Sacramento Appraisal Blog

Let’s talk about increasing values and low inventory. ‘Tis the season for this conversation because the market is heating up right now as we are on the cusp of spring. Here are a few things that have been on my mind, and then a huge local market update after that (for those interested). I’d love to hear your take in the comments below. Any thoughts?

1. Front Loaded Market: In a normal market prices tend to heat up in the spring and soften in the fall. While this isn’t true everywhere in the United States (or for every year or type of property), this general reality reminds us that value increases are often loaded into the front part of the year rather than throughout the entire year. For instance, if values increased by 6% last year, it doesn’t mean value went up by 0.5% each month. Instead, any increase in value might actually have occurred from February to June.
2. Rapid Appreciation: I’ve been hearing lots of chatter about rapid appreciation lately. The idea is the market has increased substantially in value over the past couple months and appraisals are lagging behind the trend. I know low appraisals are a reality, and if appraisers aren’t giving upward adjustments for value increases (when warranted of course), it can lead to conservative appraisals that probably reflect the market two months ago rather than right now. Whatever the case, the Sacramento market has felt extremely competitive lately because of freakishly low inventory, though actual value increases seem more nominal for the spring rather than exponential. Yes, there are some properties that have been bid up 10% or so, but those properties were probably priced far too low since increases that large have not typified this market. Moreover, sometimes markets feel more aggressive than they actually are, so a market’s mantra might be: “Aggressive demand, modest appreciation.”
3. Not Every Neighborhood: Some neighborhoods and price ranges are trending differently than others. I know that sounds obvious, but it’s worth mentioning because it’s easy to lump all areas and price ranges together. For instance, the median price in the regional market last month increased by 2.5%, but that doesn’t mean values increased by 2.5% in every single neighborhood or price range. When valuing a property, we can keep an eye on trends from the wider area, but at the end of the day we need to look at competitive sales and listings in the subject property’s particular neighborhood. What is the competitive market doing in the neighborhood? If we impose the notion that “values increased by 2.5% last month” on every neighborhood, we’re probably going to make some valuation mistakes.
4. Less New Construction is Starting to Matter: When the economy collapsed, new home construction sloughed off and has not yet recovered anywhere close to where it was during the glory years from say 2003 to 2005. This might not seem like a big deal, but now imagine the population has grown over the past 10 years, which essentially means there are now less available housing units for a larger population. On top of this, institutional investors bought homes in recent years and are holding on to them instead of selling. Moreover, some owners purchased several years ago are sitting on a sweet 3.5% interest rate and a low mortgage payment. Why would they sell in today’s market unless they really had to? Not all areas in the country are struggling with low inventory, but a lack of new home construction in recent years is actually a big deal, and it’s certainly contributing to a lower housing supply in many markets including Sacramento. Lastly, when there are less housing units for the population, it tends to create an environment where rents increase. This is an important trend to watch.

Any thoughts? I’d love to hear your take below.

—————– 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 a few minutes digesting what is here.

DOWNLOAD 70 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 Sacramento Market Summary: The market in February was fairly normal in Sacramento. Values saw a modest seasonal uptick, sales volume increased, and inventory declined. This was all expected because it’s what we normally see at this time of year. But while market stats are more on the tame side, the market has felt anything but that in the trenches of house hunting. Multiple offers are commonplace and buyers are seeming to exude a 2004-ish frenzy to get into contract before values rise too quickly (does that concern anyone?). Despite housing inventory being extremely tight, properties that are priced too high are sitting instead of selling, and that reminds us how price sensitive buyers have become. The market is definitely a sellers’ market, though that doesn’t mean sellers can command any price they want. It’s interesting to note it took 12 less days to sell a house this February compared to last February, and only 3.4% of all sales in the region last month were short sales. One last thing. There is a big difference in the mood among buyers when mortgage interest rates are closer to 3.5% compared to even 4.0%, so watch rates and the market closely.

SACRAMENTO COUNTY:

1. It took an average of 46 days to sell in both February and January.
2. It took 12 less days to sell this February compared to last February.
3. Sales volume was nearly identical in February 2016 compared to last February.
4. FHA sales were 24% of all sales last month.
5. Housing inventory is 25% lower than it was last year at the same time.
6. The median price increased by 6.7% last month (take that w/ a grain of salt).
7. The median price is 6.7% higher than the same time last year.
8. The avg price per sq ft increased by about 1% last month.
9. The avg price per sq ft is 6% higher than the same time last year.
10. Sales volume in 2016 is roughly the same as the same time last year.

Some of my Favorite Graphs this Month:

SACRAMENTO REGIONAL MARKET:

1. It took 1 day longer to sell a house last month than January.
2. It took 12 less days to sell this February compared to last February.
3. Sales volume was 2% lower in February 2016 compared to last February.
4. FHA sales were 22% of all sales last month.
5. Short sales were 3.4% and REOs were 4.8% of sales last month.
6. Housing inventory is 20% lower than it was last year at the same time.
7. The median price increased 2.5% last month from the previous month.
8. The median price is 3% higher than the same time last year.
9. The avg price per sq ft declined slightly last month (less than 1%).
10. The avg price per sq ft is 7.9% higher than the same time last year.

Some of my Favorite Regional Graphs:

PLACER COUNTY:

1. It took 7 more days to sell a house last month than January.
2. It took 6 less days to sell this February compared to last February.
3. Sales volume was 4% lower in February 2016 compared to last February.
4. FHA sales were 20% of all sales last month.
5. Cash sales were 19% of all sales last month.
6. Housing inventory is 17% lower than it was last year at the same time.
7. Sales volume is up 2.5% this Jan/Feb compared to last Jan/Feb.
8. The median price increased 2.5% from the previous month.
9. The median price is up nearly 11% from February 2015.
10. Short sales were 1.5% and REOs were 4.3% of sales last month.

Some of my Favorite Placer County Graphs:

I hope this was helpful and interesting.

DOWNLOAD 70 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.

Questions: Any other points to add about increasing values or low inventory? What stands out to you about the latest stats in Sacramento? I’d love to hear your take and what you are seeing in the trenches.

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