Sacramento Region Appraisal Blog

A tale of two markets & pivoting when the housing market changes

May 17, 2023 By Ryan Lundquist 9 Comments

Builders are having a moment. New home sales are glowing right now in the midst of depressed volume in the resale market. It’s like there are two different markets happening at the same time. Today I want to share some stats for new construction, but let’s also talk about pivoting.

UPCOMING (PUBLIC) SPEAKING GIGS:
5/22/23 Yolo YPN event (only for YAR members)
5/25/23 TBD
6/1/23 DJ Lenth Event TBA
6/07/23 SAFE Credit Union event for agents (sold out)
6/08/23 Made 4 More event TBA
7/20/23 SAR Market Update (in-person & livestream)

NEW HOMES REBOUND

The past three months have shown a rebound of new home sales in the Sacramento region, and this dynamic is starting to show up in many markets across the country. Anyway, after a sharp downward change in volume for the second half of 2022, this year is starting out strong. It was the second-highest March since 2005 and second-highest April since 2006. These stats ONLY show brand new homes (data from North State BIA).

And here’s a chart to show builder confidence from NAHB. The increase we’ve seen lately shows the market has been improving. Let’s keep watching.

THE REST OF THE MARKET ISN’T GLOWING

Now let’s look at the resale market (older existing homes). The trend is completely different as we’ve basically seen the lowest volume ever. This is a great reminder that the market isn’t the same in every segment. Or a fancier way of saying it is we have a bifurcated market.

Granted, the new home market is so much smaller, but still, it’s a stark contrast to compare new vs existing homes. In recent years we’ve had anywhere from 4,200 to 5,300 annual new home sales in the wider region, but in 2020 and 2021 there were 7,000+ sales. In contrast, the resale market locally tends to have somewhere around 28,000 or so sales in a normal year (not including condos).

BUYERS PUMPED THE BRAKES LAST YEAR

Buyers backed off the new home market last year when mortgage rates changed (see yellow line). For many months in a row contract volume was basically cut in half from the previous year. To be fair, the previous year was a freakishly strong year, but still, the contrast was really sharp.

THE X-FACTOR

Why are builders rebounding? The x-factor is offering concessions to buyers. Credits for closing costs (or upgrades) and rate buydowns have been a tractor beam for buyers. Also, sellers are NOT coming to the market lately as we’ve seen about 40% fewer new listings in 2023. This helps shift the focus for buyers on where homes are popping up – new construction.

By the way, would these properties padded with concessions be selling for that amount without the concessions? This is where appraisers are going to have to carefully analyze the market. The truth is concessions can inflate prices, which is something to watch.

THIS ISN’T THE BEST VOLUME EVER

Is new home volume today outpacing what we saw in 2005? Nope. New home construction was expanding rapidly during that time, and we’re not seeing volume on those levels today. And for the record, new home volume is sorely needed right now in light of sellers sitting, but we have a labor shortage, so builders can’t build fast enough to make up for sellers not listing.

IT’S TIME TO PIVOT

Builders are pivoting at the moment. They’ve basically changed their strategy to stay alive. I realize not everyone can do what builders are doing with offering rate buydowns and credits, but shifting strategy is still key in the resale market. If you are a real estate professional, what do you need to do to pivot in the midst of depressed resale volume? What can you do differently today? What segments of the market do you need to start focusing on? How can you increase the size of your network right now? Who do you need to start getting in front of? What relationships do you need to build? What knowledge do you need to gain? Who are the gatekeepers to getting more business? If you’ve only been focused on attracting one type of business, what other avenues can you focus on? (vacant land, 2-4 units, investors, probate, divorce, second homes, first-time buyers, acreage, leaving California, moving up, moving down, retiring from the state, financial hardship, etc…).

IS OPENDOOR PIVOTING?

Right now Opendoor owns 63 units in the Sacramento region. Before the market shifted last year, Opendoor had about 300 to 330 units, so there has been a significant change. Some think Opendoor is heading toward failure, but for now they are still acquiring properties (7 since April). If anything, it looks like they’re pivoting to survive. Will they be successful? Only time will tell.

I hope this was helpful.

MARKET STATS: I’ll have lots of market stats out this week on my social channels, so watch Twitter, Instagram, LinkedIn, and Facebook.

Questions: What are you seeing builders offer consumers? What are you seeing them do with their prices?

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Opendoor is struggling in Sacramento

August 22, 2022 By Ryan Lundquist 46 Comments

Opendoor has been losing big lately in Sacramento since the market shifted. I thought it would be interesting to take a look at their activity over the past few months since I’m getting so many questions about them. This is not about throwing shade, and I’m not writing as a fanboy either. This is objective analysis to help parse what is happening. Enjoy if you wish.

Blue painted old wooden wall - background or texture. There is a white bar with a black title that reads, "Opendoor is struggling in Sacramento."

UPCOMING (PUBLIC) SPEAKING GIGS:
8/25/22 State of Housing Brunch & Learn (sold out)
9/08/22 SAFE CU “Stats & Mimosas” (sold out)
9/15/22 Market update in Midtown (details TBD)
10/07/22 Market update with SAR (Sign up here – On Zoom)

THE MARKET SHIFT HASN’T BEEN KIND TO OPENDOOR:

When looking at Opendoor listings and current pendings, they’ve clearly been struggling in Sacramento over the past few months since the market shifted. I think the general public and real estate community has been in tune with this because we’ve all seen lots of properties listed below their acquisition price. On average the current list price is down about $12,000 from the acquisition price. This doesn’t seem like much, but it also DOESN’T include future real estate fees, credits offered to buyers, the cost of improvements, additional price drops, etc… In short, Opendoor is poised to have an ugly third quarter since 65% of their current actives are listed below the acquisition price.

A table to show stats from Opendoor's current listings in the Sacramento region

OPENDOOR OBSERVATIONS:

The company did much better before the market shifted (see below).
Opendoor had a few unicorns where they were able to sell for substantially more after buying from an owner. The highest difference over the past few months was $192,000 between acquisition and resale. This means a few owners sold to them WAY BELOW market value.
Their closed sales spent about 40 days longer on the market compared to other sales in the region.
The median price has ticked down about $40,000 since May in the region, and that’s been brutal for Opendoor’s profitability.
Opendoor routinely has a higher percentage of price reductions compared to the rest of the market.
Opendoor was struggling to get offers on their listings, but that appears to be picking up. For instance, a few weeks ago 83% of what they had on the market was active, but now that number is 71% in light of more properties getting into contract.
A mom-and-pop flipper couldn’t sustain losses like this, but a tech company with massive financial backing might be able to pivot.

RECENT LOSSES

Here is a sample of Opendoor active listings right now in the Sacramento region. They currently have almost 250 active listings, and this portion is representative of the trend.

A sample of Opendoor listings in the Sacramento area (this chart shows profit and loss comparing acquisition price and current list price)

ACTIVE LISTINGS:

Here is a different way to look at Opendoor listings. Anything above the zero percent line is still listed above the acquisition price, whereas anything below is currently below acquisition.

A look at profit and loss potential among Opendoor listings. This shows how much lower they typically are compared to acquisition price

GRAPHS FROM TRAVIS WRIGHT:

I shared Opendoor data with Travis Wright, who I know from Twitter. I asked him if he wanted to collaborate on this post, and he said yes. So, here is what Travis came up with to help show days on market trends and potential profitability has gone down over time. These visuals divide the closed sales price into the acquisition price, so it’s a potential return. In other words, the images do NOT consider real estate fees, credits, holding costs, repair costs, etc…. Thanks Travis.

OPENDOOR DID BETTER BEFORE THE MARKET SHIFTED:

On average Opendoor came out about $25,000 above their acquisition price when considering sales since May. Does this mean they were profitable? Well, it’s hard to speak to that without knowing their numbers. I’ll just say this looks really tight when considering the gross figure doesn’t account for the following yet: real estate commissions, holding costs, improvements made, and credits. The part that really stands out to me is an average of 155 days from acquisition to closing, which means Opendoor has been holding properties for about five months. If someone has specific insight on profitability, you are welcome to comment below.

Opendoor Closed Sales Data (a table with lots of nuggets)

CLOSED SALES:

Here is a look at the difference between the acquisition and closed price for sales between May and August so far. This looks much different compared to what is happening with their listings right now. Anything above the zero line represents properties that sold for more than their acquisition price. Again, this doesn’t automatically mean the company was profitable.

OPENDOOR HAS BEEN STAYING ON THE MARKET TOO LONG

Properties took an average of 18 days to get into contract over the past few months in the region, but Opendoor listings took an average of 59 days. Some have wondered if staying listed longer is a marketing strategy to keep the sign in the yard longer. Whatever the case, it’s been blatant in my opinion that they’ve had an issue lingering on the market for too long. I suspect listing at a lofty level worked a little easier during an appreciating market where value could maybe catch up to a higher list price. Can it work in a changing market today with less demand? We’ll see.

CLOSING THOUGHTS:

Opendoor has been trying to crack the code, and the market shifting in recent months has been a monkey wrench in their operation to say the least. The median price dropped a little more than 6% since May in the Sacramento region (about $40,000), and this type of market change has dealt a massive blow to Opendoor’s current holdings at least.

It’s easy to bash Opendoor because they’re trying to challenge the traditional model, but I wouldn’t write them off yet because they recently partnered with Zillow, they’re spending a ton of money on marketing, and they have a war chest of greenbacks at their disposal. In fact, Mike DelPrete states “Opendoor’s advertising spend has skyrocketed this year, higher during the first six months of 2022 than ALL of last year.” Don’t get me wrong, it’s well-publicized that this company has lost over a billion dollars thus far. I’m just saying the future hasn’t happened yet, so it’s important to keep watching.

Are things starting to turn? Opendoor was struggling to get into contract, but it looks like they’re starting to attract more buyers to their listings. For instance, a few weeks ago 83% of what they had on the market was active, but now that number is 71%. Are price reductions making a difference? Or is it the $3,500 incentive they announced a few weeks ago? We need time to understand.

Let’s keep watching, and I’ll keep reporting stats and perspective. If this post does well, I’m glad to follow up again.

RESOURCES:

Mike DelPrete puts out the best iBuyer data. I highly recommend subscribing to his blog. Mike was kind enough to trade some emails with me this week. Here’s his latest talk (WTF 2022).
Tyler Okland puts out lots of Opendoor analysis. In fact, he recently wrote about Opendoor’s struggle in Phoenix. I follow him on Twitter, and a few weeks back Tyler affirmed Opendoor numbers were lackluster in Sacramento.

I hope this was helpful.

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.

Questions: What stands out to you the most above about Opendoor? What did I miss? Anything else to add?

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

Fires, multiple offers, & new flooring

August 31, 2021 By Ryan Lundquist 40 Comments

It’s been a heavy week around here and I have a few things on my mind. Let’s talk about the fires, the new norm of fire season, and then I have some fresh stats to share.

Fire rampage: It’s been a brutal week in Sacramento. I think so many locals feel deflated as we watch the Caldor Fire rage. As of yesterday 471 homes are reported to have been destroyed and the fire is heading toward South Lake Tahoe too. It’s a gut punch to see local friends displaced and to hear so many stories of loss. Hang in there everyone and let us pray.

Fire season: We are getting used to regular catastrophic fires in California and it’s numbing to recognize that fire season is now a thing. I was just thinking how unfortunate it is to be in touch with Air Quality Index (AQI) numbers to the point where I have conversations about the daily AQI. In terms of real estate, the smoke is something affecting everyone and it’s now on the radar for people making decisions about where to live. While I don’t think smoke is the primary decision for moving out of the market, it’s at least somewhere on the list now for why people might move.

Appraisals after a disaster: I don’t cover the fire territory for work, so I’m NOT fishing for business. I just want to let you know I’ll be available to help answer questions and be a resource. People are definitely going to be dealing with appraisers through the insurance process as they rebuild. Anyway, here is an interview I did about appraisals after a disaster in case it’s helpful. Also, here is a post called “The real estate left behind after a fire” in case you’re wondering what happens to a market after a disaster. Keep in mind not every area is going to react the same exact way though.

Multiple offers: Okay, some quick stats. August sales stats show fewer multiple offers compared to July. On one hand the market slowed down last month, which isn’t surprising because that’s what tends to happen around this time of year. But on the other hand we’re still basically having one of the most competitive markets ever. I find some people tend to focus only on the fact that the market is still nuts while others focus only on the slowing. My advice? Pay attention to both because the market is experiencing both dynamics at once. In other words, don’t ignore one for the sake of the other. The market is both glowing and slowing.

What the market should have done: Here’s one more image. The blue line shows the market we’ve had over the past year and the gray line shows the market we should’ve theoretically had if the trend was normal. In short, the market in 2020 traveled way outside the lines of a normal trend and we’re still not even back to normal levels yet.

A message to the future owner: In lighter news, my family got new flooring this past weekend and here’s a message I left for the future owner under the new planks we installed. By the way, a previous owner clearly didn’t believe in drop cloths because nearly every room looks like this. It’s insane to me that someone would leave the wood flooring looking like this.

Covering wood: And yes, we covered the hardwood. Some people are offended by that, but I’m really happy with the luxury vinyl planks we chose. It was going to be too much work to sand, repair, and add wood to other areas of the house that did not have it. I prefer the look of a wider plank also. Anyway, not that I needed to say this, but I wanted to explain in anticipation of comments. By the way, it’s cool with me if you would’ve done things differently. You do you.

Be blessed.

Questions: How do you think we can help people going through the fires right now? In terms of multiple offers, what are you seeing out there?

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Crazy contracts & condos are less popular

September 22, 2020 By Ryan Lundquist 17 Comments

I have two things on my mind today. Let’s talk about condos and then some of the crazy contracts we’re seeing happen right now. Then I have lots of visuals for those who are interested.

CONDOS ARE NOT ALL THE RAGE:

It looks like condos aren’t so popular these days. During the pandemic buyers have been saying no thanks and instead focusing on homes with more space. No matter how you look at it there are fewer condo sales happening, and that’s telling. If you’re not local, what’s happening in your area?

MARKET NOT COLD: One thing I want to clarify is just because condos haven’t been as popular doesn’t mean the condo market is dull or cold. Inventory is still sparse among condos, so don’t expect to get the deal of a century. In fact, there is not an oversupply of listings among condos at this time. Inventory is really tight.

CRAZY CONTRACTS:

It’s common these days to see the appraisal contingency removed and many buyers are even offering to pay above the appraised value (if it comes in lower than the contract price). Anyway, I’ve been getting lots of questions about this, so here are some thoughts:

1) Value is not found in the contract: The reality is value is found in the comps – not the contract. Technically the terms in the contract shouldn’t matter because the only thing that counts is comparable data. Of course I realize some appraisers are swayed by the contract, and that’s unfortunate. Ultimately if you find yourself worried about the terms, I’d recommend focusing instead on communicating well with the appraiser because the comps are the bigger factor.

2) Offering above the appraisal: When I see a contract that states the buyer will pay above the appraised value by a certain amount if the appraisal comes in lower, the practical part of me wonders if the buyer actually thinks it’s not worth what was offered. But since my job is to be objective, my curiosity about the buyer doesn’t mean anything for the appraisal. The bottom line is I cannot let that influence my perception of market value. Besides, offering to pay more might not be about the buyer’s perception of value at all. Instead it could be a strategy to get an offer accepted. And most of all, the comps are what matters – not what an individual buyer thinks about value.

3) Hiding information: I was asked recently if it would be OK to only give the appraiser the purchase contract without an addendum that had further terms. Look, I’m not a lawyer or broker, but from my perspective I’d ask that you please give the appraiser the entire contract instead of holding something back for whatever reason. In my mind when this happens it seems like the goal is to try to influence the outcome of the appraisal, and that doesn’t smell right. Let’s keep it transparent.

Anyway, this is a loaded topic. Lots of emotions. What are your thoughts? Any stories to share? Please do so in the comments.

MARKET UPDATE VIDEO: Here’s my latest market update where I unpack glowing rebound stats. Watch below (or here).