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layers of value

Four things to remember about inventory and interest rates in Sacramento

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If you want to make sense of the unfolding story of real estate in Sacramento, be sure to keep an eye on inventory and interest rates. Take a minute to look over the graphs below to glean some context for how the market is evolving. Then let’s consider some thoughts further down.

sacramento real estate market trend graph median price interest rates inventory since 2011 - by sacramento appraisal blog

sacramento real estate market trend graph median price interest rates inventory since 2008 - by sacramento appraisal blog

sacramento real estate market trend graph median price interest rates unemployment inventory since 2008 - by sacramento appraisal blog

sacramento real estate market trend graph median price interest rates unemployment since 2001 - graph 2 - by sacramento appraisal blog

Four thoughts on inventory and interest rates:

  1. Sweet Spot: Rates under 4% are a sweet spot for buyers. What do I mean? Buying was very aggressive in Sacramento when interest rates were below 4% for 19 months in a row. When rates increased above 4% in June 2013 from 3.5% in May, there was definitely an impact as inventory began to increase. Of course cash investors started exiting the market around that time too, which is also a big part of this trend.
  2. 40 Year Context: Some buyers need convincing to jump into the real estate game instead of waiting for rates to decline. Unless The Fed changes its bond buying patterns (which can lower rates), higher rates are expected to ensue. Think about the context though. Over the past 40 years interest rates have literally only been below 5% since 2008. In other words, we are spoiled with cheap money (even now) compared to everyone in decades past.
  3. Economics 101 for the Long-Term: If rates and inventory continue to rise, it will have a cooling impact on values over the long haul. This is particularly true since cash buyers are not around like they were last year to absorb inventory and create more competition for the rest of the market.
  4. Short-Term Economics: For the immediate market, interest rates are still incredibly low and inventory is still very low. This means there is room for upward value movement. Or in other words, demand is still outweighing supply. Last month saw less than 950 sales, but keep in mind January is always slow. The key point for me is that at the end of the month there were over 2000 pending sales that had not closed yet. This shows that buyers are hungry for real estate (I’ll share a graph about this on Tuesday). Right now inventory is still hovering around 2.5 months, so there will be very decent competition to get into contract in coming time. It won’t be the blood bath of 2013 when there was only one month of housing supply, but 2.5 months is not that much to work with for real estate Spring fever.

Questions: Any thoughts or questions? What are you seeing out there in the trenches of the market? Feel free to comment below.

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Things that make value move in Sacramento

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I’ve been talking quite a bit lately about “layers of value” or things that impact the real estate market. Values increase or decrease based on many factors. Let’s look at the image below to see some of the bigger influences for the Sacramento market. I shared a similar photo recently, but expanded it to include monthly mortgage interest rates and unemployment. What do you think?

Sacramento real estate market trends - interest rates median price and inventory - by sacramento real estate appraiser blog

Sacramento real estate market trends - interest rates median price and inventory - by sacramento real estate appraiser blog - largeSeeing the Trends: We all know an increase in interest rates and inventory tends to cool down values. That’s Real Estate 101. Yet at the same time, it’s still good to see visuals like this to reinforce what we know and also anticipate what the future of the market will look like as current trends unfold. As you can see in the image above too, there is definitely a stabilization of values that occurs toward the end of each year as the colder months ensue. Click the thumbnail to view a larger image to see this more clearly. By the way, feel free to use this graphic (unaltered) on your blog, social media or in a presentation. The only thing I ask is you link back if online.

Question: Any thoughts, questions or insight to share? Comment below.

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The multi-layered real estate cake analogy

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We all know markets go up and down, but what really helps create value in real estate? Let’s look at the multi-layered cake concept to taste the answer. I’m not sure who came up with this analogy, but it’s definitely something I use regularly. Value in a real estate market is like a multi-layered cake since there are many “layers” in the market that help impact or create value. It’s easy to think of real estate in terms of being only about the relationship between supply and demand, but it’s also about interest rates, the economy, cash investors, foreclosures, financing, affordability, loan programs, lending guidelines, industry regulations, jobs, consumer confidence and so many other “layers” that end up playing a part in influencing the market.

cake from Joy Yip

Shifting Layers: When any of these layers begin to shift, it can create ripples throughout the market. This was seen clearly when the Federal Tax Credit came on the scene a few years ago. This credit created incentive for buyers to purchase properties, and it led to a brief uptick in values (until the credit expired). Another example would be a reduction in interest rates, which increases affordability and often leads to an increase in prices since more buyers jump into the market to compete for housing supply. Or consider a very recent example of FHA announcing it will now accept buyers who are only one year out from a foreclosure. This added “layer” in the market will help create value in the Sacramento area as a whole new pool of buyers hits the market to help absorb some of the increase of inventory as of late. Consider too that more FHA purchases will also simultaneously help pick up some of the slack from having less investors in the market. Can you see how some of these “layers” can end up driving real estate values one way or the other?

By the way, thank you to Realtor Joy Yip for letting me use a photo of her rainbow cake. I saw her cake on Facebook and knew it would be perfect for a blog post.

Question: Any  stories, thoughts or questions? Feel free to comment below.

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