appraisers

Chuck Norris eats 8% rates for breakfast

September 27, 2023 By Ryan Lundquist 26 Comments

Travis Kelce, Taylor Swift, and mortgage rates. So much drama this week. Let’s talk about it. Today I have some thoughts about believing the Fed, Chuck Norris, and building a bigger network. This post is all over the place, but hopefully something resonates.

UPCOMING (PUBLIC) SPEAKING GIGS:
9/28/23 Yuba City Big Market Update (in Yuba City (register here))
10/4/23 KW Sac Metro Big Market Update (register here)
10/6/23 How to Think Like an Appraiser at SAR (register here)
10/27/23 AI Fall Conference (San Francisco) (register here)
11/30/23 Safe CU “Preparing for a Successful New Year”

BELIEVE THE FED ABOUT HIGHER FOR LONGER

This isn’t my meme, but I think it’s perfect when talking about the Fed Funds rate (I don’t remember where I saved it from). Look, nobody knows what will happen with rates exactly, but the Fed has been saying higher for longer, so I recommend believing the Fed. My advice? If you work in real estate, plan on low volume, low supply, and higher rates unless something changes the trajectory of the trend. I like the idea of being realistic by planning for the worst and rejoicing if something else happens. The MBA has an optimistic outlook that the 30-year fixed rate will be 6.3% in Q4 2023, and that’s the rosiest projection I’ve seen. Look, I don’t predict rates because almost nobody gets it right, but like body weight, it’s been much easier to go up instead of down, so I’m not quick to embrace this projection. Time will tell.

THE MARKET WILL FIGURE IT OUT

No matter what rates do in coming months, the truth is the market will figure it out. That’s what markets do. Sellers, if buyers continue to lose purchasing power though, it’s time to be quick to listen and adjust accordingly. Purchase applications have been at 1995 levels lately. If you don’t remember 1995, that’s when movies like Toy Story, Braveheart, Billy Madison, and Clueless were out. Sellers, there is a smaller pool of buyers out there, lower the price if you’re not getting offers, and be open to giving buyers concessions if needed. And remember, Chuck Norris eats 8% rates for breakfast, but ordinary buyers aren’t Chuck Norris.

Okay, a few other things on my mind.

IT’S EASY BEING AN EXPERT DURING GOOD TIMES

I’ve been thinking about expertise quite a bit lately. When a market is good, it’s easy to feel like an expert, but real expertise shows up most when things aren’t so good. Know what I’m saying?

STAYING AFLOAT

Scroll to the bottom for some thoughts on building a bigger network and staying afloat in today’s market.

MOVING FAST IF PRICED RIGHT

With so much talk about the housing market slowing, I think it’s important to recognize things have still been moving historically fast in Sacramento at least. It’s just not a 2021 speed. Keep in mind if rates start to spike, we could see a sharp change in days on market and lots of metrics. Remember, we see change first in active listings, mortgage applications, and the sentiment in the trenches of real estate. If we wait for closed sales before spotting a trend, we’re going to be way behind the market.

ALL SHIPS RISE AND FALL WITH THE TIDE

This week I’m speaking in Yuba City, which is a cool opportunity to pull some stats for an area I don’t normally cover. I love the idea of creating visuals that haven’t been seen before and hoping they resonate (fingers crossed). Anyway, Yuba and Sutter County are north of Sacramento, and the price trend is VERY similar (see black and green lines). Data from CAR.

HOLY BATMAN, LOOK AT SAN FRANCISCO

I made this visual a few days back, and it’s stunning to see how close the price trend in San Francisco used to be to California in the early 1990s, but then it pulled so far away. This just goes to show that some areas don’t have the same exact trend (even though all ships tend to rise and fall with the tide).

And some local counties with California.

Okay, other stuff on my mind.

GROW YOUR NETWORK TO STAY AFLOAT

In my talks lately I’m sharing stats of course, but I’m also talking about the importance of increasing the size of your network. This is something I work hard at personally, and every day I push out perspective on purpose in order to be a resource and build relationships with people. Anyway, in light of volume contracting so heavily this past year, it’s vital to cultivate a bigger network to sustain business since we’re in a market with less movement.

Some questions to brainstorm:

– How do you plan to increase the size of your network this year?
– Who do you need to get to know?
– Who are the gatekeepers to the types of work you want to do?
– Who do you need to get in front of this week?
– How do you need to diversify?
– What do people need from you right now?
– How are you going to build good relationships and show up for people in today’s market?

APPRAISER COLLEAGUES

I know it’s been tough on many appraisers lately, and there is no sugarcoating that. I only do private work, so if you ever have questions, please reach out. Earlier this year, I did a free webinar thingy on Zoom to talk about private work, and I’d be open to that again if there is demand. I just can’t pull that off this month, but November could work. I’m starting to get the itch to bring some colleagues together, so let me know if you’d be interested.

Thanks for being here. I hope this was helpful.

Questions: What do you think of Taylor and Travis? Or what about anything I talked about in the post? I’d love to hear your take.

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

Is it 2007 again in the housing market?

September 12, 2023 By Ryan Lundquist 22 Comments

Is it 2007 again? There’s so much talk online about today’s housing market being like 2007, but what are the stats showing? Today I want to walk through three parts of the market. I suspect many locations are experiencing the same trend as Sacramento too. Skim by topic or digest slowly.

A brown background with some blocks that say, "normal" (crossed out in red). There is a white background rectangle with the title of today's post in black also.

UPCOMING (PUBLIC) SPEAKING GIGS:
9/26/23 Orangevale MLS Meeting
9/28/23 Yuba City Big Market Update (in Yuba City (register here))
10/4/23 KW Sac Metro Big Market Update (register here)
10/6/23 How to Think Like an Appraiser at SAR (register here)
10/27/23 AI Fall Conference (San Francisco)

It’s a strange market today with low volume and low supply. It feels a little amateurish to call it weird, but that’s a pretty good description.

THREE WAYS TO COMPARE 2007 & 2023

1) INVENTORY IS NOT BUILDING LIKE BEFORE

One thing that is REALLY different today is inventory is not building like it did in 2007. Supply has actually been subdued in today’s market as sellers have pulled back from listing their homes, and that’s the opposite of what we saw between 2005 and 2008. In fact, when prices peaked in August 2005, housing supply literally tripled in one year in Sacramento. Prices weren’t all that impacted the first year, but in the background, there was a tidal wave of supply building. Look, I’m not trying to sugarcoat today’s market, but we have a different vibe today where supply is not showing 2007 vibes. Granted, this doesn’t mean the market is healthy today. I’m just saying it’s way different.

Housing supply is actually lower today than one year ago.

New listings are down 34% from last year and 44% from the pre-2020 normal. Basically, we’re missing 7,700 new listings in the entire region compared to last year and 11,900 from the pre-2020 normal. I don’t have stats for 2007, but do you see what was happening in 2008? Yikes.

2) LOW VOLUME TODAY FEELS LIKE 2007:

One part of the housing market that feels really similar to the previous housing crash is the number of sales happening (volume). In 2005 prices peaked, and while prices weren’t down all that much the first year, the real change was seen in volume falling off a cliff. In real estate it’s easy to obsess over prices, but the real trend is often seen with volume.

We’ve basically had the lowest volume we’ve seen through August, so today really does feel like 2007 in terms of volume.

Not to beat the dead horse, but here’s another way to look at volume.

3) COMPETITION DOESN’T SMELL LIKE 2007

The stunning part about today’s market is how competitive it is in the midst of some of the worst volume ever. This is why I often call today a hybrid market. It’s like 2007 volume and 2020 competition gave birth to 2023.

Here’s a different way to compare competition in 2023 and 2007. Any dot above the 0% line went above the original list price, and anything below went below. Striking difference, right?

And days on market:

CLOSING THOUGHTS:

First of all, what happened last time isn’t the new template for every future housing correction, so even though I’m ironically writing a post about 2007, let’s remember that 2007 isn’t the new formula for every future downward cycle. With that said, today’s housing market feels like 2007 with volume, but it’s an entirely different beast with low supply, intense competition, and very few foreclosures. Ultimately, it’s not accurate to call this 2007 because it feels so different. Every time someone says it’s 2007, a puppy dies. Okay, that’s probably not true, but we do need to let stats form our narrative.

Though like 2007, we’re in a place where it would be healthy for prices to come down so more buyers and sellers can participate. The reality is sellers sitting back this year has so far catered toward keeping prices higher rather than fostering more much-needed affordability. I know, to some people it sounds like real estate sin for me to say this, but we have an affordability problem, and it’s not a healthy dynamic to see higher prices with lower volume. That’s not good for buyers, sellers, or real estate professionals.

What’s going to happen ahead? It’s impossible to predict the future with certainty since we’ve not had a market like this before. We have ideas for how long sellers might sit out, but the truth is nobody knows for sure. What happens with rates is a huge factor, and rates have persisted to be stubbornly high. No matter what, it’s important to not minimize the struggle of affordability today. In a traditional system low supply can help keep prices higher, but we’re not in a traditional market today, so over time we’re going to find out which is the more meaningful force. Affordability or low supply.

For now, we have a market that feels very stuck with a good chunk of sellers and buyers on the sidelines. It won’t be this way forever, but we seem poised to continue to see low volume and low supply until something changes the trajectory of the trend (rates, economic pain, etc…).

It does feel like 2007 in some ways, but in other ways it’s just so different.

—————— LOCAL HOUSING MARKET RECAP ——————

I have so much to say about today’s housing market, but let’s keep this short and sweet. I’ll push out a ton of stuff these next two weeks on my blog and my socials. Basically, we’re experiencing a pretty normal seasonal slowing so far. It does not feel like the crash-landing market last year in 2022 where most metrics saw incredibly sharp change. Basically, all the metrics are showing pretty normal seasonality so far (and they’re even more competitive than the pre-2020 normal). It looks like prices and volume have peaked for the year, which is normal to see. It’s worth noting we’re starting to see slightly higher prices compared to one year ago. Of course, volume is depressed and inventory is still sparse, so it’s a strange market.

SHARING POLICY:

Please share some of my images on your socials or in a newsletter. Here are 6 ways to share my content (not copy verbatim). Thanks.

ANNUAL STATS

Remember, some annual stats like volume get a little weird because we’re now comparing today with a slumping market last year. But we still need to know these numbers, so I’m going to be pushing them out.

EL DORADO STATS:

Someone in the comments asked about El Dorado stats. Send me an email if you want some stuff. lundquistcompany @ gmail dot com.

MONTH TO MONTH:

JUST A FEW IMAGES:

I hope this was helpful.

Questions: What are you seeing out there in the market? What stands out to you above? I’d love to hear your take.

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

More cash buyers in today’s housing market

September 7, 2023 By Ryan Lundquist 27 Comments

There are more cash buyers right now. Bottom line. Well, technically. Today let’s unpack the housing market’s cash trend, some myths, and things to watch ahead. This post is designed to scroll by topic or digest slowly.

UPCOMING (PUBLIC) SPEAKING GIGS:
9/26/23 Orangevale MLS Meeting
9/28/23 Yuba City Big Market Update (in Yuba City (details TBD))
10/4/23 KW Sac Metro Big Market Update (register here)
10/6/23 SAR Think Like an Appraiser (TBD)
10/27/23 AI Fall Conference (San Francisco)

CASH PURCHASES HAVE BEEN INCREASING

Ever since mortgage rates shot up in early 2022, we’ve been seeing more cash buyers. The uptick has become very noticeable lately in Sacramento, and probably in other markets too. The percentage of cash buyers this quarter so far is 21% of all sales. That’s nothing compared to 32% in 2012 when investment funds were playing the market like Monopoly, but we are still seeing a growing trend at the moment technically (see below).

BUT THERE’S AN ASTERISK (PLEASE READ)

Yes, there is more cash right now as a percentage of all sales, but it’s not that there are so many cash buyers flooding the market. What I mean is when you look at the number of cash buyers over the years, we aren’t seeing a crazy high level today technically. But what we are seeing is the cash buyers that are here today represent a greater percentage of the sales that are happening (see graph above). Does that make sense? It’s as if buyers who aren’t tied to what happens with mortgage rates are finding it easier to play the game today.

IT’S A CASH SANDWICH

We are seeing more cash at the bottom and more at the top. It’s like a cash sandwich. This is a normal dynamic with more investors purchasing stuff at the lower end and higher-dollar buyers flexing cash at the top. I shared this chart yesterday, and people were blown away at the percentage of cash above $1M, though there is always more cash at higher levels (this percentage is still a little higher than usual though).

Here’s another way to look at the same data. I think this is a cool way to see the trend, but I’m not sold on this image either. Thoughts?

DON’T BLAME INVESTMENT FUNDS

It’s easy to blame the cash trend on investment funds. I can’t tell you how many times I hear people say things like, “Dude, Blackrock and Blackstone are buying everything and destroying the housing market.” Look, I’m not an investment fund fanboy. I’m just saying the stats don’t line up with that narrative. The truth is investment funds are NOT playing a noticeable role in Sacramento region housing market right now. As far as I can tell, Invitation Homes hasn’t purchased anything in Sacramento since last summer.

DON’T BLAME IT ON THE BAY AREA

It’s also easy to blame the local trend on Bay Area buyers, but some recent stats from John Burns Real Estate Consulting suggest Bay Area outbound migration has gone cold, and Sacramento is NOT a hot inbound migration either at the moment. This sort of lines up with the word on the street from what I’m hearing from the real estate community too. Keep in mind this doesn’t mean there are zero Bay Area buyers. It’s just the fire hose of pandemic migration has seemed to turn into a slower drip.

AIM FOR THE MARKET – NOT THE UNICORN

It’s easy to aim for a Bay Area unicorn buyer who is going to drop fat stacks of cash and overpay. My advice? Aim for the market.

IT’S NOT THE iBUYER MODEL

The market shifted last year, and the iBuyer model has suffered. Opendoor currently owns 42 properties in the Sacramento region, and while they look to be trying to turn things around, just over one year ago they owned over 300 units at any given time, so they have really cut back. I would mention other iBuyers, but Zillow, Redfin, and Offerpad all stepped back from the market (failed), so the iBuyer model locally is basically Opendoor.

CASH DOESN’T ALWAYS MEAN INVESTOR

It’s easy to think cash represents only investors, but there are many buyers who purchase owner-occupied units with cash, so cash stats aren’t the end-all solution to determining the number of investors. With that said, in my experience the number of investors is often pretty close to the percentage of cash buyers locally. Here’s a cool tool by Redfin to gauge the percentage of investors in many markets across the country. Their stats show a 17% investor share in Sacramento. Over the years I’ve noticed John Burns Real Estate Consulting tends to show a little bit higher. In short, if someone said we have about 20% investors locally, I wouldn’t bat an eye. That seems legit.

WHERE IS CASH COMING FROM?

Someone asked me where the cash is coming from, but that’s not a question I can answer. The joke on Twitter is that it’s money laundering, but I’ll let you decide on that. Haha. If someone has a way to research this, I’m open ears. By the way, speaking of cleaning money, did you watch Ozark? Loved it.

THERE IS HOPE FOR BUYERS

While cash has been increasing, let’s remember 79% of the market is NOT cash. I think sometimes the narrative is that nobody can compete with cash, but that’s not actually what the stats show. For instance, $400,000 to $500,000 is an incredibly competitive price point in Sacramento County, but only 12.9% of sales were cash in this segment last month. Isn’t that a powerful stat? All I’m saying is we have to let the stats form our narrative instead of imposing a narrative on the market. It’s easy to get clicks and attention when we say “Blackrock is cutting out first-time buyers,” but that’s fake news in the local market.

DOES CASH ALWAYS PAY LESS?

I know this visual is a hot mess, but work with me. Anything above the 0% line went above the original list price last month, and anything below went below. In short, it’s not just one thing with cash buyers. 51% of cash transactions over the past couple of months went below the original asking price, 36.6% went above, and 12.4% sold at exactly the original price. These percentages are a little softer than the rest of the market in terms of going above, so it tells me cash buyers do tend to go a little lower than the entire market. Or maybe they’re getting better deals after properties have been lingering. There are many ways we can look at this. Ultimately, it’s not just one thing. Every escrow has a different story.

CASH BUYERS BID UP IN THE FIRST WEEK

It’s during the first week where cash buyers noticeably go above the original list price. And the longer a property is on the market, the lower it tends to sell when dealing with a cash buyer. But honestly, this trend looks just like the rest of the market, so there isn’t anything different here. What this shows us is cash buyers have to compete with everyone else to get it done. In other words, cash isn’t so strong that it’s somehow exempt from the market trend.

A MISTAKE BY CASH BUYERS

One mistake I see cash buyers make is to think they have so much power since they’re bringing greenbacks to the table. Look, sometimes cash is super convenient or necessary due to condition, but financed deals end up being all cash to the seller after escrow closes. And the vast bulk of the market is financed locally (79% lately). In short, if you’re coming with cash, you still have to compete and make a strong offer in the midst of a market with limited supply.

MORE AFFORDABILITY WILL CHANGE THESE STATS

Affordability improving will lead to be more financed buyers, and that can quickly change the total percentage of cash buyers in the market. For now, we’re in a place where there is a smaller pool of buyers, and a growing percentage of them happen to be cash at the moment. We’re missing nearly 40% of buyers from the pre-pandemic average, which is sobering.

I hope that was helpful. Thanks for being here.

Questions: What are you seeing with cash in real estate right now? Anything to add? I’d love to hear your take.

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

The eye-candy of assuming a loan

August 29, 2023 By Ryan Lundquist 41 Comments

Assumable loans are eye candy in today’s housing market. The idea of taking over somebody’s 2.5% loan sounds amazing, right? It’s technically possible on paper for some loan types, but it’s challenging to pull off in the real world. Yet, if mortgage rates remain high, this is something we’re likely going to hear more about, so it’s important to know the process.

UPCOMING (PUBLIC) SPEAKING GIGS:
8/29/23 Elk Grove Regional MLS Meeting
9/06/23 KW Roseville Big Market Update (register here)
9/26/23 Orangevale MLS Meeting
9/28/23 Yuba City Big Market Update (in Yuba City (details TBD))
10/4/23 KW Sac Metro Big Market Update (register here)
10/6/23 SAR Think Like an Appraiser (TBD)
10/27/23 AI Fall Conference (San Francisco)

IT’S RARE TO ASSUME A LOAN (FHA, VA, & USDA)

I’m not a loan officer, so I won’t step out of bounds here, but it’s basically possible to assume an FHA, VA, or USDA loan from a current owner if the loan servicer is cooperative and everything else lines up between the buyer and seller. Conventional loans are NOT assumable, but I’ll defer to loan officers if there are rare cases where that can happen (seriously, talk to a loan officer). In short, it has to be the perfect storm of the right buyer, right seller, and right loan servicer to make an assumption happen.

UPDATED NOTE: A few people have said current FHA loans are not assumable, but everything I’m reading online from lenders and HUD directly seems to show FHA loans are assumable. My advice? Talk to a loan professional and the loan servicer. I defer to them.

HOW MANY LOCAL LOANS CAN BE ASSUMED?

Here’s a snapshot of FHA & VA transactions since 2009 in the Sacramento region. Of course, some of these properties have sold again already, but this is a general picture of how many potential assumable loans are out there. The real prize for a buyer would be purchasing from a seller who bought during the past few years when rates were really low (though many of those owners are sitting instead of selling).

WHAT PERCENTAGE OF THE MARKET IS ASSUMABLE?

Okay, but what percentage of the market has sold in recent years with loans that could theoretically be assumed in the future? In 2020 nearly one out of every five homes sold with FHA or VA, and since then it’s been about 15% of loans.

A LOCAL LISTING EXAMPLE

Here’s a property in West Sacramento that was purchased in 2020 with FHA financing, and the listing advertises, “Seller offering a possible loan assumption at 2.75% as part of purchase price.”

BIGGEST HURDLES TO ASSUMING A LOAN:

1) Paying the difference: The buyer has to pay the difference between the loan amount and the equity the owner has. This means if a property has a $400,000 loan, but it’s worth $525,000, there is a big chunk of change for the buyer to bring to the table. Some loan officers tell me it’s possible to get a HELOC (Home Equity Line of Credit) to pay the difference, but I’ll defer to lenders on that. All that said, it seems like buyers putting 20% down are often decent candidates to assume a loan because they can absorb the difference between the loan and value in many cases.

2) It can take a long time: I mentioned loan assumptions in a Facebook thread a few days ago. I heard about one local loan assumption taking FIVE MONTHS, another taking three months, or a quick one at 30 days. Look, maybe this process can be seamless once in a while, but can you imagine being in contract for five months without a guarantee of success? That is going to take a very particular seller and buyer, right? Moreover, if there are multiple offers, the seller is unlikely to choose the buyer wanting to assume the loan. This reminds us market conditions can either foster more or less loan assumptions.

3) The loan servicer isn’t always cooperative:

There are situations where the loan servicer simply denies the loan assumption. One real estate agent told me loan assumptions are basically a buzzword because they’re difficult to pull off. Sounds about right.

THIS MARKET REQUIRES CREATIVITY:

There is no sugarcoating assuming a loan as an easy process, but I think this market requires creativity. My advice is to understand the process, advertise the idea of an assumption if the seller is on board, talk to the loan servicer prior to listing, and help educate everyone on the process. Oh, and realize this is still a unicorn event that requires the perfect storm of everything coming together. This isn’t for the faint of heart, but it will work in some situations.

OKAY FINE, MORE NEW VISUALS

You wanted more visuals? This post is getting longer already, but okay. I put these together a few days ago, and I hope you like them.

CLOSING ADVICE:

My advice? Don’t put much hope in loan assumptions, but know how it all works so you can at least be aware of options. Like I said, it’s going to take the right buyer, right seller, informed real estate professionals, and a cooperative lender. When loan assumptions do happen locally, try to find out how the deal came together. The truth is buyers are starving to afford the market, and assuming a seller’s loan is going to help a small sliver of buyers out there. Ultimately, if rates remain high, this is going to be something more people are thinking about, and it’s possible we could see more loan assumptions ahead for that reason. If the market gets more competitive though, loan assumptions are the last thing sellers are going to target.

I hope this was helpful. Thanks for being here.

Questions: Anything to add about loan assumptions? Any stories to share? Could it matter for comps if we start seeing more loan assumptions? I’d love to hear your take.

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

appraisers

Share:

Share:

Share:

Share: