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The story of Zillow’s last house in Sacramento

October 17, 2022 By Ryan Lundquist 14 Comments

Goodbye. Zillow sold their last house in Sacramento. After announcing failure as an iBuyer in late 2021, they recently got rid of their final unit. And the cherry on top is they sold this property to Opendoor.

UPCOMING (PUBLIC) SPEAKING GIGS:
10/18/22 Orangevale MLS Meeting Q&A (9am)
10/20/22 How to Think Like an Appraiser (9am-12pm) (Sign up here)
11/15/22 Sacramento Bee Q&A at 12pm (RSVP here)
11/17/22 DEI & Fair Housing Lunch & Learn (details TBD)
1/18/23 WCR Market Update in Cameron Park (details TBD)

HOUSING GENIUS OR FLOP?

It’s easy to look at Zillow like some sort of real estate savant because their exit was announced months before the hot housing market began to turn. But let’s not revise history because Zillow’s failure had nothing to do with market conditions. This was about a lack of effective strategy. Zillow basically went on a purchasing rampage in a handful of markets across the country, and they lost a ton of money. I wrote about their failure here. In short, with hindsight their timing looks really good, but this was a flop instead of foresight in terms of actually making money.

Anyway, I announced the news of their last sale about two weeks ago on my socials, and it created a ton of conversation.

ZILLOW’S LAST HOME IN SACRAMENTO

In September 2022 Zillow sold their last unit to Opendoor. This home in the Natomas area of Sacramento was originally purchased for $700,500 in November 2021, and it was listed for sale in February 2022 for $694,100. There were multiple price reductions until the listing was eventually cancelled on 9/13/2022 at $624,900. There were two pending statuses, but for whatever reason it didn’t close.

DID ZILLOW GIVE OPENDOOR A DISCOUNT?

You be the judge. The sale to Opendoor at $354,500 was far lower than literally any competitive sale on MLS (blue dots), and much lower than any model match sale (red dots). A model match sale hasn’t sold this low since before 2016. When looking at this visual, do you think there was a reduced price?

ZILLOW SOLD LOWER THAN ANYTHING IN THE NEIGHBORHOOD

Here’s a different way to look at it. The orange dots represent every MLS sale in the neighborhood, and the off-market price to Opendoor was lower than literally all neighborhood sales (of any size). Also, Opendoor typically gets about a 5% credit from the seller, and if that’s what happened here, Opendoor got an even better deal.

THE VERDICT: YES, THEY SOLD AT A DISCOUNT

Unless there was something that went seriously wrong with the condition of this property within the two-week period of this home being pulled from the market and sold to Opendoor, it’s pretty obvious this unit sold at a discount. Why did Zillow sell it so low when buyers would have been lining up at that price? Will Zillow get a better tax write-off for their loss? Or does this have anything to do with Zillow and Opendoor recently establishing a multi-year partnership? Does this benefit Opendoor’s profit on paper so they can show higher numbers from buying low and selling high?

NOTE: I’ll follow up when this house does sell again.

iBUYERS RIGHT NOW

I’ve noticed Opendoor has seemed to slow their acquisitions lately in response to the market changing so quickly. This makes sense as a way to pause and pivot in a different market. Locally, Opendoor is the largest iBuyer as they have about 280 units, while OfferPad only has 11, and Redfin owns 24. Opendoor normally has about 330 homes in the region, but now it’s closer to 280, which is why I’m saying they’ve been slowing their acquisitions. Opendoor was struggling in Sacramento when I wrote about them in August, but they’ve seemed to get more of their units into contract in recent months. I’m not sure if it was strategic price reductions or the $3,500 incentive they offered (maybe both). Still, only 25.6% of everything Opendoor has listed for sale is pending, so most of their stuff is sitting instead of selling. Ultimately, if we continue to see prices drop it’ll be key for iBuyers and any flippers to acquire properties for lower amounts to anticipate future declines. I’ve said all along there is room in real estate for multiple models to exist, but no matter what the model, the numbers need to work to make profit. Anyway, iBuyers are still here, and they’re trying to pivot. Will they be successful? Only time will tell.

UPDATE (NEW STATS): I pushed out Redfin iBuyer stats on Twitter yesterday to help show how much lower most of their listings are compared to the acquisition price. This sums up the dynamic out there right now with iBuyers.

Thanks for being here.

MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.

Questions: What stands out to you most above? How does Zillow selling to Opendoor sit with you? I’d love to hear your take.

If you liked this post, subscribe by email (or RSS). Thanks for being here.

Home prices are close to dipping below last year

October 10, 2022 By Ryan Lundquist 16 Comments

We are on the cusp of seeing year-over-year median price declines, so let’s talk about it. I wanted to share what looks to be on the horizon in the Sacramento area, and whether you’re local or not, I hope this is helpful.

UPCOMING (PUBLIC) SPEAKING GIGS:
10/11/22 Folsom MLS Meeting (9am)
10/13/22 Market update in Midtown (12-2pm Sign up here)
10/18/22 Orangevale MLS Meeting Q&A (9am)
10/20/22 How to Think Like an Appraiser (9am-12pm) (Sign up here)

THE SCOOP ON PRICES & DOOM

First off, I’m not a doom and gloom guy perpetuating fear for clicks. This is about objectivity and the stats – not being alarming. Okay, that aside, let’s dig into the details. The dotted line in the visuals below is a projection for the October median price based on the price of pending contracts in September. In short, the top line is the median price in 2022, and since May we’ve seen a sharp change which looks like it’s very close to touching or going below last year. It’s possible stats won’t dip below next month, but it looks strongly plausible for Sacramento County (the region will be really close). Keep in mind, this doesn’t mean every single month ahead will be below last year since price metrics can bounce up and down. Whatever the case, we’re close, and it won’t be shocking if finalized October stats are near my projected line. We’ll see.

A line graph to show the median price in the Sacramento region for the past few years. Today's prices are starting to touch last year.

Sacramento County median price line graph to show the median price this year is poised to go below last year

Placer County line graph to show median price trends and that the median price is very similar to last year

BUT BRO, THE MEDIAN HAS ISSUES: Okay, if you don’t care about technicalities about the median price, skip this section. Some might question the median price, and that’s healthy. The thought is we’re seeing smaller homes sell this year, which waters down the median price. But since May the average home size in the region is down 1.74% from last year and the median size is down 0.74%. In short, we’re not talking about a massive difference in size that accounts for the dramatic price difference today (home size does matter). However, all price ranges have seen a dip in volume, and if we start to see more of a dip at the top or bottom, that could certainly affect the median price. Lately volume has been hit the hardest at lower prices. Ultimately, I advise watching traditional metrics such as the median price, average sales price, and average price per sq ft, but also watch big data firms that put out price indexes that don’t have anything to do with the median. Absorb it all. On that note, I talked to Rick Palacios Jr of John Burns Real Estate Consulting and he tells me their Burns Home Value Index is down 7% from the spring through September in Sacramento. In contrast, the median price is down 8.9% from the spring during this same time period. So, there’s a difference, but not too far apart.

CHOOSING COMPS: Being close to last year doesn’t mean the best comps are automatically going to be from one year ago. Maybe. Maybe not. This is where it’s critical to study recent neighborhood sales as well as listings and pendings. The story won’t be exactly the same in every neighborhood, so be careful about imposing a “prices are lower than last year” narrative on every area.

MARKET TRUTHS:

1) CHANGE: Markets go up and down, and home prices are not sacred. In my office I have a sign that says, “The market is always moving.” It’s just true. And while Chuck Norris might eat 7% mortgage rates for breakfast, it’s not as easy for the rest of us mere mortals.

2) WE NEED AFFORDABILITY: As I said a few weeks ago, higher rates are changing the game, and we ought to believe the Fed when they say they want to reset the housing market. If rates went down dramatically, it would bring lots of buyers back, but prices would still be high, so low rates alone don’t solve the affordability issue. This is where price declines today seem necessary for the climate of rates at seven percent.

3) BUT INVENTORY IS LOW: Inventory is definitely still historically low, but a lack of affordability is the bigger force here. In other words, low housing supply isn’t the trump card to keeping prices up. I find sometimes people use a low inventory narrative to say prices cannot go down, but the stats are currently showing otherwise.

4) WE NEED TIME TO SEE THE TREND: There are many ideas about the future and the magnitude of possible declines, but only time will tell for sure. Remember, projections for “national” housing trends don’t mean much for local markets. So, when people say things like, “Dude, the national market will take a 10% hit,” that might not apply at all to Sacramento or wherever you are located. The truth is some areas will feel it more than others.

5) FIGURING IT OUT: The market will adapt and figure this out. If rates keep rising, we’re poised to see more buyers step aside. Bottom line. But this doesn’t mean all buyers and sellers will stop. For now, we are missing about 3,500 sales in the Sacramento region since May, but over 10,000 sales have happened within this time period. Sometimes people talk like literally everyone has stopped buying, but that’s fake news. I’m not trying to sugarcoat the housing trend. I’m just saying we need to obsess over actual stats and form our perception based on the numbers. And remember, it might not be a good time for you to buy or sell, but that doesn’t mean it’s that way for everyone. Look, buy or don’t buy, but be confident in your decision. No pressure from me.

SOME ADVICE:

1) BUYERS: Be patient for the right house and do not overpay. Try to get a better deal, get credits, ask for repairs, and see if you can get a price reduction. Be realistic though. Prices have been going down, but this is not January 2008 either. In recent months we’ve seen 26% fewer sales, which means you have more power. But it also means 74% of the market has still been happening. In short, don’t make any rash decisions, and get as much as the market will give you right now.

2) SELLERS: If you want to compete for the attention of buyers today, you have to put your best foot forward and accept that buyers aren’t desperate for you. Seriously, buyers are picky about getting into contract, and they’re going to walk if you play games. Buyers are really sensitive about price, location, and condition. You can only control the price and condition, so do all you can to compete. And use a mortgage calculator to plug in numbers to see what the monthly payment looks like on a house like yours. Once the shock wears off, let that be fuel for reasonable pricing. What is similar and getting into contract? Price according to those data points rather than your neighbor John who is smoking pricing crack (technical term for John being unrealistic).

3) REAL ESTATE FRIENDS: It looks like price metrics are going to dip below last year. If not next month, it’s likely to be soon unless something interrupts the trend. The truth is this can be really challening for some real estate professionals who are used to saying only ultra-positive things about the market. My advice? Build your business and narrative on the stats and lifestyle buyers instead of glowing news of prices being up. It’s not about the direction of prices, but instead about finding prospective clients who have incentive to buy and sell regardless of what prices are doing. This is true in an up market and it’s true in a down market. Bottom line.

Thanks for being here.

—–——– DEEP LOCAL MARKET UPDATE ———––

Scroll quickly or digest slowly.

SHARING POLICY: I welcome you to share some of these images on your social channels or in a newsletter. In case it helps, here are 6 ways to share my content (not copy verbatim). Thanks.

YEAR OVER YEAR STATS:

Here’s a look at stats compared to last year. And remember, closed sales in September really tell us what the market used to be like in August when the bulk of these properties got into contract.

MONTH TO MONTH:

Looking at sequential months is key too so we don’t just get stuck or hyper-focused on last year (the past).

OTHER VISUALS:

Here are lots of visuals. Probably more than you wanted. I have mostly Sacramento County and regional stuff this time around since most of my presentations have been in Sacramento lately.

MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.

Thanks for being here.

SHARING POLICY: I welcome you to share some of these images on your social channels or in a newsletter. In case it helps, here are 6 ways to share my content (not copy verbatim). Thanks.

Questions: What stands out to you above? What are you seeing happen with prices right now? If you’re not local, are prices in your market close to year-over-year declines? I’d love to hear your take.

If you liked this post, subscribe by email (or RSS). Thanks for being here.

Who is buying in today’s housing market?

October 5, 2022 By Ryan Lundquist 20 Comments

Nobody is buying today. Everyone has left the market. Or wait, I mean, it’s only buyers at the very highest prices who have backed off. No, maybe it’s first-time buyers who are getting crushed. There are lots of ideas floating around, so let’s take a look at some stats. I hope this is helpful, whether you’re local or not.

UPCOMING (PUBLIC) SPEAKING GIGS:
10/07/22 Market update with SAR (9am-10:15am Sign up here)
10/11/22 Folsom MLS Meeting (9:15am)
10/13/22 Market update in Midtown (12-2pm Sign up here)
10/18/22 Orangevale MLS Meeting Q&A (9am)
10/20/22 How to Think Like an Appraiser (9am-12pm) (Sign up here)

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The goal today is to offer a glimpse into current buyers. This isn’t a full picture because we’re still at the beginning of change.

ALL SHIPS RISE AND FALL WITH THE TIDE

We’ve seen a dip in sales volume at every single price point. This means no price range has been immune from the trend. In other words, all ships rise and fall with the changing tide. This is a new visual. Do you dig it?

IT’S NOT JUST A DIP AT THE TOP

Here’s a different way to look at volume with the number of sales instead of percentages. This gives a different view of things, and it’s clear that change isn’t just happening at the top of the market. The housing narrative is often that it’s really the high-end that’s experiencing change, but that’s simply not true when looking at the numbers. So, we often talk about the median price being affected by fewer sales at the top, but let’s not ignore lower-priced sales also. The median price in the Sacramento region in September is $569,000 for reference, and what happens at lower prices can affect price metrics too.

THE SKINNY (FRESH STATS)

Here are a bunch of different stats to try to get a sense of what is happening. Remember, we are living in the midst of change, and we’ll understand more fully what is happening as we have more time and stats.

NOT JUST ONE BUYER

This is a perfect tweet from my friend Erin Stumpf because it shows there isn’t just one buyer out there. It’s easy to fall into the trap of thinking this market only makes sense for one group of people, but that’s not true. The market is never all good or all bad for everyone, so we need to be careful about sweeping statements about entire groups of people. This isn’t me sugarcoating the problem of affordability either, so save your hate mail.

CONCESSIONS, GET IN MY BELLY

The percentage of sales with concessions to buyers are increasing, which is to be expected in this market as sellers are bending toward buyers to help get deals done. We pretty much see sales with concessions throughout all price ranges, but there are clearly more credits happening at lower prices.

A CREDIT IS NOT A SILVER BULLET

The truth is a credit to the buyer doesn’t guarantee you’re going to sell at or above the original price. In other words, giving a credit isn’t a silver bullet to keeping the price higher (even though it likely helps). This visual shows how properties with concessions sold in relation to their original list price. Anything above the 100% line sold above the original list price, while anything below this level sold below. In short, the bulk of sales right now are selling below the original list price in the entire market, and it’s not a shocker to see that happening with homes getting credits too.

WHAT FINANCING ARE BUYERS USING?

Watching the financing buyers are using will be a clue into the market. Over the past few months, we’ve seen slightly more FHA, a dip in conventional, and slightly more cash.

MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.

Thanks for being here.

Questions: What stands out to you today? What sort of buyers are you seeing out there right now? Who is winning and struggling?

If you liked this post, subscribe by email (or RSS). Thanks for being here.

Chuck Norris eats 7% mortgage rates for breakfast

September 27, 2022 By Ryan Lundquist 13 Comments

Housing trends are changing by the week, and it’s time to start believing the Fed when they talk about resetting the housing market. Let’s chat about this today, and I’d love to hear your take in the comments.

UPCOMING (PUBLIC) SPEAKING GIGS:
10/07/22 Market update with SAR (9am-10:15am Sign up here)
10/13/22 Market update in Midtown (12-2pm Sign up here)
10/20/22 How to Think Like an Appraiser (9am-12pm) (Sign up here)

THREE THINGS ON MY MIND:

1) These rates don’t phase Chuck Norris (but we’re not Chuck Norris):

Sorry to state the obvious, but quick rate changes are poised to take more demand out of the market. This doesn’t bother Chuck Norris one bit because the man eats 7% mortgages rates for breakfast. But this is a massive deal for buyers in today’s market who are trying to afford a house.

A picture of Chuck Norris holding two uzis with the caption, "7% mortgage rates don't phase Chuck Norris."

The Redfin image shows the monthly mortgage payment on the national level is about 45% higher this year than last year. Yikes. It’s a good thing wages also rose by 45% (sarcasm). Seriously though, if buyers are paying about $750 more per month compared to last year, that’s a tough pill to swallow that’s going to lead to fewer buyers being able to play the game.

A line graph from Redfin to show the change in monthly mortgage payments this year compared to previous years

This visual from Mortgage News Daily shows another spike in mortgage rates over the past month. Keep in mind it’s going to take a number of months before we completely see the effect of higher rates in data for closed sales, but we should see it soon in things like price reductions, days on market, open house traffic, and stories from the trenches. Also, mortgage brokers may be able to offer a lower rate, so check in with your local professional.

A visual to show mortgage rates from January 2018 to September 2022. Rates basically went down to record lows and then shot way up

2) Believe the Fed about wanting a housing market correction:

Look, it’s time to start believing the Fed about wanting to see the housing market reset. I don’t say this as a housing bear (really), but Fed Chairman Jerome Powell was blatant last week about a correction. It’s as if the housing market is the sacrificial lamb on the altar of Fed strategy to curb inflation. My advice? Start believing the Fed about their intent to change the housing market. The Jerome Powell quote below is from Lance Lambert on Twitter (highlights are mine).

A paragraph from Jerome Powell on what he means by wanting to see a housing reset (quote from last week's Fed meeting)

3) The housing market will figure it out:

All that said, the market will figure this out. The truth is the housing market will adjust and adapt as needed because that’s what markets do. If rates continue to rise, we should expect to see fewer buyers able to participate, and the need for sharper price declines to meet buyers closer to what they can afford today. Bottom line. But remember, not everyone has the same story in housing. I find some expect for every single buyer to back off the market, but some buyers’ lifestyle and finances are going to collide with market conditions right now. In other words, there isn’t just one narrative that perfectly represents every single buyer and seller today. I don’t say this to gloss over blatant changes to affordability. I’m just saying the market isn’t the same for everyone.

MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.

Thanks for being here.

Questions: What stands out to you today? Any thoughts about Fed policy? Also, do you think there is another inflection point for rates (like we saw when rates went above 5%)?

If you liked this post, subscribe by email (or RSS). Thanks for being here.

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