House Appraiser

Housing on steroids, slowing, & smaller homes

November 17, 2021 By Ryan Lundquist 20 Comments

Real estate has been slowing, but it’s still completely nuts. I’ll explain below. But first let me unpack the NAR conference in San Diego and share some exciting personal news. Oh, and let’s talk about smaller homes selling. Then stats and perspective for those interested.

This picture shows an asphalt road with the words "fast" and "slow" written on the asphalt. The top of the image includes the blog title

NAR Conference & my new BFF: I had the honor of sitting on an appraiser panel last weekend at the National Association of Realtor’s annual conference. I appreciated being asked to share my two cents and I’m so grateful to have met and mingled with colleagues too. Also, I met former quarterback Drew Brees since he spoke at the conference and he’s pretty much my new BFF.

This photo shows a few pictures of the NAR conference in San Diego. These are other apprasiers with Ryan. Though one picture has quarterback Drew Brees and Ryan.

500 days of no beer: In personal news it’s now been 500 days since I gave up alcohol. I said goodbye to alcohol for health reasons and I’m feeling really good. This was a personal milestone and now I’m targeting two years. At some point in the future I might re-introduce beer back into my life, but for now I’m taking some time to focus on health. This has been good. And my pants fit better too. 🙂

Slowing but not slow: The housing market has been experiencing definitive seasonal slowing and I’ve been talking about that for months, but at the same time the market is still so much more competitive than it usually is for the time of year. In other words, the stats are slower than spring, but they’re elevated way beyond normal for the fall season. On that note, when some say the housing market is crashing, I wonder if they’re in touch with how aggressive some of the statistics are right now.

Smaller homes: During the beginning of the pandemic there was a notable uptick in the size of homes selling. Initially I thought it was maybe due to buyers targeting larger homes to sort of quarantine in style, but now with the benefit of hindsight I think the real culprit was a spiked emphasis on more expensive (and larger) homes due to an influx of buyers at higher prices.

Here are a few visuals to show this spike in size in 2020 and now a slightly smaller size in 2021. I wanted to mention this because part of me wonders if we are starting to see a bit of the pandemic home size sizzle begin to fade slightly.

This visual shows the median home size and average home size in the Sacramento region since 2012. It has increased over time and there was a spike in 2020 in particular. This is a line graph.

This image shows the average home size and median home size in Sacramento since 1998. Size has increased and it shows there was a slight tick down in 2021 from 2020. This is a line graph.

This visual shows a dip from 2020 to 2021 in home size. It almost looks like 2020 was an elevated year and now the trend is getting back to normal.

Sharp size drop lately: There has been a definitive drop in home size since May. It’s normal to see larger homes sell for about half the year and then smaller homes for the second half of the year. The drop this time around though has been sharp and that’s something I’ll be watching. This could speak to a normalizing of the higher end market (fewer higher-end sales after a pandemic spike), but we need some time to understand. Stay tuned.

This visual is both a bar chart and a line graph to show the average sales price (bars) and average hom size in the Sacramento region (lines). This shows a seasonal rhythm to both over time.

No blog post next week: I won’t have a blog post next week because I’ll be thinking about family, woodworking, and eating pie. I am doing Run to Feed the Hungry, so I hope to see some local friends there. Happy Thanksgiving!!

Thanks for being here.

—–——– BIG MARKET UPDATE FOR THOSE INTERESTED ———––

This image says "Caution" and it's yellow and black. Then it says "big monthly market update below." Skim or digest slowly.

QUICK SUMMARY:

The market is so obviously not as hot as it was during the height of spring. Yet the slower speed today is still so much faster than a normal fall season. This is why I keep saying the market is like a car speeding on the freeway that recently let up on the gas. The car is clearly slowing, but it’s still going really fast. Both things are happening at once. Ultimately buyers have been gaining more power and it’s been a bit easier to get into contract, but there is a difference between easier and easy.

Some visuals eh…

YEAR OVER YEAR:

Year over year stats are important to digest, but don’t forget to look at month to month stats to understand what the market is doing right now.

Sacramento housing region stats for price, number of sales, cash percentages, and other elements.

Sacramento county stats for price, number of sales, cash percentages, and other elements.

Placer county stats for price, number of sales, cash percentages, and other elements.

MONTH TO MONTH:

Stats from September to October basically show more seasonal slowing, but not every category is slowing. Remember, stats around this time of year tend to bounce around a bit. One month prices might be up slightly and the next month they could be down slightly. And remember, part of prices dropping has to do with smaller homes selling. Technically the median price in the region has dropped 4% from June, but this does NOT mean prices are 4% lower in every area. Simply put, some of this price drop really has to do with size.

Sacramento region stats for price, number of sales, cash percentages, and other elements. September to October stats.

Sacramento county stats for price, number of sales, cash percentages, and other elements. September to October stats.

Placer county stats for price, number of sales, cash percentages, and other elements. September to October stats.

STILL SELLING ABOVE THE LIST PRICE:

Here are some visuals to show how properties have sold in relation to the original list price. In short, we are seeing more properties sell at or below the list price, but last month on average properties still sold almost 0.50% above the original list price. For context, 43% of the market sold at or below the list price last month (most of that is not below). In 2019 more than 70% of all sales sold at or below the list price though, so despite seasonal slowing the market is still moving really fast. It is actually highly unusual to see homes selling above the list price in October. On average homes sold about $2,800 above the original list price whereas in October 2019 homes sold about $15,800 below the list price.

We really don’t have an overpriced market, but some sellers need to adjust to the reality of a slower pace compared to April. Buyers, there is a little more hope for you, but you still have to bring a strong offer. Only 13% of homes sold below the original list price last month. In a normal market his number should easily be 20% or more. Hang in there.

A line graph to show the original sales price to list price ratio since 2018 in the Sacramento region A line graph to show how much buyers have paid in relation to the original list price since 2018 in the Sacramento region August through October stats for specific price ranges

This visual shows the percentag eof homes that sold above the list price from November 2020 through today

UPDATED VISUAL:

This is a cool visual I’ve been making for a few months. It shows how prices are distributed throughout the market. I actually corrected this visual since I made an error in Excel that pushed the columns over one bin (and that changed everything). Sorry about that.

TWO BRAND NEW VISUALS:

Here are a few new visuals to show how much buyers paid above asking price. I like this format because it compares multiple years at once. But I’m not totally sold on this either because 2020 was such an odd year and 2021 is so far removed from the trend. It just feels a bit awkward maybe. No matter what though, do you see how normal it is at this time of year to see cooling? It’s like the market goes up for about half the year and then things descend.

A BUNCH OF VISUALS:

In case you’re still reading, here are a bunch of visuals to digest. I’m playing catch-up after being out of town, so I don’t have any more time to organize these. Let me know if anything stands out to you.

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 are you seeing out there in the market?

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The struggle to afford the market & making the top of the list

November 1, 2021 By Ryan Lundquist 16 Comments

Are buyers struggling to afford the market? Let’s talk about that today. I have some brand new visuals to share (Part I) and then let’s unpack a new study that says Sacramento is the least affordable area for new homes (Part II). What are you seeing in your area regarding affordability? I’d love to hear.

This image shows a house with a picket fence all made from american currency. The caption reads "The struggle to afford the market"

UPDATE: News just broke about Zillow exiting the market for good. I’ll talk about that next week on my blog (but now on social channels).

PART ONE: Affordability

1) Duh, affordability is going down: It’s no surprise to see affordability diminished in recent years in the United States, California, and locally. Prices have risen and while mortgage rates have been a game-changer for affording higher prices, affordability is still taking a hit. Here are some visuals I made based on data from the California Association of Realtors (CAR) (here).

This image shows the housing affordability index for California, Sacramento, and the United States. This is a line graph and each image basically starts out around 10-20% in 2006, peaks around 50-70% in 2012, and each line is now anywhere from 20-50% today.

2) What was affordability like during the “bubble” days? How many people could afford to buy before the market crashed? According to CAR data in 2006 only about 12% of buyers could afford the median price in California, 10% of buyers in the United States, and 21% of buyers in Sacramento. In contrast, this same index today shows 23% of buyers in California can afford a median-priced home, while it’s 50% of buyers in the United States and 38% of buyers in Sacramento. Keep in mind just because you cannot afford the median price doesn’t mean you cannot afford to buy at a lower price.

This is a line graph that shows the housing affordability index for Sacrameneto and California from January 1991 to December 2005. This is a line graph that basically peaks in 1998 and heads way down in 2005.

California: This visual tells the story that 23% of households in California are able to afford a median-priced home. I suspect many states are more affordable than California, but I’d love to hear any specifics from any onlookers. As CAR points out, affordability was at the peak in 2012. See full report from CAR here. As a side note, there are thirty seven counties in California where fewer buyers can afford the market compared to Sacramento County. But Placer, Yolo, and El Dorado are all less affordable, so when we look at regional data this pushes Sacramento as a whole to be less affordable (though nowhere close to the Bay Area and coast).

This is a bar chart from the California Assoication of Realtors to show the housing affordability index from 2006 through 2021. Basically right now the affordabilty index is at 23%. This means only 23% of households can afford the median-priced home in the state.

PART TWO: Sacramento made the top of the list

A new report says Sacramento is the least affordable area in the country for brand new homes. This report from a company called Knock has gone viral. The Sacramento Bee wrote about it here. I even had an out-of-state family member forward me a national TV show talking about the subject.

A few things:

1) This is only about new homes: Understanding the fine print helps us interpret what is and isn’t being said. For instance, this study from Knock only focuses on brand new construction. In Sacramento 12% of the market is said to be brand new homes, which means this report doesn’t apply to 88% of the market. In other words, when people start saying stuff like, “Bro, Sacramento is the least affordable place in the country,” that’s NOT what this study is saying.

2) Brand new vs used: The median price for a brand new home is said to be $650K compared to $550K for older homes. This highlights the reality of how much more expensive new construction can be at times and also how difficult it is to build affordable housing too (but that’s a different post). Keep in mind some of this price difference could have to do with newer units being larger too. Anyway, it’s not a massive shocker to see fewer buyers able to afford a home priced $100,000 or 18% higher than older units. Check out Knock’s research below. I know, the font is tiny. Click the image for a larger version.

3) Is the resale market 80% unaffordable? This study says 80% of households in Sacramento are not able to afford a brand new home at the median price of $650,000. That’s a sobering stat that most of us wish was different. But does this mean 80% of buyers cannot afford homes that are not brand new (aka “resale” homes)? Nope. According to the California Association of Realtors 38% of households last quarter could afford the median price in Sacramento County and most other local counties range anywhere from 31-35% (see visual). To say this negatively, 62-69% of buyers can’t afford the median price in the Sacramento region (the percentage varies depending on the county). Ultimately it’s clear affordability is better in the resale market, but the stats at 62-69% don’t sound incredibly encouraging either, right?

This line graph shows the housing affordability index for various counties in the Sacramento region (namely Sacrament, Placer, Yolo, and El Dorado). It goes from 2012 through 2021 and the results are about what we would expect. The percentages used to be about 70-75% and now they're about 30-38% of the market being able to afford a median-priced home.

4) Buyers are engaged: It’s easy to say stuff like, “The market is not affordable”, but does that line up with actual stats? Are buyers pulling the trigger at current prices or are they stepping on the brakes? For now despite affordability declining in recent years, volume has been really steady locally and buyers have had a voracious appetite. So despite weakening affordability buyers have been getting it done. Anyway, stay tuned for fresh stats in coming weeks.

Let me stop before this becomes a dissertation.

Stephen Forrester: I did not know Stephen, but he was an appraiser who tragically passed recently. Here is a GoFundMe to help him out.

Questions: What stands out to you most above? What are you seeing and hearing regarding affordability? What did I miss?

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Will appraisers use Zillow purchases as comps?

October 18, 2021 By Ryan Lundquist 44 Comments

Let’s talk about Zillow. I’ve been getting a TON of questions every week about what Zillow is doing and whether appraisers can use their purchases as comps.

YouTube Live TONIGHT (10/19/21): Hey, I’m doing a YouTube Live at 6:30pm PST on Jason Walter’s channel. We’ll talk shop for probably 60-90 minutes.

Big news: First off, yesterday news broke that Zillow would be suspending buying anything else until 2022. Based on articles and a few conversations with locals in the know, it sounds like their rapid pace of buying has become backlogged, so they needed to hit the pause button to catch up. In the Sacramento region they own 372 properties right now and they’ve been on a buying spree over the past few months especially. Look, there could be more to this story, but all we have right now is what Zillow says.

Assumptions: I’ve heard some people think Zillow pulling back must mean the top of the market is here. Or maybe this shows the model isn’t working. Or it’s possible other iBuyers would soon follow in backing off. But here’s the thing. These are assumptions and it sounds like Zillow is going to be buying again in about two months. If this is true, it means these assumptions are misplaced. Of course Zillow is very likely losing money, but that may not be the reason they pulled back.

WILL APPRAISERS USE ZILLOW PURCHASES AS COMPS?

Yes and no. It depends. So many people are talking about what appraisers can and can’t do, but there’s so much misinformation. I hope this helps.

NO:

When Zillow buys properties directly from owners these are very likely NOT going to be used as comps. Frankly, appraisers might not even know about these sales since they don’t show up in the MLS where appraisers typically look for comps. But even if an appraiser knew about a few Zillow purchases, here’s the important part. If an appraiser cannot verify the nature of a sale that Zillow bought directly from an owner, then it’s not good appraisal practice to use the sale as a comp. If an appraiser has no clue about condition, quality of upgrades, or any sales concessions, for instance, using a private “comp” would essentially be a blind comparison. So if someone hands me a private Zillow purchase to consider as a comp, I’m going to say, “Thank you, but I don’t know anything about this transaction. But what I do have is 10-15 MLS sales to consider.”

Technically appraisers CAN use non-MLS sales as “comps” in an appraisal report, but only if the sales can be verified with someone principle to the transaction. In other words, the appraiser needs to be able to understand the nature of the transaction from someone like an agent, attorney, title company, buyer or seller. Yet being that Zillow is seemingly buying in suburban markets where the vast bulk of sales happen on MLS, there isn’t really much of a good reason for appraisers to use these private purchases as comps.

YES:

When Zillow buys on MLS, these sales are something an appraiser can consider just the same as any other comp because the details are transparent and it’s likely easy to talk with someone in the transaction. However, just because a property closes at a certain level doesn’t mean appraisers are going to automatically use the sale without consideration of whether it represents the market or not. In other words, if Zillow paid too much for a property they bought, it doesn’t all of a sudden represent the market or set a new price level for the neighborhood. As an example, a property sold for about $50,000 higher than any other similar sale. This sale was a clear outlier and it closed so high because the buyer likely bid too much out of desperation (Zillow wasn’t the buyer). I still used it as a comp, but I gave it far less weight because it simply sold for too much.

Keep in mind Zillow flips homes and appraisers can use the homes they re-list on MLS also. This is just the same as any other sale and appraisers simply have to weigh each potential comparable.

Is Zillow manipulating the market?

There have been quite a number of accusations about Zillow manipulating the market and I’m not here to defend Zillow, but so far I haven’t seen data to back up the accusations. I’m being careful about flippantly making such a serious accusation, but if anything comes to light I’ll be first to yell from the rooftops.

You may have seen the viral TikTok video below and this guy seems really cool. It’s just having one higher sale doesn’t all of the sudden make the market higher just like one lower sale doesn’t break the market. I get what this guy is saying, but I think we need data to substantiate such a claim.

For what it’s worth, this viral video helped put Zillow under the microscope and that’s a good thing. My observation is tech companies often get a pass from the public, but their activity and motives should absolutely be kept in check.

How many homes do iBuyers own in the region?

In the Sacramento region iBuyers own 747 homes (two weeks ago they owned 690). Zillow owns 372 units, Opendoor owns 350 homes, and Redfin owns 25 units. For reference, two weeks ago Invitation Homes had 77 units (since May) and now they have 91 units.

UPDATE: I should clarify too that my stats for all of these companies are for Sacramento, Placer, Yolo, and El Dorado.

Is Zillow temporarily exiting good news for buyers?

I’ve had a few people ask if Zillow backing off for a couple of months is good for buyers. Well, it’s good in the sense of having one less cash buyer to compete with (for the MLS acquisitions at least). But realistically Zillow’s activity is not a significant chunk of the market, so it’s not like pausing operations is going to change the trajectory of prices or the feel of things in the trenches.

Where does Zillow own homes?

Here is a look at a few neighborhoods. The pins are different colors depending on whether properties are active (green), pending (yellow), purchased and not active yet (red), black (no MLS activity yet), or expired (purple).

Anyway, I hope this was helpful or interesting.

Thanks for being here.

Questions: Anything to add regarding comp selection? What do you think of Zillow exciting the market? Is the iBuyer model a good thing for the public?

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Price reductions don’t mean the market is crashing

September 14, 2021 By Ryan Lundquist 14 Comments

We’re seeing more price reductions lately. Does this mean the market is starting to collapse? Are things beginning to turn? Is this 2008 all over again? I’ve been getting great questions like this lately, so let’s talk shop.

Teaching my favorite class: On September 28th from 9am-12pm I’m teaching my favorite class at SAR called How to Think Like an Appraiser. It’s three hours, which sounds painful, but I love this one because we have space to dig deep into comp selection and adjustments. Sign up here.

5 THINGS TO KNOW ABOUT PRICE REDUCTIONS

1) Price reductions are normal: It’s normal to see more price reductions from the summer through the fall season. The danger is it’s easy to observe normal trends through a doom and gloom lens. The issue is demand changes from the spring and there is less attention from buyers as people are focused on school, vacation, and getting into a fall rhythm. It then takes sellers a bit to adjust their expectations and find proper pricing in a cooler market.

2) Anything can be overpriced: Over the past week in Sacramento there were price reductions in every single price range. This tells us it’s possible to overprice at any segment of the market.

3) Technically the market is NOT way overpriced: The local housing market is seeing more price reductions, but I don’t think it’s fair to say we have an overpriced market. Like I said last week, stats are still not normal as the market is more aggressive than it normally is for the time of year. According to Altos Research 28% of recent listings have price reductions in Sacramento County. Anyway, check out Altos and see Placer, Yolo, and El Dorado too. I don’t pull stats like this regularly, but a figure at 28% sounds about right as it fits with other stats I do pull. I can bore you with details in the comments if you wish.

4) Be careful about judging: The danger in real estate is to think whatever we are seeing with a few properties is what the entire market is experiencing. Maybe. Maybe not. It’s like me noticing several people wearing overalls. Is it a trend or did I just happen to see a few friends reliving their glory days from the 90s? Look, personal experience is really valuable, but it’s important to be sure we’re looking at stats on a bigger level beyond what is in front of us.

5) A closing note for sellers: It’s critical to nail the list price right now and I advise being in touch with the current climate of fewer offers, taking longer to sell, and more price reductions. It’s easy to be infatuated with hot headlines or cling to the idea of fetching a massive cash offer from an out-of-town whale. My advice? Price for the market and see what happens. Don’t price for the unicorn. It’s still a competitive market, so you may be able to get a few strong offers, but it’s not what it was four months ago. Oh, one more thing:

Anyway, I hope this was helpful.

Thanks for being here.

Questions: What are you seeing out there with price reductions? What advice would you give for pricing a property right now?

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

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