There’s no inventory. It’s just incredibly sparse out there. So are buyers starting to look more to 2-4 unit properties since they are struggling to get into contract with single family homes? Well, maybe so. Let me share some visuals. If you’re not local, what’s happening in your market?
FIVE THINGS TO KNOW ABOUT THE 2-4 UNIT MARKET
1) First-time buyers are pulling the trigger: Last year more first-time buyers purchased two to four units compared to previous years in the Sacramento region. Both FHA and VA loans have seen an uptick and are essentially at their highest level in recent years. Keep in mind FHA has actually been declining as a loan type in the single family market, so it’s interesting to see this uptick among multi-units. We need more time to fully understand this trend, but this could very well be an example of buyers looking to other types of properties since the single family market is struggling so heavily with few listings to purchase.
2) Prices have increased: Here is a look at the annual median price over 18 years. The trend for multi-units follows the single family market closely as there was a huge increase, a bubble burst, and we’re now in our tenth year of price growth (with the current nominal price having surpassed 2005 prices).
3) Volume isn’t what it used to be: Just like the single family market, we’re seeing fewer sales today from the previous market height between 2003 to 2005. Moreover, last year there were 10.9% fewer multi-unit sales in the region. When the pandemic started investors pumped the brakes, but the second half of the year was much stronger.
4) Types of financing: Here is a deeper look at the type of financing involved in two to four unit sales. In recent years conventional has been dominant and cash has been declining. This is the same trend we’re seeing in the single family market because it’s just so cheap to borrow money. Look at FHA and VA though showing an uptick overall, which is telling of a growing appetite among many first-time buyers for multi-units.
5) X-factors to consider: One thing to consider while pulling comps these days is whether tenants are paying full rent in light of an eviction moratorium in place in California. The reality is some investors may expect a price discount in light of rent not being paid. Also, it’s important to keep watching to see any effects of rent control since we’ve now had one year of rent control under our belts.
I hope that was interesting or helpful.
Questions: What are you hearing from first-time buyers? What are you seeing in the 2-4 unit market? I’d love to hear your take.
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3) Housing inventory remains low: There isn’t any quick fix for anemic housing inventory, so we can expect to see another year of low inventory unless something drastic happens causing sellers to list their homes. That brings me to share something I talked about last month. In a 
6) Disappearance of the $100,000 market: There is definitely upward value pressure on the lowest end of the price spectrum. Other price ranges last year were much more flat, but not so much with the lowest prices in town. This year in Sacramento we are going to very likely see the disappearance of the market under $100,000. Each month lately we’ve had maybe 6-12 sales under $100,000 for single family detached homes, and after the next few quarters I expect that number might be down to zero. We shall see though.
10) Multiple offers: We are likely to continue to see a climate of multiple offers in the Sacramento area. In a market like this I would advise sellers to be realistic about pricing their homes properly. What have similar homes actually sold for? What is similar and getting into contract right now? It’s easy to cherry-pick the highest non-similar sales in the neighborhood because “the market is hot”, but we have to remember similar homes are the “comps” appraisers are going to use (key point). At the end of the day appraisers have to support the value, so it may be best to be reasonable on the front end rather than run into all sorts of “appraisal issues” because the property got into contract too high. Remember, just because housing inventory is low does not mean you can command whatever price you want. That may have been more true in early 2013, but it’s not true right now.