vs sold price ratios as important indicators. I live in rural Auburn; I have been surprised by the relatively slower price growth here as opposed to Sacto/Roseville. As the Baby Boomers in SF Bay area age, I believed they would opt for more rural experience but still within 60 minutes of urban services. Do you have any thoughts or explanations?
Hi Mike. It’s great to hear from you. Please pitch in your two cents any time also. Now that you have an approved comment you can comment whenever you’d like without moderation (unless you post a link with the comment, which will cause it to be held).
It’s hard to say with certainty without analysis, but fire insurance is a huge deal to some buyers. I noted this in El Dorado County in particular in 2019, and I would suspect in deeper Placer this has been an issue. I really don’t appraise in your market though, so take my words with a grain of salt. I will say we had a terrible smoky season this year and I wonder if this affected any buyers. Of course I say this without looking at data. I would be most interested in checking out not only prices, but most of all sales volume to gauge whether growth in more rural markets is on par with the rest of the growth we’ve seen in more suburban areas. As a side note, the condo market has been lackluster in terms of volume. Last time I checked a few months ago condo volume was down 14% from last year. In the midst of huge growth with non-condos in the region lately, this shows buyers have been more discerning about property types.
I do think the narrative about Bay Area buyers purchasing everything is somewhat misplaced. I’m not saying you are saying this, but in real estate we often hear or say things like, “Bay Area buyers are gutting everything” when in fact that isn’t always true. Granted, up the road in Tahoe and Truckee it’s a different story as there are record numbers of properties being sold. Thus I think for some they want a home that is purely for vacation and closer to Tahoe rather than something to live in as an owner occupied situation that is still further from the lake. An hour away from conveniences is no biggie really, but for someone who lives in the midst of conveniences in The City, it’s a pretty big change. I suspect for some deeper Auburn is getting out there further compared to some other areas with a more rural feel such as Penryn or Loomis too that are closer to Downtown Sacramento.
Lastly though, not every price point and property type has surged this past year. Under $300K of course has been absolutely bonkers in Sacramento County, but not every price point and location is mimicking this trend exactly. Thus when I create trendlines on my graphs for appraisals the appreciation rates aren’t always in sync with some of the more aggressive markets out there or some of the sensational real estate narratives either.
I don’t know if you follow Brian Melsheimer, but he’s an appraiser located in Nevada County and I believe and he runs stats for more rural areas. He’s due for a post at some point, so hopefully he can speak a bit into this. https://snappraisal.com/nevada-county-appraisal-blog
By the way, I’m going to share some recap stats next week on my blog, so stay tuned for that. I mention this as I imagine I’m going to have quite a few conversations about why Placer County annual stats aren’t as high as some other places…
That’s my two cents. Let me know what you think.
Since I’ve been retired for 3 years, I don’t get to talk with agents; nor do I have access to stats on MLS. Lack of fire insurance may be a factor. Sacramento had as much if not more smoke as Placer. Have Newcastle or Penryn experienced the same growth as Sacramento? I am unsure how the insurance maps effect those areas. Of course, much of Auburn has normal insurance; only areas further than 1000 feet from hydrants are in high risk. I’m curious to compare foothill sections in El Dorado and Nevada county growth to Placer; do they also lag the urban growth?
Those are big questions. I wish I had a few days to dig into data and explore. I do have a big presentation coming up next month in El Dorado County and I will explore this question a bit more for that county then.
Sacramento may have had a similar level of smoke, but the vast bulk of Sacramento County does not have the insurance issue or the perception that there is an issue.
I would agree about the insurance; I’m pointing out that insurance is a separate issue from smoky skies. Also, in my mind Roseville or Sacramento are the same as San Jose. But maybe Bay area buyers don’t think so; as long as traffic is significantly less, they are happy. Getting out of the rat race may not necessarily mean acre size lots and trees/grass/hiking trails.
Very true. Not everyone wants acreage. So much work. I can’t imagine moving from a condo in the Bay Area to five acres in Auburn. It’s a location change, but also a huge lifestyle change.