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Which neighborhoods are doing better than others?

October 16, 2024 By Ryan Lundquist 12 Comments

Who is buying in today’s housing market? Some say it’s only the wealthy or institutional investors, and first-time buyer are missing in action. What do stats show when we look at forty local neighborhoods? Let’s find out.

UPCOMING SPEAKING GIGS:
10/18/24 Prime Real Estate (private)
10/22/24 Culbertson and Gray Group (private (I think))
10/23/24 SAFE Credit Union (details TBA)
10/29/24 Orangevale MLS Meeting
11/7/2024 Think Like an Appraiser (3 hours) TBA
11/19/24 Downtown Regional MLS Meeting Q&A 9am
12/5/24 Made 4 More Team (Exporting Data from MLS)
1/24/25 PCAR Market Update (details TBA)
2/6/25 She Invests event (TBA)
4/8/25 Culbertson and Gray (private I think)
11/4/25 SAR Main Meeting

QUICK THINGS TO KNOW

The market isn’t the same: Not every neighborhood or price range is experiencing the same exact trend.

Sellers need to see this: In today’s market, it’s key for sellers to understand there is a limited pool of buyers. I hope these graphs can help drive home that point.

Demographics: Both 55+ Sun City neighborhoods have normal volume (uncommon to see), and that speaks to people not putting off retiring. Yet, Del Webb volume in Elk Grove is down, so this is also about location in Placer County.

Higher prices vs lower prices: Generally, higher-priced areas are doing better with volume as these buyers are less sensitive to interest rates and affordability. That’s why in some higher ranges we only see volume down by 20% (that’s actually good for today). Yet, it’s a mixed bag because volume isn’t robust in all higher-priced locations. Ultimately, there is no mistaking lower prices have been hit really hard as many entry-level price points are down in volume by 40% or more.

Interpreting good and bad: Today, if volume is only down 15% to 20%, that’s actually really good. That might sound strange to say, but being down by 30% or so is pretty much the norm right now. My advice? Compare 2024 with a year like 2019 (or the average of 2016 to 2019). Don’t get caught up comparing today with 2021 because that was typically a heightened migration year. A few areas doing “good” this year include Folsom (down 21% from the pre-2020 avg), Granite Bay down 22%, and Lincoln only down 13%. In contract, Oak Park is down 49%, Rocklin is 33%, East Sac is 30%, and El Dorado Hills is 33%. In short, like I said, the norm is being down 30%. But areas like Tahoe Park and Meadowview are down closer to 50%. Yikes.

Things to keep in mind: Some areas don’t have many sales, so be careful about interpretation. Also, certain locations have more new construction, which can matter. For instance, Anatolia looks strong in 2024, but it’s new homes listed on MLS that made the difference.

A QUICK RECAP INSTEAD OF 40 GRAPHS

Okay, since this morning I made two recap images to quickly summarize the volume trend. These are in order from worst to best volume. One image was too long, so it had to be two.

VOLUME IN 40+ NEIGHBORHOODS

Scroll to see an area you’re interested in. I asked people on my socials which neighborhoods they wanted to see, and here are many of them. I couldn’t get to everything, but this is a good start. If you need larger versions, please email me.

IF YOU WANT THE GRAPHS:

Email me if you want all the visuals (larger versions). Happy to share. Please use them as you see fit on your socials, bu don’t cut and paste my post verbatim. See sharing policy.

I hope this was interesting or helpful.

Questions: Does anything surprise you above? What are you noticing about volume in the market right now?

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Why didn’t the appraiser add the ADU in the square footage?

October 10, 2024 By Ryan Lundquist 16 Comments

I get this question quite a bit. Why didn’t the appraiser add the square footage of the ADU to the main house? The idea is the accessory dwelling in the backyard should be lumped into the total square footage, and since it wasn’t, maybe the appraiser undervalued the property. Let’s talk about it. I have some market recap stats today too. Any thoughts?

construction or repair of the rural house. The heading says, "Why is sthe ADU not in the square footage?"

IT’S NOT ATTACHED TO THE HOUSE

To be considered as gross living area (square footage), the area needs to be connected to the house and accessible through the house. If you have to go outside the main living area to enter a separate structure, it is not proper to include as part of the living space of the house according to ANSI standards (“ANSI” stands for “American National Standards Institute”). This means an appraiser should not lump a detached accessory dwelling or other detached areas with the square footage of the main house. Here’s a real example from years ago. I did not include this ADU in the square footage because it was not connected and accessible to the living area of the main house.

USING LOGIC

I know some might say, “Hey, I don’t really care what some national organization says about lumping square footage together or not.” I get it. On one hand this rule seems arbitrary, and it’s always possible we could think differently about this in the future, but let’s step back and use logic. If a homeowner has a 1,500 sq ft house and adds a 1,200 sq ft ADU in the backyard, has it really become a 2,700 sq ft house? I think logic tells us the answer is NO. This is still 1,500 sq ft, but it clearly now has something else that needs to be considered in the value. Maybe it will sell for the same price as other 2,700 sq ft homes, but what if it sold for more or less? It seems like an awkward comparison if we only use larger homes as comps because we’ve basically used non-similar properties to tell us what this home is worth. It’s like using oranges to describe the value of an apple. Show me a home around the same size with an ADU to help support what the market is willing to pay for something like this. That seems like a much better way to support value because we’re comparing apples to apples. Remember, a buyer shopping for a 2,700 sq ft home may not even be able to consider a 1,500 sq ft home because it might not work for the size of the household.

DOESN’T MEAN IT’S WORTH NOTHING

A huge concern is that an ADU cannot count in the value if it is not counted in the square footage, but that’s completely false. Who made that rule anyway? There are many things that are not square footage that can count in the value such as a pool, covered patio, detached garage, driveway, landscaping, hardscape, etc… An appraiser can definitely recognize value for the ADU in the appraisal report by making an adjustment for it.

COST & VALUE AREN’T ALWAYS THE SAME THING

ADUs are all the rage, but they are also really expensive. I just wanted to mention that cost doesn’t always equal value here. If an owner spends $225,000 to construct an ADU on a $600,000 house, that doesn’t automatically mean the house is now worth $825,000. Let’s find comps to tell us what the market is willing to pay for a house with an ADU. That’s the key. On that note, it might be helpful to think of an ADU as a marathon asset that’s going to add value for decades ahead, but when buyers are sprinting to the market, they may not be willing to pay for the full cost of the ADU in one instance. Maybe they will though. This is where we have to look to the comps. All that said, I’ll admit one of the hard parts is it’s not always easy to find good data (and interpreting the data correctly is key too). Here’s a post with some tips for valuing an ADU.

FINDING ACCESSORY DWELLINGS IN MLS

One of the keys for being able to value ADUs is finding them in MLS. In addition to searching the property description for words like “ADU” or “guest quarters,” here is another step. Pull up a map search and hit “search criteria” on the right side, and then select “fields” under the close button. Then pick “other structures” and save. This means you will now be able to use the other structures field whenever opening up a map search. Now, select “other structures” and then “guest house.” That’s what I did hear for only six months of sales, and look what came up. In some areas, I would do one year at a time and be unafraid to look at multiple years of data to hopefully find something. Remember, we might not use really old sales as comps, but maybe we can use them as research to understand how buyers have historically behaved. Of course, sometimes the search results are not really showing ADUs, so I’m going to have to eliminate a pool house, she-shed, and other stuff. But at least this gives me something to work with. Sometimes people say stuff like, “Bro, I can’t find any ADUs.” Maybe that’s true. But have you exhausted all the ways you can research in MLS?

ADDING TOGETHER IN MLS

I appreciate when a listing in MLS does not lump the size of the main house and ADU together. It helps everyone when considering comps. Brokers, is it a liability issue to include the square footage together? Or maybe it’s a non-issue? I’d love to hear your input.

I hope this was helpful. Now for some stats.

A MARKET UPDATE

Friends, I have a market update, but I need to confess I got swept up in the Dexter craze since the series is now streaming on Netflix. I’m only on season three though, so no spoilers please.

BRIEF MARKET DESCRIPTION

It’s been a pretty normal fall season as we’re seeing a descent from the spring market with lower volume, more supply, more price reductions, and prices leveling off. This is what we expect to see at the time of year. But the market still has a weird lackluster vibe with such a low number of sales happening. Moreover, we’ve seen sellers come back more than buyers this year, so the housing temperature is definitely not the same as last year (especially for overpriced units). It is taking longer to sell today, but days on market is very close to the pre-2020 normal, so I think there is an adjustment here for sellers and even the real estate community. In other words, don’t expect 2021 speed in 2024. All things said, the market hasn’t become this dynamic hot zone like some maybe expected would happen when the Fed cut rates.

YEAR OVER YEAR STATS

Some smaller counties don’t have much data, so I lumped them into 60-day chunks. One month just isn’t enough (too erratic). I have all these images and more on the STATS tab.

MONTH TO MONTH STATS

I hope this was interesting or helpful.

Questions: Anything to add about accessory dwellings? What are you seeing out there in the market right now? I’d love to hear your take.

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The housing market has ’90s vibes

October 2, 2024 By Ryan Lundquist 9 Comments

The 1990s are back in style. Big pants, Nirvana t-shirts, and Doc Martens. And even the housing market feels a bit like the ’90s. Let’s talk about it.

ME IN THE ’90s

Okay, before we jump into real estate, let me introduce you to what I used to look like back then. Do you smell the Obsession cologne? And can you tell by my tan that I played water polo in high school? Haha.

PURCHASE APPLICATIONS ARE SO MID-’90s

Purchase application volume is at levels last seen in the mid-’90s when movies like Clueless and Braveheart were playing. And Leonardo DiCaprio’s girlfriend wasn’t even born yet. That’s sobering stuff, but the positive news is we’ve seen a slight uptick in purchase applications lately. My advice? Watch application volume by the week because it will be a leading indicator for demand in the housing market. Oh, and don’t base your self-esteem on this data.

SALES VOLUME IS SO MID-’90s

The number of closed sales nationally is at levels seen in the mid-’90s (and the Great Recession). For anyone who works in real estate, I recommend being realistic about a smaller pool of buyers existing today, and to continue to plan for low volume ahead. You might not hear this at a real estate guru seminar, but I think it’s best to expect low volume and rejoice if something else happens. The hope is to see an uptick in volume in 2025, but the truth is it’s going to be hard to return to normal levels without a sharper change to affordability. Nationally, there are many projections that volume in 2024 will end lower than 2023 for the United States. Locally, we’re ahead of last year by 265 sales, so the next few months will be critical to see how it pans out.

A REALLY GOOD WAY TO DESCRIBE THE MARKET

One of the best ways to describe the market in 2024 is sellers have come back more than buyers so far. This is true in Sacramento and many locations. The reality is there is a wider gap this year between the number of new listings and closed sales. In other words, supply has grown faster than demand, and that’s why the market isn’t as competitive compared to one year ago. Yet, both listings and sales are still far below normal levels. In fact, locally we’re missing about ten thousand listings this year from the pre-2020 normal number. That’s just wild (and sobering) to think about. One other thing. I wonder if we’ve forgotten what the market feels like when there are more listings and not a freakishly low amount like 2023.

IS THERE A SLIGHT CHANGE IN BUYER DEMAND?

Mike Simonsen has been talking about a slight uptick in purchase applications and pending contracts. Look, this is NOT a huge amount, so don’t write home yet. Let’s just watch to see if this is an inflection point or a nothing burger. This is what it’s like to follow real estate. We collect data, remain objective, try to interpret what we’re seeing in real time, keep things in context, sift sensationalism, and let time show us the trend. Know what I’m saying?

MORE PENDINGS IN SEPTEMBER LOCALLY

September was a solid month of pending contracts in the Sacramento region (compared to last year). This is good to see, but let’s remember there were five Mondays in September, and Monday is a big day for the number of pending contracts. All I’m saying is we want to be aware that monthly data can sometimes show extra or less depending on the day the month started or ended. With that said, I’ve been asking the real estate community if there is a change in demand, and it’s a mixed bag. Some people report maybe slightly more demand, but many are saying no change (or it’s hard to see if there is any change). In short, time will show us if the increase in pendings here is about the market or an extra Monday. Does that make sense?

Thanks for being here.

Questions: What are you seeing with buyers right now? Any change to demand? What is your favorite band from the ’90s or something you hope doesn’t come back in style?

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The hot mess of concessions in real estate

September 25, 2024 By Ryan Lundquist 27 Comments

It’s a mess out there right now since the NAR lawsuit went into effect. Well, sort of. It feels messy that concessions information is no longer in MLS, there’s some confusion about how appraisers are handling some of this, and we have a new question to ask. Let’s talk about it.

A BIG MLS BUMMER

It’s a bummer that so many MLS systems across the country removed the concessions amount field after the NAR lawsuit went into effect. So, after a sale has closed, I can no longer instantly see that a seller gave a $12,000 credit for closing costs. Instead, I only see in our local MLS if an agent says “YES” or “NO” to whether there were concessions. There is no longer any amount listed, and the only way to find out specifics is to get that from someone who knows about the transaction. I suspect the removal of this information was based on the perception of liability or anticipation of future lawsuits. Or maybe the pendulum simply swung too far. Whatever the case, it’s unfortunate since this is so important for comp selection for agents and appraisers.

THE COMMISSION IS NOT A CONCESSION

I’ve noticed quite a bit of confusion, so I want to hopefully clarify that the commission is not considered a concession from the appraisal perspective. This is how Fannie Mae, Freddie Mac, and HUD see it at this present time, and it’s why the seller paying for any portion of the buyer’s agent commission does NOT count toward the concessions allowed. The commission is about compensation to the real estate agent, and concessions are things like a credit for repairs, credit for closing costs, personal property, rate buydown, etc… (not compensation). Yet, I get the confusion today because a seller might give a credit for the commission, so it really feels like a normal concession. Moreover, it seems like NAR is saying compensation can be a concession if I’m reading this article correctly (someone please speak up about this). If that’s the case, there is a real disconnect from the way NAR sees concessions compared with appraisers and Fannie Mae. Am I reading this right? In my mind, it would be useful to consider concessions in MLS more like how appraisers and Fannie Mae think about it. In other words, we don’t want to input commissions information (about compensation) in a concessions field (not about compensation).

DO APPRAISERS DEDUCT VALUE IF THE SELLER GIVES CONCESSIONS?

Any adjustment given for concessions happens to the comps. NOT the subject property. In short, if a seller gives a credit of $25,000, that doesn’t automatically mean the subject property is worth $25,000 less. We have to look to the comps to understand value instead of penalizing the subject property value right away because of the concession. Granted, all of us have seen contracts get inflated beyond a reasonable value due to concessions. But it’s the comps where appraisers look to understand value (and adjust the concessions down in the comps if needed). Here’s an Instagram reel to help explain this with a practical example. I know this can sound confusing.

View this post on Instagram

A post shared by Ryan Lundquist (@sacappraiser)

A SPICY QUESTION TO ASK

In a post-NAR lawsuit world, I find we have an important question to ask. Is there a difference in price between homes where the seller paid for the buyer’s side commission and didn’t (if that’s happening)? We haven’t really had to ask this much before since commissions have basically been baked into sales, but if the way things are done changes, we could have different questions to ask. And today, if a property looks to have sold for too little, for instance, one of our questions can be, “Did the seller pay for the buyer’s agent commission or not?” I’m not saying we need to adjust for this, but could we potentially need to give more or less weight to some of the comps based on what happened with the commission? I find some real estate professionals have been dismissive about this conversation because “commissions have never affected value,” but my sense is we are in new territory where we could start to see a price disparity in some of the comps depending on seller and buyer behavior (see Matt’s example). All that said, as I talk to many local agents, I’m hearing overwhelmingly that sellers at the moment are offering something to the buyer side. What I’m saying here is let’s keep our real estate antennas up about the issue, watch the comps closely, keep an eye on seller and buyer behavior, and be aware of any changes in the way things are done. This all matters.

Here’s an example of what I’m talking about from Matt Castillo in the Bay Area. This is a DM from a few days ago. Thanks for letting me share. This is exactly what I’m talking about with a potential disparity in price between homes where the seller paid and didn’t pay for the commission. What would you do when encountering comps like this?

APPRAISERS DON’T ADJUST FOR COMMISSIONS

Okay, let me be clear. There is not a place on the appraisal form to adjust for commissions, so don’t expect appraisers to adjust. Appraisers might adjust the comps for concessions if needed, but like I said above, a commission is NOT a concession from the perspective of Fannie Mae, HUD, Freddie Mac, etc…

PICKING UP THE PHONE OR TEXTING

I’m not happy that concessions information is no longer instantly available, but the good news is we can pick up the phone, text, or email. The problem is I don’t always hear back. And let’s be real. How long are real estate agents expected to remember the property details when people are asking about concessions in many months from now?

AN EXAMPLE OF ASKING ABOUT CONCESSIONS

Here’s an example of me asking about concessions this week for a comp. Thanks Nadya Malenko for letting me share this, and thank you to real estate agents for being awesome about responding to appraisers. By the way, I don’t have a template for texting, but on this day, I used the same verbiage in my two examples below. Can you see how I’m trying to be quick, respectful of time, and also open to reciprocating value?

YES, I AM ASKING ABOUT COMMISSIONS NOW

Here’s a different example of me asking about concessions AND the commission. It’s on my radar to know more about the buyer’s agent compensation because I’m wanting to know what is happening in the marketplace and if there is any difference in the comps between homes with and without commissions. Thanks Jasmine for letting me share.

DEAR MLS SYSTEMS

If I had my wish, I’d love to see MLS systems have a new concessions field where there is not just a blank field for agents to write whatever they want, but instead a drop-down menu where agents can select the type of concession given by the seller. Maybe there could be a drop-down selection for closing costs, credit for repairs, personal property, rate buydown, etc…. (commission would NOT be an option). And then there would be a secondary field pop up to allow a dollar amount to describe the specific concession that was selected (dollar amount only – no words allowed). A group of appraisers from REAA in Sacramento has suggested this already to our MLS, and I’m grateful for an MLS that has listened to the idea. I don’t know if this is even possible in a post-NAR lawsuit world, but let’s try to figure out how to retain the value of concessions information for both agents and appraisers.

WE’RE AT THE BEGINNING

The market will figure this out. Real estate professionals will figure this out. Buyers and sellers will figure this out. MLS will figure this out. We need time to see the trend, and we are still at the beginning of this. Let’s keep conversation open and add new ideas to our bag of tricks if needed.

PLEASE DON’T MENTION A PERCENTAGE

If you comment on this post, please do NOT advocate for a minimum commission amount or a standard commission. I’m not saying this to be anal, but anti-trust laws are serious business, and I don’t want anyone’s verbiage here to be a screenshot for impropriety or a future lawsuit.

Thanks for being here.

Questions: What are you seeing right now with concessions? Anything to add about real estate commissions, buyers, or sellers? I’d love to hear your take.

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