appraisals in Sacramento

Rates are low, but buyers aren’t going nuts

July 11, 2019 By Ryan Lundquist 21 Comments

Rates and inventory are really low, so on paper it seems like the market should be booming. But it’s not. The truth is sales numbers are down despite rates doing the limbo below four percent again. It’s like the market looks hot on paper, but it’s also a bit lackluster in some ways.

Affordability: A big issue today is buyers are struggling with affordability. After seven years of price increases, we’re seeing the market become too expensive for many prospective buyers since wage growth has not kept pace with price growth. Some buyers feel uncertain about the future also, which is causing hesitancy about whether to purchase.

Hot couple analogy: The market is like a super hot couple that looks great on paper. They’re rich, attractive, successful, and they get a ton of “likes” on Instagram. Everything looks perfect, but then out of nowhere they break up because it turns out their relationship wasn’t as good as everyone thought. In a similar way, the real estate market looks stellar on paper. Rates are low, inventory is sparse, and it’s actually really competitive out there. But we’re also seeing weaker sales volume which shows us buyers aren’t as enthusiastic as we’d assume them to be.

Any thoughts?

—–——– Big local monthly market update (long on purpose) —–——–

Now for those interested, let’s talk about Sacramento trends. If I had to pick a few phrases to describe the market it would be competitive if priced right, modest price growth, slumping volume, and fairly normal stats for the spring.

DOWNLOAD 70+ visuals: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

THE SHORT VERSION:

Prices are up, volume is down
It kinda feels normal right now
Price growth has been modest
46% of sales had multiple offers last month
Sales volume is down for the 14th month in a row
Low rates have helped change the feel of the market this year
Inventory is thin, but slightly higher than last year
The post is long on purpose. Skim or pour a cup of coffee

THE LONGER VERSION:

Here are some of the bigger topics right now:

Normal: The market felt really dull last year, but it’s been a somewhat normal year so far in 2019. There are certainly concerns about affordability, but from a stats perspective it’s been a pretty standard first half of the year. Pendings continue to be strong also, so buyers still clearly have a strong appetite for the market.

14 months in a row of slumping volume: Despite mortgage rates being low we’re seeing somewhat sluggish sales volume. In fact, sales volume was down 11.6% in the region last month and it’s down 8.6% so far in 2019. Moreover, we’ve had fourteen months in a row with lower sales volume compared to the previous year. In my mind it’s still best to say we’re having a slower year instead of a volume meltdown because levels aren’t alarmingly low by any stretch. Let’s watch this carefully.

Dude, rates will never get below 4% again: It’s been a little surprising to see how low rates have gone again, right? The narrative for a while was, “Dude, they’ll never go below 4% again. We’ve bottomed out.” Yet here we are. My sense is if rates keep going down it’ll only increase competition and artificially inflate prices. That would be temporarily nice for buyers, but an unfortunate byproduct is low rates in a wider picture tend to create less incentive for sellers to move. Why sell if you’re sitting on a 3.5% mortgage rate?

Purplebricks & the tech invasion: Last week it was announced that Purplebricks will be exiting the United States housing market after a 75% loss in shares. This company is going to the grave in the U.S., but the reality is we’re still in a market where tech companies are trying to disrupt the traditional real estate model. Next up? Zillow is said to be coming to Sacramento by the end of the year.

Joe Montana’s $49M overpriced listing: Former Quarterback Joe Montana listed his property for $49M and it didn’t sell because it was profoundly overpriced. In fact, the price has now been reduced to $28M. Many sellers are like Joe in trying to attract mythical unicorn buyers who will mysteriously overpay for some reason. My advice? Be aware that today’s buyers are incredibly picky about paying the right price.

The dream of selling at the top: I met a guy who wants to sell because he says the market might top out soon. His concern is a friend sold two years ago thinking the market was at its peak, but it wasn’t. The truth is it’s not so easy to time a market perfectly. We talk about how simple it is to do this, but most people pull it off from dumb luck more than anything. The reality is the bulk of buyers don’t buy based on price metrics, but rather lifestyle and affordability.

This is a fascinating chart, right? It shows a few price cycles over the past twenty years in Sacramento County. I don’t share this to say prices are about to change directions, but at some point that’s probably what we ought to expect because that’s what markets do. They go up and down. For now price momentum has been slowing and we’ll continue to watch this closely to see how it plays out. Let’s remember the collapse we saw in 2005 was not a normal trend that’s now the formula for the next price cycle. That was a market built on fraud and rampant speculation.

The coming recession: There are lots of predictions about a coming recession, and at some point one will happen. But predicting recession specifics is a bit like predicting housing market specifics. At the end of the day we might have ideas, but we don’t know the future if we’re honest. Moreover, the last “great” recession isn’t now the template or formula for all future recessions.

Eyeballs vs offers: Over two years ago I wrote about a $250M listing in Bel-Air. At the time it was the highest-priced property in the United States, and it was called “record breaking”. But today it’s still on the market and priced at $150M. Despite going viral and having global attention this listing did not sell. This reminds us it’s nice to have eyeballs on a listing, but the only thing that matters is offers. Sellers, if you aren’t getting offers, it may be time to adjust your pricing until the market bites.

Preparing for a slower season: At this time of year we typically see the market begin to slow down. The sales stats don’t show it yet, but when July stats come out we usually see it starts to take slightly longer to sell in July compared to June. This is a clue into a slowing market, and eventually we see more slowness in actual prices (but it often takes a few months to see the slow trend show up in actual sales stats). This is a good reminder to pay close attention to pendings today because that’s where we see what the current market is doing. What is similar and actually getting into contract? That is THE question.

I could write more, but let’s get visual instead.

FOUR BIG ISSUES TO WATCH:

1) SLOWER GROWTH: The market has moved forward this year, but it’s been at a slower pace. In other words, the market has felt competitive this year, but price momentum has continued to slow. Remember, “slower” and “slow” are not dirty words in real estate. They are market realities.

2) A QUICK RECAP: All year prices have shown a modest uptick. What I mean is prices are up from last year, but not by much. Keep in mind the lowest prices are likely the “hottest” market in town too.

3) VOLUME SLUMP: The number of sales has slumped in the region for 14 months (and 13 months in Sacramento County). Overall volume is noticeably lower this year, but it’s still not outside of normal low ranges though either (see 2014 and 2015).

SACRAMENTO REGION:

Key Stats:

June volume down 11.6%
Volume is down 9.9% over the past 12 months

SACRAMENTO COUNTY:

Key Stats:

June volume down 13.4%
Volume is down 9.3% over the past 12 months

PLACER COUNTY:

Key Stats:

June volume is down 10%
Volume is down 9.2% over the past 12 months

EL DORADO COUNTY:

Key Stats:

June volume down 6.3%
Volume is down 12.4% over the past 12 months

4) PRICES TICKED UP IN JUNE: The market generally showed price increases last month, though they were pretty subtle.

NOTE: Take El Dorado County data with a grain of salt. Stats change significantly month by month.

Thanks for respecting my content: Please don’t copy my post verbatim or alter the images in any way. I will always show respect for your original work and give you full credit, so I ask for that same courtesy. Here are 5 ways to share my content.

Please enjoy more images now.

SACRAMENTO REGION (more graphs here):

SACRAMENTO COUNTY (more graphs here):

PLACER COUNTY (more graphs here):

EL DORADO COUNTY (more graphs here):

DOWNLOAD 70+ visuals: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: What are you seeing out there? What do you think prices are doing? What are you hearing from buyers and sellers lately?

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

Solar panels & a normalish spring market

May 15, 2019 By Ryan Lundquist 17 Comments

Every week I get asked about solar panels. Do they add value? Should I price my listing higher? Will buyers pay for it? These are big questions and there’s no quick answer. But here are some things I think through and bring up when people call. This is just over ten minutes. Then for those interested, I have a huge market update to talk through the kinda sorta normal spring market.

Solar Video: Watch the video by clicking the image above (or here).

A Podcast I did with Norm: If solar isn’t your thing and you need a podcast to listen to, I just talked with Norm Shriever about appraisals, owning islands, Zillow, my Dad bod, etc… Listen directly on YouTube if you wish.

As always, thanks for being here.

—–——– Big local monthly market update (long on purpose) —–——–

Spring is feeling fairly normal so far. What a difference from the doom we felt in the latter half of 2018. Let’s talk about it.

THE SHORT VERSION:

Prices are up from the fall
Prices aren’t up much from last year
There’s lots of competition if priced right
Sales volume has slumped for 11 months
There are 2,500 less sales this year
So far the spring has felt fairly normal
This post is long on purpose. Skim or pour a cup of coffee.

DOWNLOAD 80+ visuals: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

THE LONGER VERSION:

Here are some of the bigger topics right now:

It feels flat around here: Prices are definitely up from the big lull we had during the fall season, but they’re not up by much compared to last year. This is why I’ve been describing the market as flat. Most price metrics in the region are up only 2-3% over the year. In the region we’re seeing prices about level with the height of last year, though in Sacramento County we’re slightly above. This could obviously vary by neighborhood.

A more normal spring: I was talking to a real estate agent today and she said, “You know, it just feels like a normal spring.” I tend to agree. Stats are showing normalcy and we’re seeing what we’d expect to see at this time of year. Prices are up, inventory is down, sales volume has ticked up from the fall, it’s taking less time to sell, and pending sales have been strong. This doesn’t mean the market is perfectly healthy, but from a stats perspective it’s been fairly normal.

2,500 less sales this year: On one hand sales volume has recovered this spring to almost normal levels, but over the past year volume is actually down 8.5% in the region. I know that doesn’t sound like much, but think about it this way. There were 2,500 less sales this year in the region compared to last year. While this isn’t the sign of a market meltdown, it’s definitely something we have to watch. At best I would say this is an off year, and at worst it’s a symptom of the market starting to change in more significant ways (which we will only know as time unfolds). In short, don’t write home over this yet, but keep an eye on it.

Zillow: Last week Zillow announced they’ll be entering the Sacramento market by the end of the year. This is huge news, but it’s really what we expected. These days there are a handful of tech companies trying to challenge the traditional real estate model by buying privately from sellers and then re-listing on the open market. There’s lots to say about this and I’ll have some posts in the future. For now I just wanted to say I find it ironic that as much as Zillow loves to tout their accuracy rate, they won’t be buying properties based on the Zestimate. Otherwise I imagine lots of overvalued owners would jump at the opportunity, right?

Low rates are the x-factor: At the end of 2018 it seemed like the market was ready to take a dive, but lower rates this year have helped bring buyers back into the market and sustain higher prices.

Real estate is like the stock market: When I say the market is slower I get a little pushback at times. The idea is, “Dude, I just had 14 offers on my house. How dare you say the market is slow!!!” Look, it’s impossible to describe every neighborhood and price range with just one statement. This is why I say the real estate market is like the stock market. While the market as a whole might be doing one thing, not every stock is experiencing that same exact trend. In the same way, not every neighborhood, price range, or property type can be explained the same way.

Do cannabis dispensaries increase residential value? I did an interview last week with CBS 13 to talk about a study that claims cannabis dispensaries increase the value of surrounding residential properties. You can click the link to hear my take. In short, it’s true that vibrant commercial sectors can help increase value. But I’ve never met a buyer who said, “I’ll pay more because of a dispensary down the street.” In my experience locally at least, many people don’t even know dispensaries are there unless they’re cannabis connoisseurs. In short, I tend to be skeptical of studies like this.

Hey girl, let’s have bubble talk: Prices are just about back to where they were fourteen years ago when the market collapsed in 2005. In fact, most price metrics in Sacramento are within 1-3% of the peak. This means with just a little more modest price growth we might be having “Hey girl, we’re back” (yes, that was a Ryan Gosling reference (sorry)).

Keep in mind the market in 2005 was much different than today and there is no such thing as a formula where the market “pops” if we reach 2005 levels. Technically speaking, current values aren’t actually anywhere near 2005 when we consider inflation. But you know, very few buyers actually think about inflation like this – unless they’re economists, grad students, real estate geeks, etc…. In case it helps, here’s a post I wrote about buyers worried about another housing bubble.

Appraisals coming in lower: I’m hearing from some contacts of appraisals coming in lower than the contract price. As the market slows, this is something we’ll likely see more frequently if properties are getting into contract at prices that cannot be supported by market data. Of course some appraisals may legitimately come in too low, and I’m not naive about that. Whatever the case, I’d advise sellers to price realistically and in some cases pick the strongest offer instead of the highest one.

Price sensitivity: Literally half of all homes last month had multiple offers in the Sacramento Region. This reminds us buyers need to bring strong offers. But sellers ought to price correctly too. Buyers are not desperate and willing to pay unrealistic prices, so I advise aiming for the market instead of that one mythical buyer who will overpay for some reason. Remember, the market is very competitive, but that doesn’t mean prices are going crazy.

I could write more, but let’s get visual instead.

FOUR BIG ISSUES TO WATCH:

1) SPRING GETTING HOT: The market is heating up for 2019. We’re seeing price changes, lower inventory, and increased sales volume. So prices are up from the dull fall, but they’re also flat as you can see under #4.

2) SLOWING MOMENTUM: Despite the heating, stats show the market is slowing down when we look at the rate of change by year. Looking at monthly, quarterly, and annual numbers helps give a balanced view of things.

3) SALES VOLUME SLUMP for 11 months: It’s important to look at sales volume in a few ways to get the bigger picture. Here it is by month and year.

SACRAMENTO REGION:

Key Stats:

April volume down 8.2%
Volume is down 8.5% over the past 12 months

SACRAMENTO COUNTY:

Key Stats:

April volume down 6.8%
Volume is down 7.2% over the past 12 months

PLACER COUNTY:

Key Stats:

April volume down 4.3%
Volume is down 8.9% over the past 12 months

EL DORADO COUNTY:

Key Stats:

April volume down 2.4%
Volume is down 12.5% over the past 12 months

4) LAST YEAR VS THIS YEAR: Check out the price metrics below. Can you see why I’m saying prices seem flat lately? This may not be true in every single price range or neighborhood of course, but this shows us price momentum is slowing. With that being said, it’s still okay to say the market is “hot”. It is. But I’d say competition is hotter than price appreciation.

NOTE: Take El Dorado County data with a grain of salt. Stats change significantly month by month.

Quick note on how NOT to use my content: Please don’t copy my post verbatim or alter the images in any way. I will always show respect for your original work and give you full credit, so I ask for that same courtesy. Here are 5 ways to share my content.

Now here are a bunch of images. Please enjoy.

SACRAMENTO COUNTY (more graphs here):

SACRAMENTO REGION (more graphs here):

PLACER COUNTY (more graphs here):

EL DORADO COUNTY (more graphs here):

DOWNLOAD 80+ visuals: Please download all graphs here as a zip file. See my sharing policy for 5 ways to share (please don’t copy verbatim).

Questions: What are you seeing out there? What do you think prices are doing? What are you hearing from buyers and sellers lately?

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

Loud tile, fake trends, & staying grounded

October 1, 2018 By Ryan Lundquist 16 Comments

I’ve been seeing lots of vibrant tile like this lately. Have you? Do you like it or not? Let me know, and let’s also talk about fake trends and market hype.

Strong opinions: Last week when sharing a picture of this tile on social media, I heard some strong opinions ranging from, “Dude, that is the coolest thing ever” to “Wow, that is just plain ugly.” Some said it was really stylish, but they were concerned it wouldn’t age well. Another person remarked it was like a pattern from the 70s all over again (without the green). Haha.

The reality is vibrant tile has been showing up for the past couple years. Here’s some examples in higher-end flips by Olivia Barrett.

On Twitter @Nashramento shared an image of tile in her Family Room. She said the tile would’ve been too busy for the floor, but not on the wall.

Big point: There’s a variety of opinions on loud tile, but here’s the truth. The market doesn’t care what I think about this tile, and if you’re not a buyer it doesn’t care if you like it either. This doesn’t mean we don’t get to have opinions, but from a real estate sales perspective the ONLY thing that is relevant is whether buyers right now prefer the tile or not.

Moving beyond tile: We have some pretty big headlines right now, and just like the tile above, there are lots of opinions about what the market is doing.

FAKE TRENDS: Quick, here’s some fake trends with legit-looking graphs.

Okay, you either loved the fake trends or you think I’m ridiculous. For me they’re great for conversation – especially in the midst of so many market opinions.

TIPS FOR STAYING GROUNDED IN THIS SLOWING MARKET:

1) Read the article: Some people are only reading headlines instead of the article. Right or wrong, that’s how it is. This becomes a problem if actual stats aren’t as sensational as the headline.

2) Interpret the article: Here’s the question. Is the claim in the headline supported by data? I like hearing opinions, but it doesn’t matter if someone feels like the market is doing something. What do the numbers say? Keep in mind national data could show a different trend than local data too.

3) Listen to many voices: It’s good to get a wide variety of thoughts about the market from more than just one person or data source.

4) Be in touch with what a seasonal slowing looks like: Sorry to beat the dead horse on this point, but we need to be in tune with what normally happens in a slower seasonal market to help us understand trends and spot anything abnormal. My advice? At the beginning of each month ask yourself what is normal. What regularly happens in the given month to prices, sales volume, inventory, days on market, the number of listings, etc…? By the way, here’s my normal vs tanking video if you missed it.

I hope that was interesting or helpful.

Appraiserfest: One last note, I’m going to San Antonio, Texas for Appraiserfest on November 1-3, and I’d love to see you there. I’m very excited to meet people I’ve been talking to online for years, and I’m pumped to get to speak also. My topic is on becoming an expert in your market. I get 90 minutes on stage, but I hope to have lots of time over a few days to sit down to share ideas too.

Questions: What do you think of the tile? Any tips for staying ground in this market in the midst of so much hype? I’d love to hear your take.

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Teardowns, lot splits, & highest and best use

August 1, 2018 By Ryan Lundquist 11 Comments

A few weeks ago I took a vacation. And like many working in real estate, my mind doesn’t quite shut off all the way – at least at first. So I’m constantly thinking about trends and value. Anyway, I knew I had a post in me when spotting this.

Teardown: This is Sunset Beach in Southern California. Can you spot the “teardown” house? Yep. It’s the one in the middle. We know this because there are two “McMansion” homes on either side that were built in recent years. Just by this photo alone we get a glimpse into market trends, don’t we?

This vacant lot is a couple blocks away. A house was purchased, razed, and now something big is likely to be built. This is further insight into the market, right?

Highest & best use: Sometimes we don’t think much about highest and best use, but let’s revisit the concept. Highest and best use is that use which is legally permissible, physically and reasonably possible, economically and financially feasible, and which results in the most profitable of the alternatives.

YES: When we look at the house above we can say the highest and best use is very likely for it to be razed and a larger home to be built. Why? Because it’s legal to tear down and rebuild, it’s something that is regularly happening on the street, it’s definitely occurring in the current economy, and we’d see a much higher value for a larger property.

NO: In contrast, if we looked around and nobody was tearing down homes because the city was not allowing it, then the highest and best use couldn’t be building a McMansion because it’s not legally possible. Or if the economy was terrible and building was at a standstill, then we might say it’s not economically feasible to rebuild right now, so the highest and best use might be to keep the house as it is and wait until the economy improves.

A “splitting” example from sellers lately: On a related note I’ve heard a number of sellers lately say things like, “Dude, somebody’s going to buy my lot and split it.” Okay, but is that really the highest and best use for the lot and location? Here’s a few things to think about:

1) Basic truth: Just because it’s technically possible to split a lot doesn’t mean it’s realistic to see that happen at the location or in the current market.

2) Look around: Are people splitting lots in the local market and developing them? Sometimes the proof of value is found in the market just like we see above. It’s not always easy to separate ourselves from what is technically possible and what is actually happening in the market, but we have to do that. If you don’t see anyone splitting lots or building new homes, then your lot might not be a good candidate for a split.

3) Disconnected: Lately I’ve noticed quite a few sellers being disconnected from buyers, so I created this image. My advice? Sellers, be in tune with reasonable prices and also be careful about expecting buyers to do something like a lot split if that’s not realistic for the current market.

Anyway, that’s my quick post inspired by vacation. I hope it was interesting.

Questions: What examples have you seen lately where sellers are disconnected from buyers? Any highest and best use stories too?

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appraisals in Sacramento

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