Appraiser

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.

Saying goodbye to pandemic home price gains

November 8, 2022 By Ryan Lundquist 16 Comments

Sellers have been saying goodbye to some of the equity they gained during the past couple of years. In Sacramento, we’ve actually lost 40% of the pandemic gains since May. Today I want to talk about price trends, and I hope this is helpful – whether you’re local or not. Skim quickly or digest slowly.

White wood texture background with the title, "Saying goodbye to some home equity."

UPCOMING (PUBLIC) SPEAKING GIGS:
11/15/22 Sacramento Bee Q&A at 12pm (RSVP here)
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))

A meme from Dumb and Dumber with Jim Carrey and two actors in the front seat of a truck. Carrye has his hands over his ears. The caption reads, "Sellers not listening to the market."

THE POSTER CHILD FOR CHANGE

The trend isn’t going to be the same in every location across the country, but I suggest paying attention to pockets like Sacramento, Boise, and Phoenix that all seems to be the poster child for quick market change.

40% OF PANDEMIC PRICE GAINS ARE GONE

We’ve seen sharp price declines over the past six months as the median price has dropped by $75,000 (or 12%) since May in the Sacramento region. This is about three times the normal speed for seasonal softening. This doesn’t mean every property is literally worth 12% less, but I have to say the change is sizeable when looking at neighborhood comps lately and hearing feedback from real estate agents. Sellers, did you hear that?

Change: The median price rose $185,000 from the beginning of the pandemic, and $75,000 of that increase has disappeared over the past six months. Or we could say the median price is still up $110,000 from March 2020.

A bar graph from early 2020 to October 2022 to show the median price in the Sacramento region (a huge uptick and a sizeable downturn lately).

THE MARKET IS NOT A PARKED CAR

I heard someone talk about the housing market as if it was a parked car, but I disagree with the analogy because the market hasn’t literally stopped. For instance, over the past two months in the region there were 1,800 fewer sales compared to last year, but there were nearly 3,400 sales that did happen. I find it’s easy to fixate on the glaring portion of the market that’s missing, but let’s not forget to see the part that is happening.

NEIGHBORHOOD TRENDS

It’s easy to fixate on the median price for the region, but when appraising in neighborhoods my trendlines are also showing a sharp change. Here’s an example with the 95747 ZIP code in Roseville. As I talked about recently, I am definitely selecting the “declining” box in my appraisal reports.

95747 ZIP Code market trends in Roseville (a yellow scatter graph to show the downward trendline lately)

NO PRICE RANGE IS IMMUNE

“My neighborhood is super special.” I know, it really is, and so are you. But all ships rise and fall with the tide. What I mean is every price range has seen an effect from higher mortgage rates. Keep in mind volume is down in every single price range in the region too, which reinforces this point. However, the bottom half of the market has seen the biggest change in volume, which suggests buyers who are more sensitive to rate changes are having a more difficult time.

A bar chart to show the median price in various countiees in Sacramento since May

FLIRTING WITH LAST YEAR

This is exactly what sellers need to hear right now. The median price in the Sacramento region is the same as it was last October. On one hand this feels like a big event, but it’s really not a shocker since prices have changed quickly to adapt to a dramatic shift in the monthly mortgage payment. In other words, a sharp change in rates has led to a sharp change in the stats.

A bar graph to show the median price is the same as last year in the Sacramento region

OPENDOOR IS GETTING BODY SLAMMED

This market hasn’t been easy for iBuyers. 76% of Opendoor‘s active listings are listed below their acquisition price. This is blatant carnage. Keep in mind Opendoor typically has a 5% credit from the seller, but even with that it’s not enough to be profitable in so many of these listings.

Redfin: It was announced this morning that Redfin is stopping their iBuyer business. Here are some Redfin stats I posted on Twitter.

A chart to compare Opendoor acquisistion prices with the current list price among active listings in the Sacramento region (a bar chart)

WAITING FOR AFFORDABILITY

Prices have dropped, but this hasn’t translated to more affordability since rates have continued to rise. Some people are predicting lower rates in 2023, but we’re going to have to wait to see what happens. Almost nobody gets their rate predictions right, and I don’t pretend to have a crystal ball.

DOUBLE-WHAMMY FOR SELLERS

The problem with overpricing is prices are going down, so the longer you’re on the market, the more you lose. Not only will you have to lower the price due to being overpriced from the beginning, but you now have to lower even more due to prices declining since you listed. It’s a double-whammy.

A table to show the percentage and number of properties with price reductions right now in the Sacramento region by county

LOSING 2.5% PER MONTH

For five months in a row the median price has dropped by about 2.5% each month, and this visual helps show the change. The red line is the pre-pandemic average so we can see what “normally” happens from month to month. For instance, from September to October the median price normally dips by -0.07% (red line), but this year in 2022 the dip was -2.65% (black line). Remember, this doesn’t mean every property has literally lost 2.5% in actual value. Moreover, not every county has shown the same loss either by the month.

I can’t emphasize enough the importance of looking to neighborhood comps to understand the market. In other words, DO NOT automatically impose a downward 2.5% regional metric on a property (big mistake). But don’t take these stats lightly either. If anything, these numbers can be a cold shower to wake sellers up. There is a smaller pool of buyers right now, so price it right to meet buyers where they are at.

A line graph to help show monthly median price change in the Sacramento region. There is a red line to show what normal looks like and then a black line to show 2022. In short, the black line is way below the red line lately.

YEAR OVER YEAR STATS:

Here’s a look at stats compared to last year. Remember, closed sales in October really tell us what the market used to be like in September when the bulk of these properties got into contract.

MONTH TO MONTH:

Looking at sequential months is key too so we don’t just get stuck or hyper-focused on last year (the past).

OTHER PRICE VISUALS:

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 stands out to you above? What are you seeing happen with prices 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.

Appraiser

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