low housing invetory

When the market is flat, it’s easy to impress clients and look like a guru because of how accurate your values are. But when inventory shrinks, demand is off-the-hook, and the market shifts, it’s not always easy to nail value because things can change quickly in a short period of time. In light of the market increasing in value lately in many areas of the country, I thought it would be useful to offer some quick advice for dealing with increases. Then at the bottom of the post I have my ridiculously long Sacramento market update. I’d love to hear your take. Any thoughts?

Advice for Agents: When values are increasing, it’s crucial to pay careful attention when pulling comps before a listing. The tricky part in a “hot” market is it can be possible to get into contract at much higher levels than what is reasonable, so in a sense the agent has to really spend time weighing what a realistic value looks like before the listing hits the market. Keep in mind a lender’s appraiser is going to need to come up with a value that is supported by market data, reasonable for the neighborhood, and representative of the market. It’s easy to say, “The market is ‘hot’ and inventory is low, so I priced it higher,” but there really has to be support for the higher value. I recommend asking yourself the following questions and then talking clients through the answers.

1. Is there support for value at the list price? (sales, pendings, listings, data)
2. Is the list price reasonable? Does it make sense for the neighborhood?
3. Would the market pay this price or would only one buyer pay this amount?

Advice for Appraisers: In an increasing market appraisers need to spend time figuring out how much the market has changed in recent time. In other words, if there has been upward value movement since the most recent sales got into contract, it could be very reasonable to give upward market adjustments to the comps. I suggest paying careful attention to competitive pendings, making market graphs in each report to help see the market, and keep an eye on competitive neighborhoods too in case data is sparse in the subject neighborhood. Lastly, let’s remember value increases might look more aggressive in some areas than others, so adjustments won’t look the same in every neighborhood or price range. Moreover, a typical canned market adjustment might be 1% per month (because that’s what a mentor taught us to do), but that might not be legit at all (like most canned adjustments). What does the market say? Let’s do our best to listen and then adjust if needed.

Questions: Any thoughts? What other advice would you give?

—————– For those interested, here is my big market update  —————–

Two ways to read the BIG POST:

1. Scan the talking points and graphs quickly.
2. Grab a cup of coffee and spend time digesting what is here.

DOWNLOAD 77 graphs HERE: Please download all graphs in this post (and more) here as a zip file (or send me an email). Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

Quick Market Summary: The market has been showing value increases. Whether looking at the median price, average price, or average price per sq ft, all the numbers sound “hot” so to speak. This isn’t a surprise though because it’s what normally happens in April. It’s worth noting it took 8 less days to sell last month compared to the same time last year, and the median price is up in the region by nearly 8% from last April. FHA sales were roughly 25% of all sales last month in Sacramento County, though they are down slightly from 27-28% of the market in past quarters (this is a stat worth watching over time). Sales volume for the entire year is down slightly, but not by much. In short, the stats are glowing overall because there has been upward growth with most metrics. However, buyers are still exhibiting price sensitivity. If properties are not priced correctly they are sitting instead of selling. Moreover, under the umbrella of a “hot market”, some sellers are simply pricing WAY too high for the market. They hear the word “hot”, but that doesn’t mean you can sell for anything. Lastly, just because the market has increased in value in some neighborhoods and the entire county doesn’t mean values are increasing for every property type or in every price range.

Sacramento County:

1. It took an average of 31 days to sell a home last month.
2. It took 6 less days to sell last month that the previous month.
3. It took 11 less days to sell this April compared to last April.
4. Sales volume is down slightly from last year by 3%.
5. There is only 1.3 months of housing supply in Sacramento County.
6. Housing inventory is 15% lower than it was last year at the same time.
7. The median price increased by 1% last month.
8. The median price is 10% higher than the same time last year.
9. The avg price per sq ft increased by 2.8% last month.
10. The avg price per sq ft is 8.8% higher than the same time last year.

Some of my Favorite Graphs this Month:

SACRAMENTO REGIONAL MARKET:

1. It took 6 less days to sell last month compared to the previous month.
2. It took 8 less days to sell this April compared to last April.
3. Sales volume was 4.6% lower in April 2016 compared to last April.
4. Short sales were 3% and REOs were 3% of sales last month.
5. There is 1.6 months of housing supply in the region right now.
6. Housing inventory is 9.5% lower than it was last year at the same time.
7. The median price increased 3% last month from the previous month.
8. The median price is 7.7% higher than the same time last year.
9. The avg price per sq ft increased 2.5% last month.
10. The avg price per sq ft is 6% higher than the same time last year.

Some of my Favorite Regional Graphs:

PLACER COUNTY:

1. It took 6 less days to sell a house last month than March.
2. It took 2 less days to sell this April compared to last April.
3. Sales volume was 6% lower in April 2016 compared to last April.
4. FHA sales were 17% of all sales last month.
5. Cash sales were 21% of all sales last month.
6. There is 1.8 months of housing supply in Placer County right now.
7. Housing inventory is 6.7% lower than it was last year at the same time.
8. The median price increased 5.6% last month (take with a grain of salt).
9. The median price is up 9.2% from April 2015.
10. Short sales were 2.7% and REOs were 1% of sales last month.

Some of my Favorite Placer County Graphs:

I hope this was helpful and interesting.

DOWNLOAD 77 graphs HERE: Please download all graphs in this post (and more) here as a zip file (or send me an email). Use them for study, for your newsletter, or some on your blog. See my sharing policy for 5 ways to share (please don’t copy verbatim). Thanks.

SacBee: By the way, the second article I wrote for the SacBee real estate section went live. It’s called “One size does not fit all when talking about the housing market.”

Questions: Any advice you’d give to clients right now about pricing? Is there any other market insight you’d like to add? I’d love to hear your take.

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