Sacramento Appraisal Blog

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Housing market tears & price pressure

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Do you smell that? It’s price growth. The market is rising, which is normal for January. But this year it feels extra aggressive. Let’s talk about it.

Scroll quickly or digest slowly.

Distracted meme with buyers looking at the hot market and an apprasier looking on

UPCOMING PUBLIC SPEAKING GIGS:

  • 2/9/2022 Yolo Assn of Realtors market update (details)
  • 2/18/2022 WCR El Dorado market update (details)
  • 2/25/2022 Placer Assn of Realtors market update (details)
  • 3/15/2022 NARPM Luncheon (TBD)
  • 3/22/2022 SAFE Credit Union market update (TBD)
  • 4/28/2022 SAR Think Like an Appraiser (TBD)

A MARKET OF TEARS:

This conversation struck me yesterday and I think Erin’s tweet highlights just how lopsided the market feels. Anyone have a similar story?

A screenshot of a Twitter conversation from Erin Stumpf talking about the buyer's agent crying when she found out an offer was accepted

How crazy is it that we’re in a market like this? I just talked with someone else yesterday about a buyer crying when she found out her offer was accepted. It shouldn’t be this difficult to buy shelter, right?

THE MARKET IS HERE, BUT THE STATS AREN’T

In a normal year home prices hit bottom in January (black bars), but it’s important to remember sales in January actually reflect homes that got into contract in December. So, if anything, January sales tell us what the market used to be like in December. In today’s market the best way to see the trend is to look at the pendings. After all, today’s pending contracts become tomorrow’s sales. Next month we are poised to see February show a price increase because that’s what normally happens (see graph).

A bar chart to show seasonal median price trends in the Sacramento region from 2017. The point here is the market always dips in January and rebound afterward.

WE DON’T HAVE TO WAIT FOR SALES…

The truth is we don’t have to wait for closed sales before saying the market is showing price increases. If we look carefully enough at things like pending contracts in the neighborhood, multiple offers, days on market, anemic supply, less credits being offered to buyers, feedback from the real estate community, the number of price reductions, etc… we can see upward price pressure and figure out how to quantify it.

This is why it’s critical for appraisers to give market conditions adjustments to the sales if the market is rising. In a deficient appraisal we tend to see a lack of adjustments given to account for a rising market. I don’t say this to pressure any colleagues into making adjustments or “hitting the number.” I’m just saying when I saw an appraisal yesterday where a comp from eleven months ago wasn’t adjusted up, that doesn’t smell reasonable (this was in Oak Park, which I talked about last week). I’m not saying every contract price should “meet value” so to speak either because some properties are getting into contract at a totally unreasonable level. Anyway, this could be a long post and maybe I’ll write more about this if enough people want it.

WEEKLY PRICE GROWTH

Here is a look at price growth by the week so far in January 2022 (black line). Right now we are looking very normal and I expect to see this line going up in coming weeks and months.

RUNNING DUE TO RATES:

It’s normal for the market to heat up in January, but this year it’s scalding hot as buyers seem to be running to the market to get in before rates rise. This type of “get in before it’s too late” dynamic cannot keep up forever, but for now it’s the reality. I’ll be watching mortgage applications, pending contracts, and sales volume closely to help gauge demand. Anyway, what effect are you seeing rising rates have on people you know? Running to the market to get in? Or are they pulling back?

Mortage rates line graph over the past two years. The right side of the graph shows an increase lately as rates are hovering around 3.75%

SUPER SLIM INVENTORY:

UNITED STATES:

Having sparse inventory is complicating the market and helping create what feels like an auction where the highest bidder wins (though technically the highest offer isn’t actually always the strongest offer). According to Altos Research we’ve hit a new low with the number of listings in the US.

This visual is a line graph to show active listings in the United States in recent years. The line is incredibly low on the right side of the graph, and that shows we're at record low levels. We should have twice as many listings basically.

SACRAMENTO LISTINGS:

As of this morning, here is what’s on the market. And as you can see, this snapshot of listings is about half the normal level for February 1st. Doesn’t this image sort of look like the one above though where the market feels like it’s been chopped in half?

A bar chart to show listings on Feb 1 this year are about cut in half compared to the normal trend

LAST YEAR VS THIS YEAR:

Here’s a look at the number of listings by price range on February 1st this year and last year. In short, we have about the same number of listings today, but the big difference is listings are dispersed at higher prices because prices rose so much last year. Keep in mind buyers at higher prices tend to be more mobile too because of the ability to more commonly work from home.

Here is what’s on the market by price range as of today. I have some visuals like this for Sac & Placer County too (just ask me for them).

A LITTLE BIT O’ HOPE:

We are seeing more new listings hit the market, which is what we would expect to see starting in January. That’s the good news. The bad news is buyers are hungry and there aren’t enough listings to satisfy demand at the moment. The image below shows new listings by the month in blue, and we should start to see this blue line rise in coming months for about half the year (this graph doesn’t include January yet, but January should start to point upward). Keep in mind listings don’t normally hit a stronger uptick until after March, so unless something interrupts this normal pattern, it’s time to put your game face on because strong competition awaits.

RANDOM THURSDAY GRAPH:

And here’s a random way to see the increase of listings. This visual shows new listings on Thursday each week in the Sacramento region. If you didn’t know, Thursday is typically the day with the highest number of new listings each week. Since the beginning of the year we’ve seen a modest uptick, which is normal. Keep in mind it tends to be a slower trickle of new listings until things start to pick up more in March.

Thanks for being here.

Questions: What are you seeing out there in the market right now? How do you gauge price growth at this time of year? Anything to add?

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Gentrification, neighborhood boundaries, and bias

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Sometimes crossing the street can make all the difference for value. In short, if we don’t understand where a neighborhood starts and ends, we might choose the wrong comps. Let’s talk about that today. I welcome your constructive and thoughtful comments. 

Photo used with permission (thanks Vicky).

1) BOUNDARIES MATTER:

Here is a real example of how important neighborhood boundaries can be. This is the Oak Park neighborhood of Sacramento, and the entire neighborhood is outlined in black whereas North Oak Park is yellow. In short, the northern portion of the larger neighborhood has much different prices.

Different prices: When looking at North Oak Park in yellow and the rest of Oak Park in blue, there is a clear price difference. So as an appraiser I need to be careful about crossing boundaries when choosing comps because prices might be different on the other side of a street.

NOTE on Med Center (for locals): I included Med Center within North Oak Park since these two areas have started to meld together. I think Med Center still generally has a price edge, but these areas are closer together lately.

2) NEIGHBORHOODS CAN CHANGE:

When we look at Oak Park over twenty years it’s obvious the neighborhood has seen a big change. This is clear when looking at development on Broadway, but it’s also apparent on this graph. The yellow dots represent North Oak Park and prices in this section have essentially broken away from the rest of the neighborhood over the past decade. In other words, we see way more blue dots at the bottom these days.

Gentrification: This is where the conversation can get intense because Oak Park (especially North Oak Park) is the poster child for gentrification in Sacramento. In fact, Capital Public Radio reported that Oak Park’s black population dropped by 24% since 2010. That is a sobering stat, which is why this conversation matters. And to me this isn’t some sort of academic exercise where we’re only focused on parsing trends and pretty graphs. This is affecting real people.

Comps in 2004 vs 2022: In terms of real estate, when it comes to comp selection, we might have pulled comps differently in 2004 compared with 2022 because the market is different now. What I mean is the boundary line in North Oak Park is a bigger deal for value in today’s market. This has nothing to do with the racial make-up of the neighborhood of course, but everything to do with recognizing prices have changed over time.

3) HOW DO WE KNOW NEIGHBORHOOD BOUNDARIES?

Okay, this is a big question and it could easily be a dissertation. For starters let’s consider what Fannie Mae says about neighborhoods:

Fannie Mae: “The appraiser should provide an outline of the neighborhood boundaries, which should be clearly delineated using ‘North’, ‘South’, ‘East’, and ‘West’. These boundaries may include, but are not limited to streets, legally recognized neighborhood boundaries, waterways, or other natural boundaries that define the separation of one neighborhood from another. Appraisers should not reference a map or other addendum as the only example of the neighborhood boundaries.”

Other thoughts (mine): I think sometimes we focus only on major streets, but let’s also consider school boundaries and even how neighborhood associations or city websites define areas. But also, where would residents themselves draw the lines? And where would buyers be hunting for a home before shopping somewhere else? All these things could be clues.

If you have something to add, please do so in the comments. And if you think everyone is getting it wrong, please share your solution.

4) BOUNDARIES AND BIAS:

There has been lots of conversation about appraisers and racial bias. In terms of neighborhood boundaries, some of the narrative has seemed to suggest appraisers are perpetuating devaluation by selecting boundaries. The idea is appraisers are choosing comps from an area with lower prices while not considering higher-priced homes outside of the boundaries. I understand this sentiment, especially since there has been a history of systemic racism in real estate through redlining and restrictive racial covenants. But on a practical level, buyers are not willing to pay the same amount in every area, so it’s important to recognize boundaries and choose the most representative comps. In other words, how much would buyers pay for a specific house in a specific location? This is the question to ask whether we’re looking at the lowest prices in town or the highest. Moreover, residents actually define boundaries. What I mean is if we ask people who live in a neighborhood what boundaries define their area, they’re going to be able to tell us. I don’t say this to gloss over accusations of bias (seriously). All I’m saying is appraisers reflecting real world boundaries isn’t automatically a symptom of bias. And if anyone has ideas for how to value without boundaries, I’m open ears.

CLOSING THOUGHTS:

Neighborhood boundaries are a real thing, but they aren’t set in stone either. The truth is sometimes boundaries start to change and the market begins to pay higher or lower prices in some areas. This is where it’s really important to study neighborhoods, check any biases, be thoughtful in our selection of boundaries, and ultimately be sure we’re choosing comps that truly reflect what buyers are willing to pay for the location. Bottom line.

Thanks for being here.

NOTE: I will only approve comments that add to the conversation. It’s okay if you disagree or have questions because I welcome all perspectives. But you have to play nice. That’s my rule. Life is way too short.

Questions: What do you think of the points above? Anything to add?

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Becoming a real estate meme & the top and bottom of the market

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Do you ever feel like it’s going to be a good week? I’m definitely feeling that way as I finally got rid of a nagging cold that wouldn’t go away. I tested negative multiple times, so this really was a cold. But besides that, season four of Ozark is coming out on Friday, so I’m doing the happy dance. Anyway, here are a few things on my mind. 

January public speaking gigs:

FOUR THINGS ON MY MIND:

1) She became a meme: I was watching the 49ers and Cowboys play on Sunday and I knew right away this woman became a meme. In fact, during the game I tweeted this. To me this is a perfect expression to sum up buyers feeling exhausted in today’s housing market. Am I right? By the way, this isn’t a statement about the Cowboys, so please keep your hate mail.

A sad Dalls Cowboys fan used as a meme to say "Buyers in today's housing market"

2) Housing market temperature in one picture: I saw this picture the other day from Realtor Rico Rivera and I think it captures how competitive the market is right now. As I said last week, we just got done with the most aggressive housing market ever and we’ve started 2022 at a really competitive place. Anyway, real estate agents left their business cards on the kitchen counter and this property ended up having over 30 offers. What advice would you give to buyers about getting an offer accepted in a situation like this? I’d love to hear your take. 

Graph of offers: By the way, getting 30 offers is wild, but thankfully it’s not common to have that many. However, it does happen. This visual shows the number of offers for the past 45 days of sales and how each property sold in relation to its original price. What do you see?

NOTE: Real estate friends, I appreciate when you input the correct number of offers in MLS because your data-entry matters for credible stats. My sense is we’re still getting an accurate reading about the overall trend, but I wish there weren’t as many zeros (obviously a sale had at least one offer).

3) Is it more aggressive at the top or bottom? I’ve been asked several times if the market is just as aggressive at higher prices compared to lower prices. What would you conclude by looking at stats? And what has your experience in the trenches shown you?

This table compares the percentage of cash sales, days on market, and the percentage of multiple offers by price range in Sacramento.

QUICK TRUTHS:

A) There is more cash at the highest prices.

B) There is more competition at lower prices as shown with more multiple offers and taking less time to sell. By the way, take under $300K with a grain of salt as there isn’t much in that range.

C) The higher the price, the longer it typically takes to sell.

In short, the market is freakishly competitive in EVERY single price range, but it’s technically more competitive at the bottom half of the market. There is more cash at the higher end, but that’s not a new trend because it’s been the case for years when I pull stats.

4) Since the bottom: Okay, last thing. If you wanted to compare the bottom of the market in 2012 with this past year, here’s some fresh stats for you. This is the annual median price each year (not adjusted for inflation).

A chart that shows the annual median price change in four counties in the sacramento region (compares 2012 with 2021)

I hope that was interesting. Thanks for being here.

Questions: What do you think of the meme? Any thoughts on the stats?

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The most aggressive housing market ever?

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Was last year the most aggressive housing market we’ve ever had? I’m going to go out on a limb and say HECK YES based on the stats. But what do you think, whether you’re local or in a different market?

A picture of a road in the desert with the caption question, "Most aggressive housing market ever?"

January public speaking gigs:

Post outline (since this is longer):

1) Records were broken
2) Sacramento region recap
3) Sacramento County recap
4) Placer County recap
5) El Dorado County recap
6) Yolo County recap

STATS: Annual stats include the entire year (Jan to Dec). These stats are not just a comparison of Dec 2020 with Dec 2021.

1) RECORDS WERE BROKEN:

A) Fastest-moving market ever: This is no surprise to stressed buyers and a stressed real estate community, but we had the fastest-moving market ever in the region. It took an average of 17 days to get into contract, which is the lowest annual number on record. The wild part is the median days on market was only 7, which means half the market got into contract in a week or less.

This visual shows a line graph of days on market and median days on market from 2000 to 2021.

B) Highest dollar growth ever: Prices increased more than ever this year in terms of dollars. The median price increased by $90,000 and the average sales price was up about $99,000. These are both records. The stunning part is this took place in our tenth year of price growth in this cycle.

What about percentage growth? Percentage growth was NOT a record even though price metrics were up about 20%. The truth is we’ve seen this type of percentage growth before, though when prices were lower it was so much easier to see higher percentages. This is why noting the dollar amount is so important. All that said, let’s remember part of the glowing numbers here has to do with more sales at higher prices (which pads the stats).

C) 18 months of less than one month of supply: Since July 2020 we’ve had less than one month of housing supply in the Sacramento region. There has never been a stretch this long. It wasn’t even this bad during 2013 when investment funds were gutting the market. Having one month of inventory means if no other listings came to the market we would only have enough for one month’s worth of buyers.

A line graph to show the months of supply over the past 2 years (this helps show we've had 18 months of supply under one month

D) Highest percentage of multiple offers ever: In April we reached the highest percentage of multiple offers we’ve seen in the region at 76%. It’s easy to say 100% of sales are getting bid up with multiple offers, but that’s not true. Check out how disconnected a figure like 76% is from normal though. The real shocker though is 57% of sales in DECEMBER had multiple offers, which is higher than any other SPRING market besides 2021. Read that again. By the way, this stat has only been available for five years (though it’s likely April 2021 was the highest ever still). We can debate in the comments or cage fight if needed.

E) One year of paying at or above the list price: Every month this year buyers paid at or above the list price. I know, this sounds a bit dull or obvious, but it’s truly sensational. Take a look at the image to show how far off the orange line (2021) is from the rest of the pack. In a competitive year we might see a few months where buyers on average pay at or above the list price, but last year this happened ALL YEAR LONG. Even in December buyers on average paid right at the list price. In a normal year we should’ve seen 3% or more below the list price in December. Keep in mind we did see seasonal slowing for the second half of the year, but it didn’t feel like slowing to many since the market basically “slowed” to a really elevated level.

NOTE: This is the average. There are many examples of buyers paying well above the asking price and even 15% of buyers last month paid below.

F) More million dollar sales than ever: This past year 7% of sales were above one million dollars and that’s the highest percentage on record. Well, I should say this is the highest percentage without adjusting for inflation, so there is an asterisk here. If someone wants to adjust for inflation, please do so. Also, there were twice as many million dollar sales compared to 2020.

CONCLUSION: In short, the stats are insane. Can you see why I’m saying it was our most aggressive year ever? You don’t need to agree with me, but if you disagree, I’d love to hear why. Also, I don’t have stats for 1853 during the Gold Rush, so I’m really just talking about recent history.

Any thoughts?

——————— huge market recap below ———————

THE SHORT VERSION:

The market in 2021? Prices went way up, housing supply was anemic, volume was slightly higher in most counties compared to the previous year, and properties sold as fast as they ever have. Most of the year the market really felt like an auction due to supply and demand being so lopsided. We have a supply problem with sparse listings and we have a demand problem fueld in large part by mortgage rates around 3%. When looking at the past two years it’s apparent the market sped up again after years of slower growth. Ultimately while the stats are glowing, how many think having another year or two of growth like seems sustainable? I’m guessing few hands went up since affordability has been declining and mortgage rates are presumably going to rise. Anyway, enjoy an offensive amount of visuals and feel free to share some images too.

Thanks for reading my sharing policy so we’re on the same page.

THE LONGER VERSION:

I’ve outlined lots of recap stats below by county and I hope you find these useful. Keep in mind these are ANNUAL visuals that compare a year’s worth of sales to the previous year. This is why some of the visuals don’t have a normal up and down rhythm during the spring and fall. What do you see though? What stands out to you?

2) SACRAMENTO REGION (Sac, Placer, Yolo, El Dorado)

3) SACRAMENTO COUNTY:

4) PLACER COUNTY:

5) EL DORADO COUNTY:

6) YOLO COUNTY:

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 the most above? What are you seeing out there in the market?

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