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How much have prices risen since the bottom of the market?

March 2, 2021 By Ryan Lundquist 14 Comments

Crazy price growth. That’s what the market has seen lately. But let’s take a step back to look at how much growth has occurred since the market bottomed out in 2012. With so much talk about rapid price appreciation lately, I figured this would be interesting. Enjoy if you wish.

DOWNLOAD TEMPLATE FOR YOUR AREA: I created a template to help anyone quickly make charts like this. Download HERE. See video for how to make these too.

QUICK POINTS:

1) Huge growth: In many areas of Sacramento we’ve seen $300,000+/- price growth since January 2012, which was the bottom of the market in our area. Remember, just because the median price rose by $300,000 or so since 2012 doesn’t automatically mean your home is worth that much more.

2) Not adjusted for inflation: These stats are not adjusted for inflation. If you want to adjust them, by all means please do so.

3) Limitations: I didn’t include every area locally because I don’t have time, but most importantly if there aren’t enough sales, it’s just not going to be meaningful to compare only one month of data. This is where I would suggest maybe comparing an entire quarter or year if you’re working in an area with few sales. If you want bonus points too, maybe look at the average price and average price per sq ft to see if you observe anything different.

4) Huge percentages at lower prices: The lower the price in 2012, the higher the percentage change. Do you see that in the charts? For instance Oak Park had over 600% growth, which is just completely unreal. Someone even asked me on Instagram if this stat was accurate. It is. But here’s the thing. Part of the percentage being so high is simply a result of the first number in 2012 being so low (typically foreclosures and fixers selling then). When we look at the dollar change in Oak Park, the number is fairly consistent with the rest of the market in how much prices have risen. I’m not saying this to diminish the pain of gentrification or lower-priced areas increasing exponentially. I only want to say it’s helpful to be aware of both percentage and dollar growth so we are well-balanced in what we understand and say about the market.

I hope that was interesting or helpful.

Are Bay Area buyers dominating? One more thing. Here are some thoughts about Bay Area buyers in the Sacramento market.

Questions: What stands out to you most about the stats above? Any other points to add? I’d love to hear your take.

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

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Filed Under: Market Trends Tagged With: Appraisal, Appraiser, boom and bust, free excel template for real estate, numbers, price cycle, price cycles, prices in 2012, prices in 2021, real estate data, Real Estate Market, Sacramento Appraisal Blog, sacramento housing market, sacramento regional housing blog

How long can this market keep going?

February 24, 2021 By Ryan Lundquist 14 Comments

Is the market about to crash? How long can this keep up? What’s going to happen? Every week I’m getting questions like this, so let’s talk through some of the issues. This post has lots of topics that are coming up, so just skim to something that looks interesting. Anything to add?

The truth is nobody knows the future: Most predictions these days either say the market is going to keep increasing for 5-10 years or we’re poised to crash. But nobody knows the future. I know that’s not a popular answer, but it’s true.

Unsustainable: This market is really starting to feel irrational. We are seeing freakish price growth and illogical offers, which is why this does not feel sustainable. I’m not saying the market is going to crash because of this, but I am saying this type of rapid appreciation cannot keep up without simultaneous economic growth or some other stimulus. Last week I got asked about this in a live interview with Fox 40. Enjoy the discussion (see 4:41 for my answer).

It’s not easy to time the market perfectly (seriously): On paper it’s easy to time a real estate market, but it’s not so easy to pull off in the real world because finances and lifestyle don’t always line up perfectly with market conditions. In other words, most people buy when their lifestyle requires a change rather than finding a so-called perfect moment where prices bottom out. In fact, most of the time when I ask people if they bought on purpose in 2012 at the bottom they say, “Nope, I just got lucky.” This is not to pressure anyone to buy right now. I’m just saying it’s a good idea to get rid of “the market is so easy to time” myth and consider your lifestyle as well as prices.

False prophets: Be careful of some who are forecasting the market because they’ve been making false predictions for years and they keep repackaging their prophecies when the old ones don’t come true. By the way, here is a prophet test flow chart to find out if you’re a real estate prophet.

We’re back to peak prices, so we’re going to crash: I gave a presentation recently where I talked about nominal prices being back to 2005 levels in a certain area and someone interpreted that to mean we’re at the top and about to crash. Look, the median price in the entire Sacramento region is now almost 20% higher than it was at the previous top in 2005, so it would’ve popped long ago if there was something magical about getting back to that level. In short, don’t put your stock in “getting back to the top” as a predictor of future trends. And for economic nerds, I’m talking about the nominal price here (which market participants tend to fixate on), so please don’t open up the inflation conversation.

Not the new template: What happened during the last housing correction is not the new template for every future market change, so we cannot look to the previous crash and derive some sort of bubble formula.

I’m going to sell at the top and rent: I had a conversation recently with someone wanting to sell soon and rent until the market crashes. I get it because this person wants to pocket equity and avoid pain, but here’s a practical consideration. If the market did decline it could take years to do so. For instance, it took about 6.5 years for the last cycle to fully decline in Sacramento. Of course the bulk of the decline happened in the first three years. No matter what though, the viable question becomes how long are you going to rent for?

Fear of missing out: There is a palpable fear among some buyers about missing out on the market and not being able to afford in the future. If you’re in that boat I recommend having lots of conversations with people you trust and maybe don’t buy if you cannot make a decision based in confidence. In my experience buying anything based on fear doesn’t usually work out so well. 

The market was slowing and now it’s not: The market was slowing down for years and now it’s doing something completely different (unexpected). The thing is despite being in a global pandemic we’ve had artificially low inventory in light of COVID (less sellers listing their homes), more migration due to the ability to work from home, and shifts in what people want and need as a result of the pandemic. Oh, and mortgage rates dipped below 3% which has created truly excessive demand. It’s been the perfect storm to build what is likely the most competitive market we’ve seen.

Do you see how price growth was slowing until last year?

This upward price trek is happening in many places around the country. Here is a killer visual from Freddie Mac economist Len Kiefer:

A foreclosure wave is coming: There is talk about a coming wave of foreclosures in light of elevated forbearance rates. Here’s the thing. We don’t know for certain how forbearance is going to shake out because we’re still in the thick of this pandemic. Yet forbearance rates have been declining per the Mortgage Bankers Association and not everyone in forbearance is going to sell either (the stats literally show this). Moreover, the vast bulk of people in forbearance have equity to deploy (sell, refinance, etc…) instead of lose their home. I’m not sugar-coating anything and I’ll be the first to say there is uncertainty on the horizon in light of this. I do expect for some of these people to legitimately go into foreclosure, but at this present moment the stats don’t support a narrative of a massive wave of foreclosures materializing. We’ll see what happens of course, but this is what the stats are currently seeming to show.

Riding down the market: If the market did crash, which neighborhood do you want to ride down the market in? This is a relevant question that I heard first from Mike Gobbi. Remember, the equity in our homes means very little unless we are taking money out or selling.

Freakishly high price growth: We’ve had uncharacteristic price growth over the past year. The median price far outpaced where it should have theoretically gone. From my estimation it’s about $40,000 or 9% higher than it should theoretically be had we had a normal year last year (see visual). This could of course be the new normal, but no matter what I think we need to recognize the market is doing something right now that goes against a slowing trend we were experiencing in previous years as well as normal price growth.

The double-edged sword of appraisal waivers: We’ve seen so many more appraisal waivers this year. I get the necessity in light of appraisers being so backed up with a refinance boom and huge volume in the resale market, but what happens to prices over time with so many waivers? If some of these homes are essentially closing too high, does that help inflate the market? Of course let’s remember one sale doesn’t make or break a market, but if we start seeing lots of inflated sales that could certainly help speed up price appreciation. This is something to watch.

Market price cycles & the 7-year rule: Some people buy into the idea that the market changes every seven years, but that’s really not true because here we are in our tenth year of price growth (in Sacramento at least). But there is something to be said about real estate price cycles. Markets go up and they go down. That’s what they do. Bottom line. So at some point the most natural thing we can expect is for prices to go down. You know what wouldn’t be normal? If prices just kept rising forever…

Rates going up can help (eventually): The other day a Realtor friend said he thinks rates need to go up. You know we have a problem when real estate professionals start saying rates are too low. Just remember it’s possible we could see more buyers rush the market if they sense rates really are going to go up. The idea is to get in before they rise.

Look for price resistance: One of the things to watch is whether buyers are resisting prices. So far that is not happening. This doesn’t mean everyone can afford the market, but this month we’re likely to have our eighth month in a row of higher sales volume and pendings have been off the charts. In short, buyers are clearly pulling the trigger right now and we are not seeing resistance when it comes to playing the market.

Dude, this is so obviously a bubble: I get the sentiment. But remember, one of the ways we know something is a bubble is if it actually pops. Freddie Mac had a great article referencing this point years ago.

But inventory is low: There is the notion that inventory is low, so prices cannot decline. That’s a reasonable idea, but it’s only true until it’s not true. If 2020 taught us anything it’s that sometimes dynamics shift, so let’s be open to the idea of the market not having to behave a certain way despite low inventory. With that said, there is such a profound imbalance between supply and demand right now, so prices are clearly poised to rise in the immediate future. Nobody knows how long this run will go, but we would be wise to recognize inventory is about both the active listings on the market as well as demand for those listings. I find conversations about low supply can be lopsided at times if we only discuss what is on the market rather than factors that create demand. Remember, when demand changes, it can also affect supply.

Keep your credibility intact (for real estate professionals): To my real estate friends, I recommend knowing the stats more than ever and being able to articulate what the market is doing by highlighting numbers instead of being swayed by every new sensational idea. I imagine many real estate professionals (including appraisers) will lose credibility in a market like this by being swayed by clickbait, posting predictions that don’t come true, or promising a future that is not known. Remember, sometimes the best answer is “I don’t know” when people ask you to predict the future – while having intelligent discussion about all the moving parts. My advice? Keep your credibility intact by being rooted in data.

I DIDN’T ANSWER MY QUESTION: You may have noticed I didn’t answer the question in my title. But hopefully after reading my post you can understand why.

I hope that was interesting or helpful.

Questions: What did I miss? What is coming up in conversations right now for you? I’d love to hear your take.

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

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Filed Under: Market Trends Tagged With: Appraisal, Appraiser, current prices, forbearance, foreclosure wave, housing market, housing market 2021, housing trends in sacramento, illogical, irrational, previous bubble, rapid price appreciation, real estate bubble, real estate bubble conversations, unsustainable market

What is your housing persona?

February 16, 2021 By Ryan Lundquist 23 Comments

The market is going to implode. No, it’s actually all good. There are so many opinions right now. Take a look at the housing personas and let me know which one(s) you’ve seen. Then I have a big market update for those interested.

WHAT IS YOUR HOUSING PERSONA?

Doomsday Daniel: The market is going to crash like it did years ago.

Worried Will: Not making any decisions because he’s so worried.

Zoe Zillow: Totally obsessed with Zillow.

Pedro Prophet: Makes new predictions when old ones don’t come true.

Bubble Betty: This is definitely another housing bubble.

Fine Fiona: The market is fine. There are no worries.

Waffling Wally: Sorta kinda 50/50 about the market.

Headline Harlow: This person says whatever the latest headlines say.

Foreclosure Frances: Another foreclosure wave is coming. Just wait.

Polly Pollyanna: It’s all good and it’s always a good time to buy and sell.

Uncertain Ursula: Honestly not sure what to make of this current market.

Bloodthirsty Benjamin: Cannot wait for a crash to buy investments.

Withdrawn Wionna: Stepped aside because she cannot afford the market.

Forbearance Felix: All housing conversations lead back to forbearance.

Spencer Spinster: Negative housing aspects are spun into something positive.

Rosy Rosario: Sees everything through a rose-colored lens.

Equity Ernesto: Has huge equity to deploy to a different neighborhood.

Discouraged Dominic: Has struggled to get an offer accepted.

Eva Exodus: Close to moving to Idaho. Or South Carolina. Or Texas.

Sell Soon Stanley: Getting ready to list because the top is near.

Normal Norman: The market is normal and not in a “bubble”.

FOMO Finnegan: He’s jumping in because he’s afraid of missing out.

Sariyah Stats: Has stats and numbers to quote. Always.

Bentley Buzzword: The market is headed toward a “shift” in the future.

Cyclepants Chloe: The market has a 7 year cycle and time is up.

Laid-back Lexi: Not stressed about housing. Always chill.

Carson Corrector: Prices will correct but not implode.  

Walter One Metric: The market will turn as soon as this one thing happens.

Bailey Broken Crystal Ball: Nobody knows the future.

This is all in good fun. I hope you enjoyed this. What other names would you suggest? Did I miss anything?

———————- (skim or digest slowly) ———————–

BIG MARKET UPDATE

For those interested, here’s a big Sacramento market update:

THE SHORT VERSION:

Here is a highlight reel to talk through some of the bigger themes right now. In short, the stats are stunning and this is likely the most competitive market we’ve ever had. Demand is simply excessive while supply is anemic.

QUICK RECAPS:

I’m thinking about doing these charts every month. Do you like them?

NOTE: I’m not going to do Yolo or El Dorado County charts because there aren’t enough sales. Stats would be ALL over the place year over year.

THE LONGER VERSION (organized by county):

1) Sacramento Region
2) Sacramento County
3) Placer County
4) El Dorado County

I welcome you to share some of these images on your social or in a newsletter. Please use this stuff. In case it helps, here are 5 ways to share my content (not copy verbatim). Thanks.

1) SACRAMENTO REGION:

    2) SACRAMENTO COUNTY:

3) PLACER COUNTY:

4) EL DORADO COUNTY:

Other visuals: Not that you needed more, but check out my social media in coming days and weeks for extra visuals. I am posting daily stuff on Facebook, Twitter, and LinkedIn. Oh, and sometimes Instagram.

Thanks for being here.

Questions: Which housing persona(s) have you seen? What stands out to you about the market lately? I’d love to hear your take.

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Filed Under: Market Trends Tagged With: 2021 housing market, 2021 housing stats, Appraisal, Appraiser, El Dorado County, housing predictions, January 2021 housing market, market recap, personas, Placer County, real estate stats, Sacramento County, sacramento region housing market

Rapid price growth & the Gilmore Girls next door

February 10, 2021 By Ryan Lundquist 28 Comments

It’s unbelievable to see how much prices have risen lately. Today I want to share one quick visual to show you exactly what I mean. Then I have a couple photos to share based on a conversation my wife and I had about the Gilmore Girls.

BIG POINT: The median price is about $40,000 higher than it should be.

RAPID APPRECIATION: This visual helps show the median price rhythm throughout the year. Normally we see prices go up for about half the year and then they soften during the second half of the year. Well, 2020 was abnormal because there was an uncharacteristic price dip in April (beginning of the pandemic) and then prices basically went up in the fall instead of softening like they should have. In short, if we had a normal year in 2020 it looks like the median price should have been closer to $445,000 for January 2021, but it’s now $485,000 (orange line).

Crazy growth, right?

IT’S THE GILMORE GIRLS NEXT DOOR

The other day I was walking with my wife and we were admiring a brand new contemporary listing in the middle of an older neighborhood (Fair Oaks Village). Then when seeing a Craftsman home on the adjacent lot, my wife said, “Look, it’s the Gilmore Girls next door.” This made me laugh because she doesn’t work in real estate, but she clearly recognized the contrast in design.

Here is a brand new contemporary listing in an older neighborhood.

The contemporary home is located next to much older homes.

SOME QUICK TAKEAWAYS:

1) Gilmore Girls: First off, sorry if you don’t get the Gilmore Girls reference. My wife has been streaming this show over the past few years, so I know quite a bit about it (don’t judge me). Anyway, this show is about twenty years old and it took place in a fictitious town called Stars Hollow. This town is older and has many Victorian homes, which is why my wife made the comment she did. By the way, Sebastian Bach, the lead singer of Skid Row (80s hairband), was actually an actor on the Gilmore Girls.

2) Eclectic neighborhoods: Some areas are eclectic, which means it’s completely normal to have a variety of housing designs. Thus it’s acceptable to see brand new contemporary units mixed in with stuff one hundred years old. It’s like vintage and new coexist and people are good with it.

3) Contemporary vs modern: The words “modern” and “contemporary” are often used interchangeably, but there is actually a difference. Here is a Houzz article if you want to read more (and maybe still feel confused). This blog post is also worth reading and maybe a little easier to understand. In truth I was torn whether to call this home contemporary or not, but I went with contemporary because it seems to blend some styles. Let me know what you’d call it.

4) The principle of conformity: There is an idea in real estate that homes ought to generally conform to the design of surrounding units in order to maximize value. In other words, when a home is so different it could lead to a lower value because it will stand out like a sore thumb. In many cases we accept this as a market fact, but it’s really not true all the time. For instance, in Fair Oaks Village there are many different types of units and the market embraces the diversity. Also, in Midtown we see a variety of newer modern units mixed in with Victorians and buyers are okay with that. Obviously in a cookie cutter stucco box tract it could be awkward to see something else, so it’s possible in some situations to see a negative reaction to different architectural types that just don’t fit. All I’m saying is it’s easy to assume a property takes a hit to value because it’s different, but that might not always the case.

I hope that was interesting or helpful.

Questions: Does someone in your household watch Gilmore Girls? What’s happening in your area with price growth?

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Filed Under: Market Trends Tagged With: Appraisal, Appraiser, contemporary, Fair Oaks Village, Gilmore Girls, housing blog, housing trends, median price 2021, modern, rapid appreciation, rapid price growth, Real Estate Market, sacramento housing market, sacramento regional appraisal blog, trend graphs

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