Appraisal

The housing market will figure it out

November 16, 2022 By Ryan Lundquist 29 Comments

The housing market has really changed, and it’s not an easy time to work in real estate. I know people in all parts of the profession who are having a hard time and wondering how to make things work. So, I wanted to share some perspective to hopefully bring encouragement. This post is sort of a combination of market trends and mindset. I hope it helps.

UPCOMING (PUBLIC) SPEAKING GIGS:
11/17/22 Bias & Real Estate Lunch & Learn (RSVP here)
12/5/22 SAFE Credit Union market update on Zoom (register here (free))
1/18/23 WCR Market Update in Cameron Park (details TBD)
1/19/23 Big market update at SAR on Zoom (details TBD)
1/23/23 Residential RoundUP (register here (free))
5/22/23 Yolo YPN (details TBD)

THE BIG TRUTH

The reality is we are in the midst of change and there is pain ahead. But the market will figure this out. Bottom line. And we can’t control what the market does, but we can control our response to the market.

IDEAS FOR BEING SUCCESSFUL IN A NEW MARKET

And now some encouragement. Or maybe it’s unsolicited advice. You decide.

– Work harder than ever before.
– Tighten up finances (both personal and business).
– Run toward the challenge of a new market.
– Expect fewer deals on your desk since fewer transactions are happening.
– Plan to make less money (and be grateful if you make more).
– Be okay that not everything is perfect.
– Strategize for how you need to diversify your business.
– Focus on building relationships and serving your network. If your network is small, it’s time to increase its size.
– Make a plan and work it. Be consistent in whatever you do.
– Plant seeds today that might not sprout for a couple of years.
– Expect more NOs before you get to a YES.
– Obsess over understanding who the buyers and sellers are today. Whenever you hear about a sale, ask this: Why did the seller sell? Why did the buyer buy? This give clues into who is playing the game right now.
– Know the stats better than anyone.
– Take your mental health seriously.
– Stop 24/7 housing market doomscrolling (seriously).
– Find things outside of work that give you life, and do those things.
– If you don’t have a hobby, it’s time to find or rekindle one.

WRITE A “DEAR DOWNTURN” LETTER

I know, this sound cheesy. I heard this idea from someone (Tom Ferry?). I’ve written a letter to myself called “Dear Downturn.” In my letter I lay out a plan for how I’m going to succeed in a down market. If this might work for you, go for it. Be as practical as possible about what you’ll do to position yourself for success. My letter includes things like write one weekly post, eat clean, get back to my goal weight, be a daily resource on social media, speak somewhere once a week, make a few longboards, get my turn-time down to X number of days… Here’s the start of my letter:

Dear Downturn

First of all, I’m not excited that you’re here, but I’ve been waiting for you. And I’m ready to take you on. Here is the way I’m going to conquer you.

HOUSINGWIRE PODCAST:

I just did this podcast. Check it out if you’d like. I think it goes well with this post because it’s about market trends without sensationalism.

CHOOSING HAPPINESS IN A DOWN MARKET:

It’s easy to feel awesome about life when business is thriving, but when things get tight or the phone stops ringing, that’s when we really get to find out what we’re made of. Here’s the sobering questions I’m asking myself. Am I only going to be happy during an up market? Or is it possible to have joy and contentment during a down cycle? I have to think it is possible, but it won’t happen by accident either. It’s time to get intentional.

MARKET CYCLES AND WORRY

Often when the market declines it’s a good five or six years of decline (in Sacramento at least). That might sound daunting, but it takes time for a cycle to adjust. The verdict is still out on how long the market will correct, so we’re not locked into any timeline. Of course, it feels like a game hosted by the Fed right now, so we’ll see what they do. I bring this up because if I’m lucky enough to live for thirty more years, and we have two more downward cycles within these decades, it’s possible prices could decline for more than a decade of my life ahead. This is important perspective. Am I going to be full of worry when the market is “bad” and only full of joy when it’s “good”? By the way, if this ends up being a typical cycle, remember the market doesn’t do a nosedive for the entire period. There can be portions of sharp and slower decline. It’s not just one speed for the entire cycle.

WINNING IN A DOWNWARD MARKET

People buy and sell real estate in all types of markets. In a down market, especially at the beginning, that’s when we see the biggest exodus of buyers since prices and uncertainty are too high. Today about 40% of the market has been missing lately in Sacramento, which also means 60% of the market has been happening. My advice? Focus on being a part of what is happening rather than fixating on what is missing. Also, some people who bought in 2008 and 2009 ended up winning big after the market rebounded. Technically prices still declined for three to four more years, but these buyers came out as major winners eventually as the market went up again. I mention this because it’s a good reminder that timing a bottom isn’t easy to pull off, and it’s not necessary in all cases either. I think sometimes people focus so heavily on geeky price metrics without giving enough weight to their lifestyle. Where do you want to live? Who do you want to do life with? What does your lifestyle mandate? Look, buy or don’t buy, but think about prices and your lifestyle as you make your decision. No pressure from me.

GEEKY ADVICE:

1) YOU DON’T HAVE TO BE ULTRA-POSITIVE:

If you feel tempted to only say positive stuff about the housing market, ask yourself why. Some real estate professionals think they have to keep it positive, so it can be challenging to know what to say when there is no longer a glowing honeymoon market. Now is the time to be real with what is happening. This is a season for buyers, so it’s time to abandon a seller-oriented narrative that focuses heavily on prices being up. It’s time to focus on buyers and sellers who are making lifestyle moves. What do buyers need to hear right now? What do sellers need to hear? Focus on that. If you are the expert, let people know exactly what it’s like out there. Tell the story of the market and help people find inroads to participate. Get rid of cliches and don’t promise everything will be okay (not a promise you can keep).

2) EMBRACE THE STATS, BUT DON’T DWELL ON NEGATIVITY:

This is a hard one. Some agent friends have even told me it’s tough to see some of my stats right now. My goal is always objectivity, but sometimes I feel like I’m swimming in a pool of negativity since the stats are showing declining prices and dropping volume. But this is where we’re at. If our market is going to decline for the foreseeable future, it’s time to embrace this new season and not stress over it. It is what it is. I’m not trying to be flippant about struggle, but either we can be defined by worry or we can find a way to embrace this next season of life and business. My advice is to know the stats extremely well so you can clearly articulate what the market is doing, but don’t let stats affect your mood. There has to be a way to embrace a downward trend without becoming the trend or getting sucked into a negative spiral.

3) FOLLOW & UNFOLLOW:

Choose carefully who you follow right now. Listen to objectivity and cultivate objectivity in your life. That’s what matters most. On that note, unsubscribe from people who are spewing sensationalism. It’s okay to step back from listening or following people if it’s too much for your mental health. And to be blatant, if my content feels like too much right now, take a break from my weekly post, hide me on social media, or unsubscribe. Take care of yourself (but please don’t live in denial).

I hope this was helpful. Just some stuff on my mind. Much love,

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 above? What did I miss? Any advice for real estate professionals right now? I’d love to hear your take.

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

The housing market is feeling the pain of higher rates

November 1, 2022 By Ryan Lundquist 28 Comments

The housing market is really starting to feel the pain of higher mortgage rates. Today I’d like to unpack some fresh October stats to show what I mean. I also have some thoughts about the spring season when prices are dropping. Whether you’re local or not, I hope this is helpful.

This post is designed to skim quickly or digest slowly.

UPCOMING (PUBLIC) SPEAKING GIGS:
11/4/22 Market update in Roseville (on Zoom now)
11/15/22 Sacramento Bee Q&A at 12pm (RSVP here)
11/17/22 Fair Housing Lunch & Learn (RSVP here)
12/5/22 SAFE Credit Union market update on Zoom (register here (free))
1/18/23 WCR Market Update in Cameron Park (details TBD)
1/19/23 Big market update at SAR on Zoom (details TBD)
1/23/23 Residential RoundUP (register here (free))

A 40% DROP IN VOLUME IS A SYMPTOM OF STRUGGLE

We’re seeing lots of markets around the country with dropping sales volume, which is the byproduct of a quick change in affordability due to rate increases. In Sacramento, volume took a beating last month. We still need another week before solidifying numbers, but we’re going to be down about 40% or so from last year. Keep in mind most sales in October got into contract in September when rates were at 6%, so being down 40% doesn’t even reflect 7% rates yet.

NOVEMBER VOLUME WILL LIKELY BE WORSE

In October, pending contract volume locally has been down between 40% to 50% depending on the week according to Redfin and Trendgraphix. This means November closed sales volume will presumably take a bigger hit than October, which underscores rates at seven percent are taking more demand out of the market (thanks Captain Obvious).

NOT ABOUT DOOM

By the way, I’m not writing as a doom and gloom guy. This is all about perspective formed by stats. It might not be easy for some to hear, but I’m only interested in talking about the market that actually exists. I have zero interest in promoting a rosy narrative too.

NOT EASY FOR SELLERS TO ADJUST

Prices have changed so quickly that it’s been tough for sellers to adapt. I’ve had a few conversations lately with sellers feeling remorse for not accepting an offer in the spring or early summer. One seller now has an offer about $60,000 lower than an offer made a few months back. That’s not easy to swallow, but it’s the reality upon us. I’m not saying prices are down exactly $60,000 everywhere either, but there has been a notable drop (more on that soon).

PRICES FLIRTING WITH LAST YEAR

As I talked about a few weeks ago, it looks like the median is about to dip below last year. So far in Sacramento County the preliminary median price for October is $1,000 below last year at the same time. It’s honestly too early to pull the monthly median, so I’ll share a solidified version next week. We’ll see how the numbers change between now and next week.

By the way, here’s a thread with weekly price graphs (instead of monthly).

WHAT HAPPENS IN THE SPRING DURING A DECLINING MARKET?

Okay, now some quick thoughts about the spring when home prices are declining. I think lots of people are wondering what is ahead as 2023 begins. In short, not every spring market is the same, but when looking at declining years in the 1990s and 2000s, there are many years where prices ticked up for a bit or looked more level during the spring.

Seasonality doesn’t always disappear: The darker bars show the median price from January to June, and in 2006, 2007, and 2008 there was a flat to slightly up vibe for a few months before declines persisted after the early spring. Of course, this could be due to larger homes selling in the spring, but even if that’s the case, it shows price seasonality isn’t always dead during declining years. We’ll see what happens in 2023. It’s hard to predict this year because we’re in a unique situation with quick rate changes.

The 1990s: The spring price trend is a bit more hit and miss in the 90s as sometimes prices clearly declined during the spring (black bars), but in other cases like 1994 there was a much more pronounced seasonal uptick.

DON’T GET STUCK ON PRICES

I think the visuals above are interesting, but they’re not the end-all graphs because they only discuss the price trend. Like I always say, don’t get stuck on prices alone because sales volume sometimes tells a more compelling story. I guess it’s ironic that I’m only showing prices here, but that’s what I had time for today. I do have some volume images to push out soon, and those will give even more insight into seasonality during declining years.

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: How are rates at 7% affecting buyers right now? What stands out to you about my stats above? What did I miss? I’d love to hear your take.

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

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.

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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