House Appraiser

Street names & hot stats with an asterisk

November 13, 2019 By Ryan Lundquist 17 Comments

I have two things on my mind. Street names and super “hot” market stats. Then for those interested I’ve include my big monthly market update below.

Two things:

1) Street Names: Just for fun, could a street name actually affect value? I mean, if it was really off-color, would buyers pay less because of a name? In my mind it seems iffy because I’ve never seen a name that would actually deter buyers. Yet the middle schooler in me can think of some examples that might work… Anyway, after a conversation on Twitter, here are some of the more random street names in Sacramento. What funny or odd street names have you seen?

2) Hot stats with an asterisk: Last year we experienced a REALLY dull market in many places across the country. If you remember mortgage rates ticked up and it was as if a dark cloud was looming over the housing market. I’m bringing this up because stats last year were depressed. Thus when comparing last year to more glowing or normal numbers today it can make recent price figures look really sexy. My advice? Over these next few months be aware of more sensational data due to lackluster stats from last year. Otherwise if we’re not careful we might end up thinking the market is much hotter than it actually is.

Any thoughts?

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

This post is designed to skim or digest slowly.

Summary: The numbers are “hot” this month. Prices are up to a greater extent than they’ve been most of the year, inventory is down, pendings are strong, and sales volume has been up too. Part of the reason why the numbers are so stellar is because last year’s numbers were dull, but some of the hotness stems from low mortgage rates a few months back too. In other words, strong pendings from the summer finally closed in October.

DOWNLOAD 90+ 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:

It’s been a normal fall so far
FHA buyers have been hungry
Zillow bought their first house
Anemic housing supply
Celebrity flippers are coming
Rent control doesn’t apply to every property
Market crash vs recession
Strong million dollar market
Slowing price momentum
Overpricing is still an issue

THE LONGER VERSION:

Here are some of the bigger topics right now:

Normal fall so far: Not all fall seasons are created equal. What I mean is some falls are duller than others, and this year so far has seemed to be a stronger season. Granted, prices are still softening like we’d expect, but it’s nothing like the painfully dull fall we had last year when some thought the market was about to take a big turn.

Hungry first-time buyers: Last month FHA was 21% of the market in Sacramento County. It’s been over two years since we’ve seen a month with 21% of the market go FHA. For years FHA has been declining because there are conventional products that can readily compete, but so far in 2019 FHA is up 5.6% in Sacramento County.

Zillow’s first purchase in Sacramento: About a month ago Zillow entered the Sacramento market and they just closed on their first house. It was a $560,000 private sale in Carmichael. On a related note, a piece came out in Forbes this week about iBuyer models paying close to market value. Look, we need to remember the credits these companies are getting from owners are padded into the purchase price. So instead of reducing the price to account for repairs, iBuyer tech companies are keeping the price higher and getting a credit for repairs within the purchase price. This is a huge advantage because it makes it look like the price is even closer to fair market value.

Anemic housing supply: Last week the big news was sellers are spending an average of 13 years in their homes instead of 8 years. As a result we’re seeing fewer homes hit the market. This is surely in part a consequence of eight years of historically low mortgage rates. We now have millions of owners with less incentive to list because they’re sitting on a low rate with equity.

Celebrity flippers are coming on strong: A few weeks ago I couldn’t sleep and I snapped this image while watching television at 4am. This flipping program aired simultaneously on four major networks. My advice? Be careful. We all want financial freedom, but you can spend thousands of dollars on these seminars to obtain “secret” flipping knowledge you can probably get for free.

Rent control does not apply to single family homes in Sacramento: I have an exhaustive Q&A post on rent control coming soon, but for now I wanted to mention something important. Rent control in the City of Sacramento only applies to properties within city limits with two units or more that were built prior to 1995. It does NOT apply to single family homes. However, if an investor owns ten or more properties under an LLC (and a couple other scenarios), rent control can apply. Keep in mind California has some differences between Sacramento rent control. Here’s an overview of rent control in California with a video link to a lawyer talking through rent control dynamics.

Ready for the market to crash because of a recession: Some prospective buyers are waiting for a recession in hopes of the market crashing, but real estate doesn’t always crumble when a recession happens. In fact, sometimes prices even rise. Here’s a video I made to talk through the past five recessions in Sacramento. This is a huge topic right now.

Strong million dollar market stats: The million dollar market has been growing. We really are in a market of outliers where we’re seeing some of the highest prices ever (Sellers, don’t overprice because of this). For reference, the top three sales ever in East Sacramento have all sold this year.

Slowing price momentum: Overall price growth has slowed down from years ago. This isn’t a shocker because I’ve been beating this point to death for the past couple years at least. What I mean is prices are moving forward still, but it’s not the type of rapid growth we saw in early 2013.

The plague of overpricing: Sellers these days are fixated on glowing stats and they’re often thinking the market is more competitive than it actually is. It’s like sellers are saying, “The market is SO hot and I’m going to get tons of offers,” but then buyers are like, “OK, boomer” (sorry, had to fit that in). Seriously though, overpricing is an enormous problem for sellers among all ages, price ranges, and locations. My advice? Price according to similar homes that are actually getting into contract. Remember, the market in later November and December is usually the slowest time of year. If you’re priced right you’ll likely get one or two offers, but if you’re priced too high you’ll likely get zero.

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

FIVE THINGS TO TALK ABOUT:

1) SLOWER GROWTH: Price growth has been slowing. This isn’t my idea or agenda. It’s what stats are telling us. This market is still very competitive when priced correctly, but it’s not a market with hefty price appreciation.

NOTE: Two of the categories above are showing slightly more price growth in 2019 compared to last year. But remember, when looking at data for October or the past 90 days, we have to consider how dull the market was last year.

2) PRICE CYCLES: Here’s a look at the past few price cycles in various counties. This is a fascinating way to see the market. What do you notice?

3) LAST YEAR vs THIS YEAR: All year long most price metrics have been up about 2-4% each month compared to last year, but this month they were a little stronger. This is likely due to stats sagging last year during a really dull 2018 fall season. Additionally, mortgage rates went down a few months ago and we’re likely seeing some of the effect of that.

4) VOLUME SLUMP: We’ve been having a definitive sales volume slump since mid-2018, but lately volume has been stronger. In other words, sales volume has been down fifteen out of the past eighteen months. But sales volume has been up for three out of the past four months. This is something to keep on the radar. It’s not a volume meltdown, but it’s definitely been a slower year.

5) PRICES ARE SOFTENING FOR THE FALL: The market generally slowed in October, which is expected for the time of year.

NOTE: Take El Dorado County data with a grain of salt. Stats change significantly month by month. Also, if you’re in Placer, be careful about only looking to Placer data because limited sales can mean numbers jump around quite a bit from month to 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 90+ 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’s the wildest street name you’ve seen before? What market trend above stands out to you the most? Anything to add?

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When sellers care too much about the Zestimate

October 16, 2019 By Ryan Lundquist 10 Comments

A seller’s Zestimate is really low and he’s pretty worried about it. It might seem a bit vain to care so much, but the seller is concerned since he’s heard buyers might offer less on his home if Zillow’s estimate is too low. Is that legit? Let’s talk about it. Then for those interested I have a huge market update below.

Three things about sellers caring too much about Zillow:

1) Some buyers need education: Some buyers do get hung up on Zillow, but these buyers are very likely the minority. Frankly, a buyer putting more weight on Zillow than actual comps or neighborhood trends is simply coming to the market as misinformed.

2) Obsession means more: If a home really is worth more than a Zestimate, buyers will recognize that and offer accordingly. In other words, the vast bulk of buyers won’t be getting stuck on a lower Zestimate when they know value is there. Will some? Maybe. But let’s remember the obsessive nature of buyers today. They scour all homes as soon as they hit the market, they’re in tune with every price reduction, and they often get a sense for what is both overpriced and underpriced in a neighborhood because they’re paying such close attention. Thus to think a buyer in today’s big data climate would forget about all the hours of obsessive research and get stuck on a Zestimate is out of sync with how buyers are approaching the market today.

3) Matching the list price: The irony is the Zestimate might actually end up chasing the list price when the home does come to the market. This doesn’t always happen, but there are numerous examples online of a Zestimate being really low only to be changed within days of the listing to match whatever the list price ends up being. Here’s a lopsided example I noticed with a Chip & Jo house and here’s a recent example from Jim the Realtor in San Diego.

NOTE: I wrote about Zillow two weeks in a row. It won’t be three next week.

Any thoughts?

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

If I had to boil down the market to a few phrases I’d say fairly normal stats, slumping sales volume, modest price growth, overpricing sellers, and some hesitancy among buyers. Ultimately stats are showing about what we’d expect for this time of year, which is why I’m saying the market feels mostly normal. This doesn’t mean there aren’t red flags of course.

DOWNLOAD 90+ 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:

Stats feel mostly normal
Not every fall season is the same
Rent control hasn’t stopped the market
Year-over-year price growth is modest
Sacramento is busting landlords for MJ
Distressed sales hardly exist
Volume was up this past month (but it was still a low month)
We’re about to have a new soccer stadium

THE LONGER VERSION:

Here are some of the bigger topics right now:

Prices likely peaked for the season: Prices have been flattening or softening in most areas in the region. This doesn’t mean the market is dull or not competitive. It simply means prices are softening and we’re not surprised because that normally happens around this time. For reference, the median price often dips about 5% or so during the fall.

PG&E shutting off power: If you didn’t know, PG&E shut off power to more than 700,000 customers for a couple days last week in light of a perceived risk of fire. I’ve been asked if this is going to affect the real estate market. Here’s my take. If this became a frequent issue it’s hard to imagine buyers not considering it when making offers and choosing where to live. If this is an isolated incident though, it’s likely to have no real impact. Of course one other layer here is we could see buyers expecting or appreciating generators being present.

Not all falls are equal: It’s good to remember not all fall seasons are created equal. What I mean is sometimes the fall season will feel pretty dull with larger price cuts and other times the market just feels a little more flat. The verdict is still out on what this coming fall season will look like exactly, but there is no mistaking we are in the midst it now.

The last run on the market before Thanksgiving: There is typically a last run on the market about this time of year. Now that everyone is settled in from vacations and the kids are in school, we usually see a last move to buy before the holidays arrive. This is exactly why there is almost always an uptick in sales volume in December. It’s not that there are more homes that actually sell in December. It’s just there are a higher number of pendings from October and November that end up closing in December.

Rent control: The market hasn’t stopped because of rent control in the City of Sacramento. I wanted to mention this because sometimes we lose sight of seeing the market in the midst of strong feelings and sensational headlines. When looking at 2-4 unit sales there were slightly more this September compared to last year, and pendings are fairly normal for the time being. This doesn’t mean everything is going to be peachy. I’m not saying that at all. I only want to emphasize the market is still moving and over time we’ll understand how it’s all going to play out. By the way, I’ll be doing a rent control Q&A soon.

Modest price growth: Last month we saw most price metrics were up about 2-4% compared to the same month last year in 2018. This is much more subdued growth compared to previous years.

Busting landlords for illegal marijuana grows: The City of Sacramento has been busting landlords for tenants growing cannabis over the legal limit (six plants). This is a huge deal and something to watch because some landlords have been getting excessive fines (we’re talking hundreds of thousands of dollars). This story is seeming to fly under the radar, but there are huge implications for property rights and investing in Sacramento and beyond. The silver lining for many landlords though is the courts have seemed to shoot down the city’s tactics lately.

Meth houses & El Camino: If you’re a Breaking Bad fan you probably already watched El Camino. It only seemed fitting to share the DEA’s published list of known drug labs. Unfortunately the list has not been updated in years, but it’s better than nothing. Here’s a study also on the impact of drug labs on surrounding homes (PDF).

Distressed sales: Ten years ago distressed sales dominated the market and were about 80% of all sales in the region, but now they’re hardly even 1% of sales.

Slumping sales volume: It’s been a lower year of sales volume as we’re down about 7% compared to last year. I know that doesn’t sound like much, but it does translate to about 2,000 less sales. I wouldn’t call this a market meltdown, but we’ve definitely seen a slowdown since sales volume has been lower 15 out of the past 17 months in the Sacramento region. This is still on the lower side of normal, but it’s something to watch over time to understand exactly what it means.

Hesitancy: Buyers are picky about getting into contract as well as staying in contract. On top of that some buyers are feeling hesitant. They wonder if we’re near the peak for this cycle, so they feel less confident about playing the game.

New soccer stadium: We’re finally getting an MLS soccer team in Sacramento after years of drama. Someone asked me if this will affect the market. In short, the stadium is only one piece of the pie in the entire Railyards development. There will be 6,000 to 10,000 housing units and millions of square feet of commercial space including a Kaiser campus. So buyers focus on the entire package including the stadium rather than saying, “Yo, I’m only buying because of the stadium.” Oh, and buyers located multiple miles away are very unlikely to look at fresh neighborhood listings now and say, “Dude, I’m totally going to pay more because there’s a soccer stadium ten to twenty minutes away.”

Soccer KCRA interview: By the way, I did an interview with Channel 3 yesterday about the new soccer stadium.

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

FIVE THINGS TO TALK ABOUT:

1) SLOWER GROWTH: The market has continued to show price growth, but it’s been a more modest rate of growth. This is why I’m saying the market is slowing. Let’s remember “slow” is not a dirty word in real estate.

2) PRICE CYCLES: Here’s a look at the past few price cycles in various counties. This is a fascinating way to see the market. What do you notice?

3) LAST YEAR vs THIS YEAR: Last year the market felt dark and many wondered if it was about to take a turn downward. That hasn’t been the vibe so far this year though. Most price metrics are up 2-4% or so this year. I’m not saying the market is perfectly healthy, but it feels profoundly different this year so far. It’s amazing what happens when mortgage rates slide down and help the market feel more normal….

4) VOLUME SLUMP: Volume was actually higher in September compared to last year at the same time, but it was still a pretty low September. In fact, in Sacramento County it was the second lowest September over the past 11 years. It’s important to remember last year was painfully dull, so it’s not all that hard to have a higher sales volume this year, right? The bigger story is sales volume is down in the region by about 7% over the past year. Moreover, volume has been down in the region for 15 out of the last 17 months. This is definitely something to keep on the radar. In my mind this is one of the most important trends to watch because it tells us whether buyers have their foot on the gas or brakes.

5) PRICES ARE SOFTENING FOR THE FALL: The market generally slowed in September in terms of price growth. This is why I’m saying prices feel a bit flat (even though they’re up from last year). This is normal for the time of year.

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

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 90+ 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? Any interesting trends you’re watching? What are you hearing from buyers and sellers lately?

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

Zillow has officially entered the market

October 9, 2019 By Ryan Lundquist 44 Comments

Zillow is here. As of two days ago they’ve officially entered the market in Sacramento and they have big plans to expand to other territories too. Let’s talk about this. Here’s what’s swirling through my mind. Anything to add?

Corporate flipper: Zillow is basically going to be flipping homes. Their website doesn’t use this language because “flipping” has a negative connotation sometimes. But they’ll be buying below market value, doing repairs as needed, and then selling higher. If it looks like a duck, quacks like a duck…

Narrow focus: Like many tech companies we’re going to see Zillow with a buy list. I’ve yet to see something published, but they’ll likely focus on conforming homes in a specific price range rather than unique or high-priced homes that might be more difficult to sell. This reminds us of Blackstone from 2012 and 2013 as they had specific standards for what they were looking to purchase. On a side note, if you work in real estate and you’re worried about the invasion of tech companies, then diversify into places and price ranges where iBuyer models aren’t going.

There is a place for tech: This may be an unpopular opinion and I may have a few people want to fight me, but there is a place for big tech companies in real estate. This doesn’t mean I’m excited about Zillow and Opendoor, but the world has changed and speaking objectively there are other models beyond the traditional model that will appeal to certain buyers and sellers.

Trust & getting a pass: Consumers tend to trust anything that’s online, so there’s already a high degree of trust with a brand like Zillow, and they’re now here to capitalize off of it. It’s as if they get a pass though because they’re not real estate agents or flippers (and they’re trying hard not to be seen that way). But let’s remember the obvious. They are here to work the system to their advantage and make money off consumers.

Tech is the minority: Tech companies are getting a ton of press, but these brands are the minority in the market right now by a long shot. For instance, Opendoor has 70 listings in the Sacramento region. That’s impressive for a start-up, but at the same time it’s only 1.4% of all listings. My guess is Zillow will be aiming to represent 2-3% of the market this year in terms of sales volume. Again, this is impressive, but let’s remember the vast bulk of sales in coming time are going to be sold traditionally.

The irony of the Zestimate: Zillow won’t be using their Zestimate as a basis for making offers. I get it, but I also find it ironic since they’ve built their brand around the legitimacy of the Zestimate.

Affordability: The unfortunate thing here about big corporations entering local real estate is it doesn’t help affordability. I’m not saying tech companies are going to cause prices to rise, but when the focus is on flipping homes, this won’t help keep prices lower.

Service fee vs commission: Lots of tech companies say stuff like, “Hey, we don’t charge commissions like real estate agents,” but this is disingenuous because there is a “service fee” that is basically the same amount or even more than we find in a typical real estate transaction.

The narrative of convenience & profit: Like many tech firms, Zillow is preaching the idea of convenience rather than profit. Their goal is to make escrows easier and smooth rather than helping a seller net the most money. If you listen carefully, few of these companies are saying sellers will actually make more because it’s simply not true in most cases. Remember, these corporate real estate machines have to buy low in order to make a profit. They’ll also be asking for credits for repairs, which makes sellers net even less.

Doing math: I strongly recommend for consumers to do the math when it comes to selling to a tech company vs selling on the open market. You’ll likely yield more profit on the open market if money is your concern.

Data issues: The data geek in me is thinking about numbers. I’m worried about properties being listed off MLS and data being watered down because there are missing sales. The good news here is I’m told homes bought by Zillow are going to be listed for sale on MLS (fingers crossed this happens). By the way, Zillow is going to be using a local brokerage for their acquisitions and sales.

Small investors: Corporate flippers coming to the market will make it more difficult for small investors because there’s an extra layer of competition now.

The price cycle: We are closer to the top of a price cycle, so I find it ironic to see tech brands jumping into the game. My guess is it’s much easier to find success in an up market than a down one. We’ll see how it pans out.

Other: What else? Please comment below.

Closing thoughts for real estate friends: It’s not easy when change happens and I know lots of people are worried about the future of real estate because of what we’re seeing right now. If I could offer any advice though, I’d say to accept the reality that tech companies are going to be a part of the real estate scene. For now it looks like the vast bulk of homes are going to be sold traditionally though, so I recommend focusing your time and energy on the larger portion of the population that won’t be working with these tech brands. Most of all, prove your worth. Why should someone hire you instead of a tech firm? What is your value proposition in a changing market? Prove it with uncommon service, deep knowledge, and results.

I hope this was interesting or helpful.

MY COMSTOCK’S ARTICLE: I wrote a piece in Comstock’s magazine this month on the invasion of tech companies in real estate. I can’t believe it happened to be published on the same day Zillow made their big announcement.

Questions: What stands out to you most above? What are your thoughts about tech companies entering real estate? I’d love to hear your take.

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The coming recession & the housing market

September 5, 2019 By Ryan Lundquist 31 Comments

The coming recession is a huge topic right now and lots of people are wondering about the effect on home prices. What’s going to happen to the housing market? Will we see another crash? Here are a few thoughts on my mind right now. Anything to add? Please comment below.

Last time isn’t the new template: The collapse of the economy during the last recession isn’t the new template for how every future recession and housing market will unfold. I’ve heard things like, “I’m so ready for this recession because I’m going to buy low after values tank.” But prices don’t always crash during a recession as you can see in the images below.

Severity matters: It’s hard to think the housing market is going to be swayed much if it’s a quick recession. But if buyers and sellers end up struggling financially and losing jobs, we can expect a greater effect on home prices (thanks Captain Obvious). The thing is we don’t know right now how severe of a recession we’re going to have, so that’s why we can’t say exactly what the housing market will do.

Consumer behavior: One thing we need to watch is consumer behavior. How will consumers think and act differently in coming time about their purchasing decisions? As I talked about last week, during a recession builders actually tend to build smaller homes since consumers tighten up their finances. This reminds us the way consumers think and act can certainly shape real estate.

Locations aren’t the same: It’s nice to see what national price metrics have done during various recessions, but national numbers can show a different trend than local data.

What do prices do during a recession? Sometimes prices have gone down and other times they’ve gone up during (or after) a recession. There’s not a one-size-fits-all answer. In Sacramento at least most of the time there’s been a price dip during or after a recession. If you’re looking for some historical data in your market, I suggest you check out the Freddie Mac Price Index.

During & After: I’ve seen some images that show home prices have appreciated during three of the past 5 recessions. That may be technically true on the national level, but we have to be sure to look at local stats. Moreover, let’s not narrow our focus to only ask what happens during a recession. What about afterward? What do you see in the images below?

UPDATE (OCTOBER 2019): I put together a quick presentation to download to help zoom in on various local recessions since these images show a more panoramic view. Enjoy if you wish.

UNITED STATES:

CALIFORNIA:

SACRAMENTO:

Don’t get too stuck on prices: When we think about a recession, let’s of course watch prices, but the bigger story will likely be found in what happens to the number of sales. Are buyers playing the market or are they backing off? In short, let’s not forget to watch sales volume because we’re so obsessed with prices.

The inverted yield curve (and hesitancy): Lots of people are talking about the inverted yield curve as an indicator of a coming change in the economy. For now I don’t hear buyers saying things like, “Maybe I shouldn’t buy because of the inverted yield curve…” Okay, I’m joking in part because most buyers aren’t going to be making a decision based on this metric. But to be fair there’s been a sincere hesitancy among some buyers because they feel uncertain about what the future market is going to do. By the way, thanks to Alex on Twitter for the “inverted” Top Gun reference. This is golden.

Hype: Everyone has a take right now and there is lots of hype about what the market will or won’t do when a recession hits. Some preach doom and gloom and others are doing their best to paint a rosy view of housing. My advice? Let’s do our best to let the actual market influence what we are saying about the market instead of getting caught up in someone’s talking points or agenda.

Making predictions: There are many 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 exact future until it happens.

I hope this was interesting or helpful.

BIG MARKET UPDATE I’M GIVING: I’ll be giving a deep market update at SAR on September 24th from 10:30-12:00pm. My goal is for everyone to walk away with an understanding of how the market is moving, ways to describe it, and some ideas for business in 2020. Sign up here.

Questions: What has been your experience with real estate and recessions? What are you hearing from buyers and sellers right now? Any stories to share?

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

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