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Lumber prices, bias, & slowing in the housing market

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I’ve got a few things on my mind today. Some light stuff and some deep stuff. Let’s talk about lumber, food in listings, that leaning building in San Francisco, bias in valuations, and a slowing vibe in the housing market.

Skim topics or digest slowly.

5 THINGS ON MY MIND

1) Lumber is lower (sort of):

The good news is the price of lumber as a commodity is coming down. The bad news is that doesn’t necessarily mean savings are being felt by the consumer immediately. For instance, here’s a snapshot of the price of a 2×4 at my local Lowe’s yesterday. In short, the local price here is still at an all-time high despite lumber overall dropping about 45% lately. If you didn’t know, a 2×4 was under $3 just over a year ago.

2) Real estate listings mentioning food:

How often is food mentioned in real estate listings? These are words associated with food and retail in the public description of home sales and listings in the Sacramento region so far in 2021. These words were chosen at random and they’re honestly pretty rare, but I’m still tickled (and hungry).

3) That one leaning building in San Francisco:

We’ve all been glued to news about the heartbreaking tragedy unfolding in Florida right now with the condo building collapse. Not to bring up real estate, but this is going to spur on many conversations about structural integrity, the role of HOAs, and liability. Speaking of structural issues, here is a visual of sales in Millennium Tower in San Francisco, which has been documented as a building experiencing tilting and sinking. By the way, residents were informed in 2016 that the building had issues. Can you see the difference of that news?

4) Conversation about bias:

Last week I was on Agent Kee’s podcast along with Dr. Jesus Hernandez. We talked about lots of stuff, but at the 55-minute mark we had a ten-minute discussion about valuations and racial bias. I find it’s not easy to talk about this today, but this is what should be happening. Ultimately as an appraiser I am doing lots of listening and self-reflection. I’m also clear we need to be careful about quickly saying it’s racism every time an appraisal comes in lower than expected. This conversation is only the tip of the iceberg, but I’m hopeful we can have more discussions like this. Please note I won’t approve any toxic comments because that’s not the culture of this blog.

5) Steroids & slowing (two realities of today):

The market is moving about as fast as it ever has, so it feels like it’s on steroids, but we’re also seeing what looks like seasoning slowing. For those interested I’ll be talking on Thursday at the Yolo Association of Realtors about this dynamic (I think you have to be a member).

FEWER MULTIPLE OFFERS:

Having fewer multiple offers is a symptom of slowing. Even though we’re basically seeing some of the highest levels of multiple offers ever, the numbers have been slightly lower for two months in a row. So clearly competition has begun to pull back slightly (which is what we’d expect to see at this time of year).

INSANE PRICE GROWTH:

With that said, prices are still rising. It really isn’t a slow market, but we are noting some slowing (two different things).

Anyway, that’s what’s on my mind today.

Thanks for being here.

SHARING POLICY: If you share any of my stats or visuals, please attribute the source. Here are 6 ways to share my content (not copy verbatim).

Questions: What topic stands out to you most above? What’s on your mind these days? I’d love to hear your take.

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An explosion of appraisal waivers. Is that good or bad?

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Appraisal waivers have really exploded in recent years – especially during the pandemic. But how many are there exactly? Let’s look at actual numbers to walk away with some perspective. These stats are from January 2021 from AEI.

QUICK SUMMARY:

  • 47.4% of all Freddie Mac loans had a waiver
  • 44.5% of all Fannie Mae loans had a waiver
  • Waivers are far more common during refinances
  • Only 10-12% of purchases had an appraisal waiver in January
  • Non cash-out refinances have the most waivers (67-69%)
  • The higher your loan-to-value, the lower your chance of a waiver
  • Waivers have seen a dramatic increase during the pandemic

NOTE: This post is not about buyers removing the appraisal contingency. That is in a sense a “waiver”, but the topic here is Fannie Mae and Freddie Mac not requiring an appraisal.

What else do you see?

CLOSING THOUGHTS:

1) Crazy growth: It’s astounding to see nearly half of all loans getting an appraisal waiver, though for now most of these are refinances instead of purchases. Honestly, I would have guessed the purchase numbers were a little higher than reported.

2) Seeing numbers: What real estate professionals experience with appraisal waivers with their clients can really vary. For instance, if you work with FHA borrowers putting very little down, you probably don’t see many waivers, but if you work with conventional buyers putting 30-40% down, you’re going to see more. This is why seeing actual stats is so important.

3) There is place & danger: I’ll be the first to admit there is a place for appraisal waivers in today’s market. That may not sit well with some colleagues, but I don’t have a problem seeing them occur with no cash-out refinances where owners have massive equity. That’s a no-brainer. The danger comes when we start seeing too many appraisal waivers happen in the purchase market especially. The concern is waivers can essentially artificially inflate prices by helping some properties close higher than they should.

4) Big data favoring people with more money: Appraisal waivers are being given to people bringing more money to the table. That’s what the stats show and I get it from a risk standpoint. But with so much conversation about equality in real estate, I guess I find it ironic to see a waiver system implemented that is clearly giving more advantage to people who already have more wealth.

Thanks for being here.

SPEAKING GIGS CLARITY: Lately I’ve been getting asked to give in-person presentations, but I’m not there yet. I’m not vaccinated, so my answer will be NO until that happens. But then I’ll have to see how comfortable I feel too. For now I’m glad to speak by Zoom. Just a heads-up.

Questions: What stands out to you above? What are the positives and negatives of appraisal waivers? I’d love to hear your take.

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My new sewer line adds huge value, right?

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A new sewer line. That’s what 2020 gave my family as a parting gift before the year closed. Yep, just before Christmas we had to replace our entire line at a whopping $13,688. I know that sounds crazy expensive, but we had four separate bids and went with the most reasonable one. In part it was so pricey because we had one hundred feet of line under eighty feet of concrete. 

The good news is my house is worth $13,688 more now, right?

THE SHORT ANSWER: No.

THE LONGER ANSWER: Buyers expect things like sewer lines to be in working order, so they aren’t prone to pay a premium for a new one. Would some buyers pay a little something extra? Maybe. But I’m not holding my breath for much of a value add because buyers get more excited and swayed by the bling in a house rather than boring adult stuff like sewer pipes. After all, we don’t hear buyers say stuff like, “I want an open concept kitchen, hardwood flooring throughout, but I’m walking if the sewer line isn’t new.”

IF IT’S BROKEN: But if a sewer line is broken, that’s where it becomes more of a value issue since a traditional loan shouldn’t be able to fund without a functioning sewer line. Moreover, in most markets buyers would likely deduct for the expense and inconvenience of having to replace a line. 

CLOSING ADVICE: Sellers, don’t expect buyers to pay dollar for dollar for every repair you do. Seriously, buyers expect certain things to be present and working. This is why they’re not going to look at my house and say, “Whoa, there’s a new sewer line? Let’s offer $13,688 more.” This is just how it works. And frankly if we were the buyers there’s no way we’d be paying cost either, right?

Anyway, here’s to indoor plumbing in 2021.

Thanks for being here.

Market update at SAR: I’m doing a big market update at SAR on January 21st from 10-11:00am. Sign up here.

Questions: Have you done any similar repairs recently? Have you ever seen a sewer line increase value? I’d love to hear your take.

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Lot size mistakes & pent-up demand

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Two things. Let’s talk about a very easy mistake to make with lot sizes and then let’s look at pent-up demand right now.

LOT SIZE MISTAKES: I’ve seen it happen twice lately where Tax Records lists the lot size, but it’s actually incorrect. In one instance Realist showed the lot was five acres when in fact it was only two acres. In another example it said two acres when it was less than one. Yikes.

My advice? Thankfully most of the time we can trust the lot size in Tax Records, but it’s still a good idea to quickly double-check just to be sure. After all, listing the wrong lot size in MLS or an appraisal could lead to litigation, right? What we can do is view the plat map to see if there is anything abnormal as well as try to piece together the lot size (easy to do if it’s a rectangle). Also, when viewing a property in MLS we can click on “See Map” and then “Layers” to view the lot size. All I’m saying is taking an extra minute to do these steps is a good habit that can be a safeguard. How would you handle it though if the lot size was different in Tax Records, MLS, and the plat map? Which one are you going with? I’d love to hear your take in the comments.

NOTE: A land surveyor is going to be the definitive source. I’m just saying my advice above helps give us clues into when something is not right with a lot size.

Moving on to trends…

WEEKLY VIDEO: I’m really excited for this week’s video. On one hand it looks like the seasonal market has begun to crest, BUT it’s as if real estate has sped up a little after slowing down. Watch below (or here).

PENT-UP DEMAND: Check out these visuals to show some serious pent-up demand being expressed. For eleven weeks now the market has been rebounding after an initial dip when the pandemic began. And for five weeks in a row we’ve literally had MORE pending contracts than new listings in Sacramento.

VOLUME NO LONGER DOING THE LIMBO: A big trend we’ve been seeing is sales volume is starting to come back. In fact, this past week is only down about 10% from the same time last year. This is huge because a couple months ago we were consistently down 30-40%. The x-factor is having more pending contracts from 4-6 weeks ago finally starting to close.

LET’S WATCH THE COVID-19 NUMBERS: Unfortunately we’re starting to see COVID-19 cases tick up again in quite a few states. As it relates to real estate it’s going to be important to stay in touch with the psyche of buyers and sellers since a trend of more cases can shape whether people engage or sit out of the market. Moreover, it’s a wonder if different areas and states will have some form of lockdown again too.

ONE MORE THING: If you need some background noise, here’s a 30-minute Q&A I did with Rachel Adams Lee to talk about the Sacramento market. And yes, I mentioned my love for Breaking Bad and that I don’t like Downton Abbey (sorry). Enjoy if you wish.

Thanks for being here.

Questions: Have you ever seen that lot size mistake in Tax Records? What are you seeing in the market right now? I’d love to hear your take.

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