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The real estate train is slowing down in Sacramento

August 12, 2014 By Ryan Lundquist 4 Comments

Slow. Flat. Price sensitive. Competitive if priced correctly. These are words that describe the Sacramento real estate market. Some consumers may not be in tune with this reality because last they heard the market was “on fire”, but those in the trenches of the industry know the real estate train is slowing down. Let’s take a look at ten quick talking points to help explain how the market is unfolding and why it is moving the way it is. I hope this is helpful for you and your clients.

Two ways to read this post:

  1. Scan the highlighted text and graphs quickly.
  2. Grab a cup of coffee and spend a few minutes digesting what is here.

free graphs from sacramento appraisal blog

1)  The median price has been the same for three months in a row:

median price and inventory since 2013 - by sacramento appraisal blog

The market saw a normal seasonal uptick for the spring of 2014, but the median price has been flat now at $270,000 for three months in a row. Keep in mind that not every neighborhood and price segment in Sacramento are experiencing the same flat trend as shown above, though charts for surrounding counties do have a similar flatness. Remember too that real estate markets are constantly changing, so it’s not a surprise to see the market has been flat – especially as summer begins to fade away.

price metrics in sacramento county

In the midst of a flat median price and average price per sq ft, the average sales price did see an uptick last month. If we were to isolate the average sales price, we’d say the market is increasing in value, but this is why it’s important to look at more than one metric. What are all the metrics saying together?

2) The number of listings is increasing (so are price reductions):

Active listings in Sacramento County by sacramento appraisal blog

number of listings in sacramento - July 2014 - by home appraiser blog

There were 8% more listings that hit the market in July. It’s normal to see more listings during the spring and summer, yet what is happening with these listings is the real story. Over the past two months in particular there have been increasingly more price reductions, which shows many properties are simply overpriced and that the market is getting soft. If inventory continues to increase, this trend of price reductions will likely persist since sellers will need to compete for a limited pool of buyers. This is important news for sellers because it underscores the need to price properties correctly. At the same time this is welcome news for buyers since they can be slightly more selective.

3) Inventory increased again last month and is now at 2.2 months:

inventory in sacramento county - by sacramento appraisal blog

Inventory increased again this past month and is now at 2.23 months of housing supply, which is about where it was when the market bottomed out in early 2012. This essentially means there are 2.23 months worth of houses for sale based on how many sales there were last month.

months of housing inventory by sacramento appraisal blog

number of listings in sacramento - by home appraiser blog

Inventory is increasing, and that is causing the market to slow down, but inventory is ultimately still fairly low. It is still a sellers’ market, but buyers are very noticeably gaining power. As you can see above, inventory is not the same at each price level. Generally speaking, the higher the price, the more houses there are for sale.

4) Sales volume is down 8% from last year but up from last month:

sales volume in Sacramento County since 2008sales volume in Sacramento County

Sales volume in July 2014 is down 8% from July 2013. When looking at the past 90 days in 2014 compared to the same time last year, volume is down by 10%. In the Sacramento region, sales volume is about 11% lower. However, the good news is that sales volume increased from last month to this month, and has been increasing all year mostly (after a couple of very slow months to begin the year).

5) FHA sales were 25% of all sales in Sacramento County last month:

FHA and cash sales since 2009 in Sacramento County by sacramento appraisal blog

FHA and cash sales under 200K in Sacramento County by sacramento appraisal blog

FHA has been making quite the comeback over the past year and has been filling some of the gap left by cash investors exiting the market. In fact, FHA sales represented 25% of all sales in Sacramento County last month and 32% of all sales under $200,000. We have not seen FHA percentages this high since 2012. Keep in mind FHA sales used to be 30% of all sales in Sacramento County between 2009 and 2011, so there is a precedent for FHA buyers being able to absorb even more of the market. As the market inches toward a buyers’ market, be sure you are familiar with FHA minimum property requirements.

6) There have been 40% less cash purchases in 2014 compared with 2013:

cash sales and volume in sacramento county - by home appraiser blog - Copy

Cash sales since 2009 in Sacramento County by sacramento appraisal blog

Cash investors drove the market for quite some time until they began to pull back just over one year ago. In fact, there have been about 40% less cash sales so far in 2014 compared to the same time period last year. When investors stopped buying it created a gap of sales, and over the past year the market has been trying to figure out how to respond to this gap. In other words, if we added in the number of extra cash sales from last year to this year’s total sales volume, we’d have a very similar number for both years. Remember, if cash volume was still as high as it was last year, inventory would be incredibly low, and the market would feel much like it did in early 2013.

7) It’s taking 37 days on average to sell a house:

CDOM in Sacramento County - by Sacramento Appraisal Blog

On average it’s taking 37 days to sell a house in Sacramento County and 40 days in the Sacramento Region. Last month it was taking 35 days to sell a home in Sacramento County. When a property is priced correctly it will sell very quickly and even have multiple offers, but an overpriced property is going to sit on the market. Generally speaking, the higher the price, the longer it takes to sell. For further context, it was taking almost 90 days to sell a house just a few years ago.

8) Interest rates are hovering in the 4% range:

interest rates by sacramento appraisal blog since 2008

interest rates by sacramento appraisal blog

Interest rates took a very slight dip last month, and they’ve been hovering in the lower 4s all year. What happens with interest rates will impact affordability for buyers over the long haul, but very minor changes probably won’t impact the market like increases in housing inventory will. The Fed hasn’t given any indication they will raise rates aggressively since they know how fragile the housing market is these days. Remember that one of the reasons why values increased so rapidly these past two years was because interest rates went below 4% for the first time ever. You can see in the graph above how the Fed deliberately lowered rates when the recession hit in 2008.

9) Today’s market is being driven by other factors compared to 2013:

layers of the market since 2011 sacramento county - by sacramento appraisal blog

layers of the market sacramento county - by sacramento appraisal blog

layers of the market sacramento county since 2001 - by sacramento appraisal blog

Part of being in tune with real estate or becoming a local expert (for agents and appraisers) is being able to explain how the market is moving and why the market is moving. The real estate market has many “layers” that impact value, and the key factors that were driving the market in early 2013 were cash investors, interest rates in the 3s, and a housing supply of less than one month. Now the “layers” of the market have shifted where inventory is over 2.2 months, interest rates are in the 4s, cash is now at a normal level (about 20% of sales), and the local economy is bound to be a bigger player in shaping the real estate market. While our economy seems to be slowly improving, it’s still not easy to get a job.

Median price & unemployment in Sacramento County since 2008

The unemployment rate in Sacramento County and California have both been declining, but take the jobless rate with a grain of salt when you see it on graphs like the ones above. An improving job market does help real estate values, and it’s important to watch over time, but since there are essentially less people participating in today’s job market, it’s only natural to see unemployment decline.

10) The median price is 32% lower from the peak in 2005:

context for median price since the real estate bubble by sacramento appraisal blog

Lastly, in case you needed some market trivia to impress your friends or you’re playing a game of real estate Jeopardy, the current median price in Sacramento County is about 32% lower than the peak in 2005. At times the real estate community is fixated on comparing current values with the previous peak of the market, and sometimes we even hear conversations about values getting back to those levels. But let’s remember how unaffordable and unsustainable that market was at the time. At the same time there is surely value in knowing the peak of the market and how far we’ve come since then, but ultimately what the house is worth right now is probably more valuable for current sellers and buyers.

Summary: After a typical seasonal uptick during the spring, the market has definitely changed over the past few months and is showing clear signs of slowing down. We are seeing this change show up with properties taking longer to sell, a flat median price, an increase of price reductions, higher inventory, more credits from sellers to buyers, and generally buyers starting to feel like they have more power to negotiate. The market is still competitive because inventory is still low, but it is extremely price sensitive, which is seen with buyers being more picky. Keep in mind it is fairly normal to see the market slow down as summer fades away, though the slowness seemed to slow up a bit sooner than usual this year, which means it will be interesting to see how this trend unfolds in coming months.

Sharing Trends with your Clients? If you want to share graphs online or in your newsletter, please see my sharing policy. Thank you for sharing.

Questions: How else would you describe the market? I’d love to hear your take.

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Filed Under: Market Trends Tagged With: appraisals, Appraiser, cash investors, FHA buyers, FHA increasing, interest rates, less cash investors, price sensitive, real estate graphs, real estate trends, Sacramento Real Estate, sales volume, slower market, Unemployment

The need for jobs to drive real estate in 2014

March 10, 2014 By Ryan Lundquist 1 Comment

Where is the market heading? I get asked this question every month when speaking in real estate offices. The most truthful thing I can say is my crystal ball is broken. In fact, predicting real estate is a bit like predicting what Justin Bieber is going to do next. You just never know. At the same time, we can look at the trends and make some educated guesses (still guesses).

2014 possibilities

Since I included the image above in a few recent presentations, I wanted to share a bit about what I’ve been saying, and add a few points since I have space to do so here. To be honest I’m really not a fan of making predictions because real estate is like a living organism that can grow and change in unexpected directions. But in light of my recent presentations I wanted to unpack some thoughts on the market.

sacramento real estate market trend graph median price and unemployment since 2001 by sacramento appraisal blog

Driven by the Fundamentals: The dramatic value increases over the past two years were in large part due to a huge increase of cash investors, artificially low interest rates, an extremely low housing inventory and of course very low prices. Now that all those things have changed, it means we’re inevitably going to get a taste of how strong the market really is this year. In other words, the market should be more driven by the economy instead of outside forces like cash investors and interest rates in the 3% range. Additionally, while I am mostly optimistic about the next couple months since there is still pressure to push values up (assuming sales volume does pick up), I’m more interested in the last two quarters of 2014 to see how the market behaves when Spring fever subsides and after a presumed increase in inventory and rates ensues.

sacramento real estate market trend graph median price and unemployment since 2008 by sacramento appraisal blog

Doom & Gloom: There are lots of doom and gloom real estate articles floating around right now. There are definitely points worth considering in these articles since stats are sagging nationally, but at the same time a slower real estate season and typical real estate media cycle tends to breed these types of articles, which is also worth considering. We may see some more positive news stories shortly as real estate Spring fever kicks into high gear. In fact, some of the stats I shared on median price last week could easily make the highlight reel somewhere locally.

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

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

interest rates imact in sacramento - graph by sacramento appraisal blog

Long-Term Challenges: As inventory creeps up and rates continue to rise, it will definitely challenge the direction of values and can ultimately foster declines in the future if both get too high. Many talk about 5 months of inventory being a normal supply, which may be true nationally. However, any time the market has had 5 months of housing supply over the past 13 years in Sacramento County, values were declining (see this image as support). Granted, we haven’t really had a normal real estate market for some time, so it’s important to consider the context. Ultimately though local real estate has become more sensitive to increases in inventory, which is why I am saying more than four months is getting to be quite a bit for our market to handle. Also, a change in interest rates is something to watch because the market is also very sensitive to increasing rates – which immediately impacts affordability. For instance, when rates shot up half a percent between May and June last year (as shown in the graph above), it was one of the factors that helped create a turning point in the market. Lastly, a stronger national economy will be important in coming time since real estate is in a softening stage after being hyped on “steroids” these past two years.

Unemployment rate US CA Sacramento 2000 to 2014 - graph by Sacramento home appraiser

sacramento real estate market trend graph unemployment 4 by sacramento appraisal blog

sacramento real estate market trend graph unemployment by sacramento appraisal blog

US, CA & Sacramento: Right now the unemployment rate in Sacramento is 8.2%, California is 8.5% and the United States is hovering at 6.7%. Both California & Sacramento shot far above the US unemployment rate when the recession hit in recent years, but slowly they are trying to find their way back to national levels again. The unemployment rate is by no means a perfect barometer for assessing the health of the economy, but it is nonetheless still good to look at the rate along with other metrics.

The Main Point: Since real estate is expected to be more driven by the fundamentals this year and there are less cash investors playing the market, it will naturally be more important for the pool of existing buyers to have jobs that can help them afford higher prices. Last year property values seemed to sprint ahead of the job market, but this year the job market really needs to make some strides forward to try to sustain where real estate went.

Questions: Are your local friends able to find work these days? Would you say the economy is improving or not?

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Filed Under: Market Trends Tagged With: appreciation, economy in Sacramento, EDD, Home Appraiser, House Appraiser, real estate trends, Real Estate Values, Sacramento Real Estate, Sacramento Real Estate Market, Unemployment, unemployment graphs

Seeing the story of Sacramento real estate

January 10, 2014 By Ryan Lundquist Leave a Comment

It’s time for a panoramic view. Give me a minute to explain and then spend a few moments digesting the images below. If you want to understand the Sacramento real estate market, it’s really helpful to see how certain “layers of the market” work together. These graphs help give context for how price, interest rates, inventory and unemployment mingle. Have a look below to try to make sense of what is happening with each of these metrics at any given time. For instance, when values are increasing, what is happening with interest rates and inventory? Or when values are declining, what is typically happening with unemployment or interest rates? Be sure to check out my detailed market post if you missed it a few days ago. Ultimately, what can we expect in 2014? Enjoy.

sacramento real estate trends - by sacramento home appraiser - 5

sacramento real estate trends - by sacramento home appraiser - 4

sacramento real estate trends - by sacramento home appraiser - 2

Share the Graphs: As always, you can use these images unaltered in your newsletter, on social media sites or blog posts (just link back). See my sharing policy for more details about 5 different ways to share my content.

Questions: Any thoughts? What do you see? I’d love to hear your take.

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Filed Under: Market Trends Tagged With: graphs of Sacramento market, Home Appraiser, House Appraiser, housing inventory, interest rates, inventory, Market Trends, Median Price, Sacramento Real Estate, Unemployment

Kissing the real estate honeymoon goodbye

January 8, 2014 By Ryan Lundquist 11 Comments

honeymoon in real estateThe honeymoon is over. That’s right. The real estate market in 2013 felt like a honeymoon because it was full of glittery optimism, sensational news headlines and the sweet aroma of a quick recovery. Just as a honeymoon in real life comes to an end, we all knew such rapid appreciation was not sustainable, inventory could not be that low forever and interest rates wouldn’t endlessly hover at historically low levels either. Of course this doesn’t mean the market is not still ripe for positive growth, but only that this year probably won’t feel as good as last year.

The Sacramento real estate market in 2013 was really driven in large part by massive amounts of cash buyers, abnormally low inventory and ridiculously low interest rates. Now that housing inventory and interest rates are beginning to increase, and investors are backing off, I expect the market in 2014 will be much slower and more sensitive to the local economy (so long as these trends persist and the government does not interfere).

Trends in 30 seconds or 3 minutes: Let’s take a look at some trends to get a visual picture of where we have been. You can probably scan these in 30 seconds or take a few minutes to digest them. Your call. Sacramento market trends - graph by Sacramento real estate appraiserHousing inventory decreased last month below 2 months of supply, which is understandable in light of the holidays and colder weather. Otherwise inventory has been flirting with 2.5 months. I said above that the real estate “honeymoon” is over, but keep in mind inventory is still very low, which means there is still room for some growth ahead (though I do not believe we will see the same rapid appreciation like we did last year since the market is different this time around in terms of inventory, interest rates and cash investors). The median price in December saw a slight uptick from November, but overall is still hovering around the $250,000 range as it has been for about six months. Can you see why people are saying the market is flat?Sacramento market trends - graph by Sacramento home appraiserHere is a broader picture of median price and inventory. Current values are tending to resemble values in both 2003 and 2007/2008.

Sacramento market trends numbe rof houses sold since 2008 - graph by Sacramento home appraiserSales were sparse for the second month in a row as there were only 1217 single family detached sales in Sacramento County in December. It is normal in colder months to see less sales.

Sacramento market trends unemployment and median price - graph by Sacramento home appraiser

Sacramento market trends unemployment and median price since 2008 - graph by Sacramento home appraiserThe jobless rate is thankfully going down in Sacramento County, but 8.1% is still not a pretty statistic. Can I be a resounding gong by saying we need more JOBS, JOBS & JOBS?

sacramento real estate trends - by sacramento home appraiser - 3

Here are a few important metrics on one graph. I’ll share some different versions of this graph in coming days. I like this one because it’s a reminder of how the market works. Real estate is not just about supply and demand, but a whole host of layers working together.

Cash Sales in Sacramento County - graph by Sacramento home appraiser

Cash FHA Sales in Sacramento County - graph by Sacramento home appraiser

Cash & FHA Sales under 200K in Sacramento County - graph by Sacramento home appraiser

Overall cash sales have continued to decline while FHA sales have increased. In fact, there are now more FHA sales than cash sales in Sacramento County, which hasn’t happened in almost two years. At this time last year there were multiple offers on every single property, but these days that is becoming less common. The market is ultimately normalizing as inventory increases, which is leading to buyers generally having more power to negotiate. It is still a Seller’s market, but buyers are gaining ground.

Foreclosures and Short Sales in Sacramento County - graph by Sacramento house appraiser

Foreclosures have basically hit the bottom and short sales have persisted to decline too. There has been a 1% increase in foreclosures over the past quarter. At the same time it’s also important to realize inventory and the number of sales have been really low (which can skew stats).

The Final Word: The glorious “honeymoon” of 2013 may be over, but most analysts are still projecting mild appreciation in 2014. Moreover, the Sacramento market is still in a place where there is pent-up demand, so there is still room for growth. All indicators point toward a less-rapid market this year since the fundamentals seem to be poised to deliver just that. However, anything can happen. If inventory was still at one month or dropped that low again, this would be a different post. On a related note, I still think what Blackstone and other investors do is an X-factor. If they decide to ramp up their efforts and buy a few thousand local properties again, we should get ready for a second “honeymoon” in 2014.

Question: Any thoughts, insight or stories to share? I’d love to hear your take.

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Filed Under: Market Trends Tagged With: 2013 real estate market, 2014 real estate market, cash investors, Home Appraiser, House Appraiser, investors in Sacramento, Median Price, real estate graphs, Sacramento Real Estate Market, trends, Unemployment

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First off, thank you for being here. Now let's get into the fine print. The material and information contained on this website is the copyrighted property of Ryan Lundquist and Lundquist Appraisal Company. Content on this website may not be reproduced or republished without prior written permission from Ryan Lundquist.

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