affordability

The housing market is hot again (sort of)

April 5, 2023 By Ryan Lundquist 14 Comments

The market is hot again. Sort of. We’ve been seeing a spring seasonal market for a few months, but we seemed to hit an inflection point locally a few weeks ago, and it’s getting REALLY competitive out there. Let’s talk about it. This is a longer post, so scroll by topic or digest slowly.

UPCOMING (PUBLIC) SPEAKING GIGS:
4/12/23 Q&A at Moksa Barrel House (details coming)
4/13/23 Realtist Meeting
5/4/23 Event with UWL TBA
5/10/23 Empire Home Loans event TBA
5/22/23 Yolo YPN event TBA
7/20/23 SAR Market Update (in-person & livestream)

ICE BATH TO BLOODBATH

The housing market was an ice bath in the fall of 2022, but now it feels like a bloodbath with the level of competition. I was expecting the market to heat up for the spring, but seeing 45% fewer new listings so far in 2023 in the Sacramento region has changed the trend. This meme is the best way I can describe the market right now (images from Captain America).

BUT VOLUME IS STILL WORSE THAN 2007

The market is starting to feel like 2020 competition, but we have 2007 vibes in terms of sales volume. That’s what is so weird about today. In fact, since late 2022 monthly volume has been worse than 2007 levels in the Sacramento region. Thus, when someone says the market is blazing hot right now, there’s a major asterisk next to that statement.

LOW DEMAND & LOW SUPPLY HAVE MET

The issue today is we’ve had lower demand since buyers have stepped back from the market due to affordability. But now sellers have also stepped back, and it’s caused low demand and low supply to meet. If we had a normal number of listings right now, the market would feel way different. It’s frankly striking to see competition like this in the midst of a market with so many missing buyers.

ACTIVES & PENDINGS

Here’s one of my favorite ways to show the market right now. I find it’s key to look at the number of listings and pendings by price range to get a sense of competition. Do you see how tight the market is in some price ranges? At the moment there are more pendings than actives in every price range under $700,000. It’s especially lopsided under $500,000 though. This dynamic is exactly why we are seeing bidding wars.

And here’s a snapshot of actives vs pendings. This doesn’t have any context, which is a weakness, but I think it’s important to get a quick glance at the numbers. I’ll share this here and there if you like it (let me know). In short, having more pendings than actives is a freakish trend for Sacramento County, and that sort of dynamic is not normal (it happened in portions of 2020 through 2022 when the market was blazing).

BELOW ONE MONTH AGAIN IN SACRAMENTO COUNTY

We dipped below one month of housing supply in Sacramento County again. This means there is less than one month worth of active listings available to buyers. It’s making it tight to have fewer listings hit the market.

And a few different counties… Basically, every local county has seen inventory drop lately, but only Sacramento County is below one month so far (the entire region is close though at just under 1.2 months).

BRO, I PREDICTED THIS…

Lots of people are acting like it was so expected to see sellers step back from the market like this. I get it because it makes logical sense since the math doesn’t work for sellers. But it’s also okay to be surprised that we’ve seen a whopping 45% fewer new listings in the region in 2023. And it’s no problem to change our narrative when the stats change. For me, the trend right now makes logical sense, but I’m still shocked to see nearly half of all local sellers sitting out. That’s a stunning trend, and it’s made all the difference today. Here’s a tweet from yesterday to tie in predictions too.

TAME PRICE APPRECIATION THROUGH MARCH

We’ve since a spring bounce with prices in the Sacramento region. This is normal to see, and it’s something that happened even in 2007. We’ll see what the future holds as current pending contracts start closing. I’m definitely seeing a higher percentage of multiple offers among pendings in recent weeks, and there are some really lopsided stories about buyers paying above the asking price too. More on that in time.

Anyway, price appreciation through March has been modest at best (county and regional level). In other words, it’s been a slight uptick, and we haven’t seen explosive price growth like early 2022. Pending price data looks pretty modest technically, but we never know how much properties have gone above the asking price until they actually close, so there is a lag in tracking the trend. This is why on the neighborhood level it’s so important for appraisers to talk to agents to understand what current pendings are in contract for. Keep in mind the trend can be way different at the bottom half of the market, so it’s important to look at each neighborhood and price point separately rather than imposing a county-wide trend on every neighborhood.

All that said, one thing I’m hoping to communicate here is the importance of recognizing that intense competition doesn’t automatically mean early 2022 rapid appreciation. We are in such a weird market right now with subdued supply and subdued demand, and we’re going to have to wait to see what happens with prices. One thing that likely isn’t helping is the extra steroid of the Dream for All program. Lower rates lately can bring some buyers back too. Ultimately, the market will figure it out… Well, and Fed and governmental policy will probably be the x-factor in shaping things.

Let’s keep watching.

SELLERS STILL NEED TO PRICE CORRECTLY

It’s really expensive to overpay in today’s market, so overpricing is a glaring mistake. The properties that are getting bid up are units that check all the boxes and/or homes that are priced lower to generate interest. We are NOT seeing overpriced properties getting 10 offers. I’m also not seeing properties with 30 offers when priced at market value either.

THE MARKET IS NOT NORMAL

On the rosy side of the real estate narrative, it’s easy to say the market is back, but that’s not true. It’s still not affordable for a big chunk of buyers, which is why sales volume has been lousy for so many months. Granted, if we start to see fewer listings over time, then sales volume could also be down because of a lack of listings. I find a “hot” market with rising prices is the preferred narrative among many real estate professionals, but the last thing we need right now is higher prices. Moreover, it’s volume that pays the bills. Not prices. Personally, I’d rather see prices go down so more buyers can participate. That seems healthy to me. But I don’t get to make the rules.

NOT ADMITTING THE MARKET IS HOT

I’m finding some doomers are struggling to talk about fewer new listings changing the dynamic lately. My observation is some who perpetuate a doom narrative are so fixated on the idea of the market imploding that it’s hard to admit that it’s getting hot again. I don’t say this as a guy who is a part of the rosy real estate club. I’m on team data, and my goal is to form perspective based on the stats. I’m just saying it’s felt disingenuous lately with social media conversations where some people are so tied to their dark narrative that they can’t seem to be able to talk about a shifting dynamic. Look, we are not affordable, and it would be really healthy for prices to go down. We’ll see what the future holds in this regard. But let’s not miss out on market analysis and conversations right now.

THE DECLINING BOX

Appraisers need to consider which box to check in appraisal reports right now. The market is a mixed bag for sure, and the trend is going to vary by neighborhood. But if we are market experts, we need to be on top of this and let the stats lead us. If the market has changed in recent weeks and months, this means older sales might need upward adjustments if pendings are now higher. I saw an appraisal report this past week where comps from November and December were used without any adjustments, and that seemed off when looking at neighborhood stats. The appraiser said the market was declining, but the trend has changed lately. I would have at least said the trend was flat with some brewing upward pressure. In my mind, the most important thing right now is to really understand what is happening with the listings and pendings rather than waiting for these properties to close in coming months to see the trend then. I’m really against appraisers saying the market is stable if it is declining. Seriously, I despite that. But I’m also against saying it’s declining if it’s not.

I spoke at the ACTS conference this week, and here’s an example of some language I used recently to describe the market.

By the way, it was really nice to meet so many new friends at the ACTS conference. I’m looking forward to being connected.

I hope this was helpful.

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 are you seeing happen with prices? Up, down, flat? I’d love to hear your take.

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Real estate trends to watch in 2022

January 3, 2022 By Ryan Lundquist 41 Comments

What’s the real estate market going to do in 2022? Let’s talk about some of the emerging trends. Scroll quickly or digest slowly. Anything to add?

January public speaking gigs:

January 12: Top Producer Panel in Granite Bay (sold out)
January 18: SAR Big Market Update (sign up here)
January 19: PCAR WCR Big Market Update (details TBD)
January 25: Joel Wright’s Market Event (details TBD)

TRENDS TO WATCH IN 2022:

Continuation of a lopsided market: Many were hoping the housing market would feel normal by now, but that’s just not the case. In short, buckle up because this year is poised to begin with an ultra-competitive feel. We’ll see how the year ends, but we are starting with heavy competition.

Upward price pressure: There is still pressure on prices to rise due to an imbalance between supply and demand. We basically have a supply issue in that there aren’t enough properties getting listed, but we also have lots of demand stemming from historically low mortgage rates and other factors.

The color of the year: Pantone‘s color of the year for 2022 is called Very Peri and it combines blue hues with violet. I guess as a non-fashionable dude I would say this is purple-ish (sorry to offend any designers). Anyway, will we see more color this year? Honestly, I hope so because these past two years have been dark, so a little cheer is okay in my book.

Slower price growth is expected: Everyone and their mom has predictions about price growth and I typically stay away from specific crystal ball prophecies. But I will say it’s likely we’ll see a slower pace of appreciation this year compared to last year in light of atypically-high price gains in 2021, growing unaffordability, and anticipated mortgage rate increases. In other words, the median price grew 19.6% last year in the Sacramento region and it’s not likely we’ll see that again this year (hopefully not).

Bubble prophets: As we enter our eleventh year of price growth I suspect housing prophets to preach doom and gloom. My advice? Be careful about people who continually gravitate toward dark housing themes and punt predictions down the road when they don’t come true. Instead, listen to actual stats. Also, recognize markets go up and down, so at some point we would expect for prices to no longer rise since that’s what normal looks like.

Some buyers are worried about buying at the top: There are buyers who are legitimately worried about purchasing a property in 2022 because they wonder if the top is near. Look, nobody knows the future and this is a big conversation that only brings up more questions. Here is a post I wrote with some things to consider as a buyer right now.

Divorce: All the divorce attorneys I know are really busy. While I don’t have divorce statistics (difficult to get), I suspect the pandemic has caused life reflection and many couples have decided to call it quits. Of course, having years of equity may propel this decision for some too.

We won’t get back to normal listings: Many of us are exhausted about talking about the pandemic, but the truth is COVID-19 has been a game-changer for real estate as we’ve seen fewer sellers listing their homes since this all began. Anyway, for this year hopefully we’ll see more listings than last year, but unless something unexpected happens it’s hard to imagine we’ll get all the way back to normal (I hope I’m wrong).

iBuyers will gain market share: Here’s the bottom line. Institutional money is targeting residential real estate and its going to keep trying to get a slice of the pie. While tech flippers don’t have a massive share of the market, for now it looks like they’re going to keep trying to crack the code. Zillow failed last year, but let’s be careful not to pin their failure on the iBuyer model itself because Zillow was simply overpaying. By the way, keep an eye out for OfferPad as a new iBuyer in California. Lastly, here’s the number of units owned by the following companies in the region: Opendoor (312); Redfin (52); Zillow (500); Invitation Homes (157 recorded since May 2021).

Affordability is heading the wrong direction: After such massive price gains recently it’s no surprise to see diminishing affordability. The California Association of Realtors states only 24% of households in Q3 2021 could afford the median price in the state. Therefore, I expect to hear more conversations about the struggle of affording a home. Yet as painful as it is for some individuals to be priced out of the market, so far we haven’t seen any mass exodus of buyers. The key here is to watch closely what happens with sales volume and whether local buyers are closing deals or not.

Leaving California is going to look good this year: The ability to work from home, early retirement, and a decade of equity gains will likely fuel more migration this year. Well, and people leave the state for other reasons too. I shared some migration stats at the end of last year and I’ll update my charts once the Census Bureau publishes data (they’re delayed). Ultimately California lost population last year, which is a huge deal. But to be fair it’s important to recognize population stats aren’t just about people leaving. Remember, population has to do with inbound migration (people coming), outbound migration (people leaving), the birth rate, and the death rate. All I’m saying is this year when having migration conversations, let’s consider all of these factors. Where are people you know moving to? If you are considering moving, what is your motivation?

Mortgage rates rising can affect the feel of the market: Nearly everyone has predicted an increase in mortgage rates this year. Assuming rates do rise (we’ll see), this is bound to help soften some of the housing insanity and remind us how sensitive the housing market is to rate changes. I’m not saying rates are going to shoot up dramatically, but do you remember how dull the market felt in 2018 when rates went above 4.5%? This is worth noting because recent history reminds us the housing market is sensitive to rate changes. In my mind we hit an inflection point in mid-Summer 2020 when rates went below three percent. At that point the market started to feel more like an auction with intense bidding wars due to excessive demand. The struggle is if rates rise to 3.6% like Redfin thinks, that’s still incredibly low and probably not enough to make the market feel “normal” so to speak. However, I suspect a rise to the mid threes would at least be enough to take away some of the insanity we’ve felt lately (some). Check out Len Kiefer’s visual to show how ridiculous rates have been since 2020.

Saying goodbye to single-family zoning: A few cities have amended single family zoning rules in recent years, so this is a brewing national trend to follow. In California SB9 is now in effect and this law allows property owners to build a duplex on any residential lot or subdivide to build up to four units. I tend to think this isn’t going to change the landscape of neighborhoods because most property owners won’t do this because it’s expensive. But it’s important to watch this as a trend popping up in patches throughout the country and pay attention to any talk of building multi-units within single family zoning.

Racism in real estate: I expect we will see many more headlines about racism in real estate. Much of the conversation has focused on appraisers, but it will likely spread to other professions within real estate too. My advice? Listen, be a part of the conversation, take inventory of the words you use, and change as needed. If you are local and want to understand some of the history of redlining and restrictive racial covenants, check out this UC Davis talk by Dr. Jesus Hernandez. And when it comes to appraisals, please be aware there are many reasons why an appraisal might come in lower than expected (or too low). I don’t say this to dismiss the seriousness of claims of racial bias we’ve all seen in the media. I’m just saying I’ve also seen some flippant accusations this year and that’s not right.

Other: What did I miss? What’s on your mind for the year?

RECAP NEXT WEEK: Stay tuned for an annual market recap post with new visuals. Check out my social media this week for some previews.

I hope this was helpful or interesting.

Questions: What else do you think will be important in 2022? Did I miss something? I’d love to hear your take.

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Skyrocketing prices aren’t happening everywhere

March 23, 2021 By Ryan Lundquist 9 Comments

The market is ultra hot, but it’s NOT the same speed everywhere. It’s tempting to impose the idea of a blazing market on every single neighborhood and property type, but that’s a quick way to get into value trouble. Let me share exactly what I mean by looking at the condo market. If you are not local, are you seeing something similar in your area?

BIG POINT: The condo market is NOT showing skyrocketing prices like the rest of the single family market this year.

1) Slower price growth The median price for single family detached homes in 2021 is up a whopping 18.3% so far in the Sacramento region. In contrast, condos are only up 9.7% so far. Yes, I just said they’re only up 9.7%. I know how that sounds, but that’s about half the growth we’ve seen in the rest of the market. In short, condos have definitely been increasing, but the speed is WAY slower.

2) Condos are still moving quickly though: Even though condo prices aren’t rising as quickly, they are still selling about as fast as single family detached homes. This reminds us the market moving quickly doesn’t always mean we’re seeing rapid price growth.

3) The pandemic x-factor: Everyone wants that perfect backyard paradise to quarantine in style (especially with a pool). This sounds like a rosy made-up narrative, but the stats actually back it up. If you didn’t know, condo sales volume dropped 10% from 2019 to 2020 in the Sacramento region, so clearly buyers turned their gaze away from condos.

4) BUT condos represent affordability today: So far in 2021 condo volume has been up slightly for the first two months compared to last year. Remember, condos represent one of the most affordable products in the market, so with skyrocketing prices in the single family detached world, a condo may represent a more viable option for some buyers today. Keep in mind there aren’t many condo sales each month, so we need a few more months to see if this is a solid trend or just a fluke for the first two months. In other words, don’t write home over this, but let’s stay tuned because this could be interesting.

APPLICATION STEP: When valuing properties in today’s lopsided market, be sure to look at actual comps and pendings in the neighborhood rather than imposing a hot headline on the market.

By the way, here’s a YouTube Live conversation I had with Matt the Mortgage Guy yesterday. Enjoy if you wish (it’s an hour).

Thanks for being here.

Questions: What stands out to you about the points above? What are you seeing out there right now? I’d love to hear your take.

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My real estate mind never shuts off

December 3, 2019 By Ryan Lundquist 23 Comments

My real estate mind never shuts off. Even when I’m on vacation I can’t help but notice interesting things and think through value issues. Anyway, last week I took a family road trip through Southern California and here are some things that caught my eye. Enjoy if you wish.

INSIGHTS WHILE ON VACATION

1) Vibrant colors: Imagine this pink color in a newer tract subdivision of stucco boxes with earth tones. In that scenario the market could have a negative reaction to such a loud color, but in certain areas vibrant colors are accepted. This reminds us the market isn’t the same in every location or price range. By the way, check out this pink house near Austin in case you missed it earlier this year.

2) Prices are relative: These new townhouse units in San Diego start at $1.2 million. That’s wild considering the starter model is less than 1,200 sq ft. In Sacramento we don’t tend to see such small units command this price point. For reference only 2.5% of the entire regional market in Sacramento this year has sold above $1M. It’s a good reminder that prices are relative to their location. But still, I think this underscores the struggle of affordability in California too.

3) Views can be temporary: This unit has a view of the ocean for now because there’s a vacant lot in front of it that allows this view to happen. My advice? Whenever purchasing a property near vacant land, be sure to check out the zoning and/or the probability of a zoning change. This will help you know what can be built because a vacant lot doesn’t always stay that way…

4) Unique architecture: This is a new build with a modern Arabic architectural feel. It’s a gorgeous custom home and there aren’t too many like it from what I can tell. What would you do for comps on this one?

5) The rage of contemporary homes: I see contemporary or “modern” architecture popping up all over the place in many major cities throughout the country. But while contemporary is clearly a growing trend, it’s not everywhere either. For instance, we don’t tend to see homes like this built in rural markets or lower-priced areas, but we do see it near major cities. On a personal taste level, this isn’t for everyone. But then again, it doesn’t matter what you or I think. What does the market think?

6) A location with an asterisk: This is a killer view, but there’s one big issue. Is it possible to demolish the unit in front? If so, how high could a new structure be? This is a critical issue to consider when choosing comps as we have to consider the permanence of a view when assigning value to a property. We see stuff like this happen all the time when an owner backs vacant land until a developer builds a store. I recently appraised a house that had a lake view only because of a vacant lot across the street. But said vacant land was purchased and it’s now likely to see a change in the view.

7) Funky driveway: I’ve not seen a driveway like this before. I’m not sure if it’s just ornamental or if there is a practical use for this design. What do you think?

8) A door that pops: I often get asked for ways to help increase curb appeal. I’m not saying painting your door is going to sway value, but when there is a limited budget I tend to tell people to focus on lots of little things instead of just one big project. In other words, try to increase the “bling” of a house in small ways rather than only remodeling the kitchen. This is why I like painting a door because it’s an inexpensive and practical way to give a house vibe or even charm. As always, know your market. If nobody is doing this, maybe don’t do it.

9) A house of a convicted murderer: I made this image just before vacation and I wanted to sneak it in here. I’ve been watching a series on Hulu called The Murder of Laci Peterson. If you recall, Scott Peterson was convicted of murdering his pregnant wife about 15 years ago. Anyway, this home has sold a few times, so I figured it was worthwhile to visualize on a graph. Does it look like the most recent three sales sold with a diminished value? Or does it seem like the sales fit into the market without any big negative reaction? We talk about homes with stigma all the time, and all I’m saying is it’s important to consider whether a notorious owner in the past or something that happened at a house can make a difference in the value. In this case we don’t actually know for sure where the wife and child were killed. Here are some more thoughts on fame and real estate if you’re interested.

10) Unique homes & unique comps: If you’re trying to pull comps on a unique home, you’re not likely to find something exactly the same. My advice? Look through years of sales for clues on how the market responds to unique properties. Try to find something that is similar in appeal or uniqueness rather than hastily picking the three most recent similar-sized ranch home sales over the past few months. Those SALES might not be COMPS.

Anyway, that was my vacation. And now my trip is a tax write-off since I blogged about it. Right? 🙂

I hope you enjoyed my trip as much as I did.

Questions: Are you similar to me in not being able to shut off your mind? What pictures stand out most to you? 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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