Sacramento Appraisal Blog

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Have home prices started to crest this year?

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Are prices finally starting to slow? Can it really be happening? Have home prices likely started to crest for the year? The answer is YES. Here are two quick things on my mind. These trends are for the Sacramento region, but I suspect many markets across the country are starting to show similar stats (or will soon).

Glowing & slowing market update:

I’m doing a big market update for SAFE Credit Union in a few weeks. There is no cost. It’s totally free, but you have to register. It’ll be at 9am on Zoom on Wednesday August 18, 2021. It’ll be about an hour and packed with lots of stats and perspective. REGISTER HERE.

TWO THINGS ABOUT PRICES:

1) Prices have likely started to crest: This chart tracks prices by the week, so it gives a preview of trends before monthly stats come out. Check out the black line which represents the weekly median price in the Sacramento region. As you can see prices have started to dip over the past few weeks. This really isn’t surprising though because it’s been a pattern in recent years to see price changes around July (besides 2020). In short, unless something unexpected occurs to give another boost to the market, it looks like prices have started to crest for the year. In other words, it wouldn’t be surprising if regional prices hit their peak for the year. But here’s the thing. If 2020 has taught us anything, it’s impossible to predict the future. This is where we need time to see the trend.

Prices in the fall: Keep in mind not every fall season is exactly the same. Sometimes prices stay flat for a few months around July levels before dipping a bit more at the end of the year, and other times we see a more definitive slower season with a bigger dip. The future hasn’t happened yet, so we don’t really know what sort of fall we’re going to have.

2) Monthly prices: Now let me show you how normal it is for prices to tick down in July by focusing on monthly prices. Here’s a look at the preliminary median price this month (July in black). As we know July is not over yet, so we need another ten days for stats to be solidified. With that said, when looking at multiple years it’s obvious we usually see a dip in July. And as far as we can tell that looks to be happening this month too. Not a shocker.

A bigger dip? I wouldn’t make too much of a bigger dip this year because this is still preliminary data. Honestly, I’m a bit hesitant to push out early stats because this monthly figure could change over the next two weeks. But I think it’s valuable to show it’s not just weekly prices that are softening. Anyway, let’s wait to see how this number looks in about ten days before having too much conversation.

FOUR QUICK TAKEAWAYS:

1) Not the same: The temperature of the housing market is not the same in every price range and neighborhood. In other words, it’s possible for prices to be doing different things in different areas, so it would be a huge mistake to assume prices are dipping everywhere.

2) Not dull: The housing market is still moving very fast and it’s super competitive. In short, it’s still not easy to get into contract. Yet it is easier than it was three months ago.

3) Just say NO to rosy narratives: When a market starts to soften it’s tempting for some in real estate to avoid talking about slowing. Here is part of a talk I gave last week where I mentioned this reality (three minutes).

4) Doom and gloom: While some interpret prices softening to mean the market is starting to “pop” so to speak, it’s important to recognize a dip in prices is what normally happens this time of year. I don’t say this to sugarcoat the narrative. This is simply a fact. In my mind it’s premature to be saying the sky is falling because the stats right now don’t support that idea. My advice? Be really careful about painting what looks like a seasonal trend with a doom and gloom brush. Also, be patient for more data in coming weeks and months so we can get a fuller picture of the trend. We need time. And as we get more data we can absolutely adjust what we say about the market.

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 are you seeing out there in the market? What if anything strikes you above? I’d love to hear your take.

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

Does it need a closet to be a bedroom?

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Do you need a closet to be considered a bedroom? That’s a big question, and the answer is simple. Actually, it’s not. Here are some things to consider. 

NOTE: This post does not address the requirements to be a bedroom. Here is a post I wrote about the four requirements to be a bedroom (over 300 comments).

Real estate folklore: In the real estate community, I often hear things like, “Closets are definitely required.” But here’s the thing. Is there really support for that claim? Or is it just real estate folklore passed down?

No closet rule: The truth is there isn’t any formal one-size-fits-all definition of a bedroom that states a closet is necessary. For reference, International Residential Code does NOT mandate a bedroom to have a closet. I find local code is sometimes vague about bedrooms too without a strong emphasis on mandatory closets.

The big issue (the market): Ultimately, a bedroom should probably have a closet because that’s what buyers typically expect. In other words, buyers expect for closets to be present, new homes are built with closets, and it’s hands-down normal to have closets. So, while a closet might not technically be required by code, the market likely requires one. Frankly, when there is not a closet, that’s sometimes a clue we are looking at something else – a den, office, bonus room, etc… In this regard, I get it when appraisers and the real estate community sometimes look at a home and state a room is not a bedroom if there is no closet.

Architecture: It’s possible some types of architecture might not have closets, but that doesn’t mean the home has zero bedrooms, right? Thus, it’s important to concede not every type of architecture fits into a neat little “every bedroom needs a closet” box.

Using logic: If I removed all the closets in my house, would that mean I didn’t have any bedrooms? Probably not. Sometimes we get so fixated on the closet issue that we’re not using logic. Look, it would be strange and probably a marketing or value mistake to not have closets, but I wouldn’t say a house had zero bedrooms because all the closets were removed.

Using good professional judgement: The other day I measured a house that’s going to hit the market, and the front room didn’t have a closet. It technically met the requirements to be a bedroom in terms of size and egress, but I didn’t label it as a bedroom on my sketch because it felt more like an office or den. Having French doors and no closet just made it feel more like something else instead of a bedroom. I would bet money most buyers would walk through the house and say, “That’s a killer office.” In short, this shows there is a place for subjective professional judgement where we have to consider how a space feels, local code, and how buyers might perceive an area. That might sound wishy-washy, but good professional experience and judgement matter.

Local code: A few weeks ago I visited a house that had a room with a closet that looked like it should be a bedroom, BUT there was one glaring problem. In this room there was a tiny window not large enough for egress. If you didn’t know, a bedroom needs to have an opening of at least 5.7 sq ft per IRC R310.1. Ultimately this room used to be a bedroom until the previous owner did an awkward addition on the back of the house that removed the original window. The owner then added a tiny window to try to technically meet the requirements for egress. In my professional opinion (and knowing enough about local code), I did not consider this area as a bedroom even though it had a closet. Thus, the presence of a closet was not the trump card for the situation because there were other issues to consider. By the way, this is not to say all types of architecture need a typical window with an opening that conforms to current code because mid-century modern homes don’t always have that (they sometimes have high windows along the ceiling only).

What if I add a closet? Sometimes I get asked things like, “If I add a closet to this space, will it become a bedroom?” Honestly, it’s impossible to answer without really seeing the space and thinking critically about code and how the market would perceive the area.

Logic and value adjustments: It’s tempting to give a token value adjustment for bedroom count differences. Maybe we heard it somewhere or learned from a “mentor” the value adjustment should be $10,000 for each bedroom. So we give this adjustment any time we see a bedroom difference. But does this amount really make sense if we’re talking about 2 vs 3 bedrooms and 5 vs 6 bedrooms? Don’t you think the value variance could be huge for 2 vs 3 bedrooms but maybe minimal at best for 5 vs 6 bedrooms? Regarding closets, imagine it would cost $1,500 to add a closet to a room, but you are giving a downward $10,000 adjustment because one room is not technically a bedroom due to no closet being present. Are you telling me the market is adjusting down by $10,000 when there is only a $1,500 cost to actually add a closet? Food for thought.

CLOSING THOUGHTS: Instead of embracing a “closets are always needed” belief system, it’s a good idea to back up and think about buyer expectations, architecture, and local code. Honestly, it would be easy if there was a one-size-fits-all closet rule, but then again that rule could never make sense for all situations and types of homes. 

I hope this was helpful.

Questions: What were you taught about closets? Any other points to add? What did I miss? I’d love to hear your take.

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The housing market is slowing (but not slow)

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The housing market is slowing and today I want to share seven quick ways I’m seeing that. But here’s the thing. This market is still driving at warp speed. In short, the market is slowing, but it’s not slow.

Podcast with Golden 1 Credit Union: If you need some background noise, here’s a podcast I recorded recently. I had fun with this one. Listen here.

This post is designed to skim or digest slowly.

7 WAYS THE MARKET IS SLOWING:

The housing market is still so competitive, but there are subtle ways I’m seeing slowing. This is so important for sellers to understand – not to mention real estate professionals who are talking with clients and the public. If you’re not local, what are you seeing in your area?

1) Taking longer to sell: Last month on average it took 12 days to sell a home and 6 median days. Since June pendings have taken two extra days to get into contract. This is still lightning fast, but it’s slower than it was.

2) More homes are selling below the list price: There are slightly more homes selling at or below the list price right now. Here’s a visual to show what buyers are paying compared to the asking price. As you can see most categories slowed slightly last month, but not every category.

3) Fewer multiple offers: For two months in a row we’ve seen fewer multiple offers in the Sacramento region. Keep in mind the percentage of offers is still about as high as it’s ever been.

4) More listings are hitting the market: We still don’t have enough listings to satisfy demand, but there are now literally multiple hundreds of extra listings on any given day in the Sacramento region compared to a few months ago.

5) Slightly higher monthly inventory: We are seeing a slight uptick in monthly housing inventory. Very slight. It’s wild to say this when we basically still have half-a-month of homes for sale, but supply is up just a little in most counties from a few months ago. Of course now we are seeing mortgage rates at their lowest point in months, so we’ll see what happens to supply in coming time.

6) We hit the big home peak: The dark blue line represents the average home size in Sacramento and it goes up and down like clockwork each year. Do you see how size typically hits a seasonal peak during May or June (besides last year)? Anyway, the average size slumped in June, which is what we’d expect to see in a normal year. This goes to show we’re seeing some normal seasonality. 

7) Word on the street: I’m hearing from lots of real estate agents, loan officers, and appraisers that they’ve seen a slightly slower vibe. I haven’t heard anyone say the market is slow, but there is lots of chatter about slowing. At the same time I’m hearing things like, “My listing had 23 offers” or “We got outbid again,” which speaks to how competitive it is right now.

8) Other: What is number eight?

Any thoughts?

3 WAYS THE MARKET IS NOT SLOWING:

1) Record prices: The market still has upward price pressure in lots of areas and each month we’re seeing old price records shattered (nominal prices not adjusted for inflation). See stats below for specific price metrics.

2) Buyers paying big money over asking: On average properties sold $25,865 above their original list price last month. This is a wild stat considering it represents over 2,800 sales. This figure is higher than any of the previous three months too, which shows the market is still bananas. By the way, the average amount clearly does not perfectly represent every individual escrow.

3) Record sales price to list price ratio: Last month properties on average sold 4.1% above their original list price. This might seem low, but it’s actually higher than it’s ever been. This is a good reminder that not every stat is showing slowness. In other words, when a market slows we don’t always see it in every single metric. Of course it’s good to keep in mind sales in June really represent pending contracts from May more than anything.

Okay, two last thoughts.

NOT CRASHING: The doom and gloom crowd loves to look at slowness and say the market is starting to crash, but that’s what they say every year when stats sag. Look, I’m not saying the market is perfect. I’m just saying stats right now don’t support a crash and burn narrative.

IT LOOKS SEASONAL EH: In a normal year we’d expect for the housing market to crest around this time and begin a seasonal descent for the rest of the year. So it’s no surprise to see the market slowing right now.

——————– BIG MARKET UPDATE ——————–

For those interested, here’s a big Sacramento market update:

THE SHORT VERSION:

Here is a highlight reel to talk through some of the bigger themes right now. In short, the stats are sensational and we are in the midst of an incredibly competitive market. But we’re also seeing some slowing. Both things are true at the same time.

THE LONG VERSION:

Stats are on steroids and we are still seeing one the wildest markets we’ve had. It’s just some metrics are showing some symptoms of what looks like seasonal slowing. Here are some of the bigger themes.

FORECLOSURES HAVE NOT INCREASED:

Some folks are talking about an increase of foreclosures, but that hasn’t been happening. What I mean is these properties are definitely not showing up on MLS. I keep hearing of a coming foreclosure wave also due to forbearance rates, but those keep going down.

MAY TO JUNE PRICE STATS INCREASED (NOT A SHOCKER):

How has the market changed recently? Take a look at May to June prices. In short, every metric in all surrounding counties showed an increase last month.

LAST YEAR VS THIS YEAR:

Last year the market was dull at the beginning of the pandemic, so this year versus last year gets a little weird for a comparison. My advice? Take these percentages with a grain of salt because they’re inflated due to sagging numbers last year. And remember these percentages DO NOT actually mean every house is worth that much more either.

MORE PRICE VISUALS:

A few more visuals to show the insanity of price growth lately. Look how far disconnected 2021 prices are from previous years.

SALES VOLUME HAS BEEN STRONG:

For thirteen months in a row we’ve seen higher monthly sales volume compared to the previous year. This June was up from the previous two years and overall at a fairly normal level. Frankly it’s impressive to see this many sales in light of having such low supply. It just goes to show buyers have been getting it done. Keep in mind last year did have lower volume due to two lower months at the beginning of the pandemic, so that’s one reason why the percentages are up so much this year. But we’ve also seen increased migration this year too, particularly in El Dorado and Placer County.

Anyway, this is getting really long.

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 are you seeing out there in the market? What are you hearing buyers and sellers say? I’d love to hear your take.

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

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.

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

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