No Bad Service

Market Commentary – 2015 May

Data is useful in showing historical activities and GUESSING at the future direction. Psychology is not a data point shown on any chart. Consumer sentiment is tracked by the government and that is exactly why I don’t trust it. When the prognosticators share our guesses with the participants, it can affect their psychology. Below are the important historical trends, my prognostications, and the possible shifts in psychology in this year.

  • Inventory — 30% of inventory is less than $250K. 50% of inventory is between $250K and $500K. 17% of inventory is between $500K and $1M.
  • Sales are increasing giving the illusion of the long-lasting seller’s market. Without the demand, sellers postpone their listings. And sellers are unrealistic about price gains and appraisals are increasingly inaccurate or defective so the increase is dampened by expired listings. The good news is that sales momentum is going up.
  • Interest rates are expected to increase which should give buyers motivation to avoid the increased cost of financing. This should also motivate sellers to sell now. This impact may not be drastic since lenders are starting to lessen their lending restrictions. (More on this later.)

Fits and Starts

My Swing Indicator is the EKG of the general market. While there are sub-markets that have positive momentum, others are still experiencing a malaise. The 3 counties are still decreasing with regard to momentum but some zip codes (12 of them) have ticked upward in April. The 16 zip codes that are unchanged in April are potentially swinging from positive to negative momentum, or vice versa.

My favorite appraiser (Ryan Lundquist) does a good analysis of the market on a monthly basis. And his bullet points and charts are helpful.

  • The median price in Sacramento County is $280,000.
  • The median price is 5.6% higher than one year ago (April 2014).
  • It took 42 days to sell a house last month.
  • Cash sales were only 16.5% of all sales last month.
  • FHA sales were 27% of all sales in Sacramento County last month.
  • Sales volume was 9.2% higher this April compared to last April.
  • There is 1.5 months of housing inventory (1.8 months last April).
  • The average price per sq ft is 182 (7% higher than last April).
  • The average sales price is $310,000 (5.7% higher than last year).
  • It took 3 days longer to sell a house this April compared to last.

One Paragraph on the Market: More listings came on the market last month, but buyers readily absorbed them. Pendings are still a good 20%+ higher than last year in the Sacramento area, and clean and well-priced properties are getting into contract very quickly. As aggressive as demand has felt though, we haven’t seen the rapid appreciation this Spring that we saw in 2013. Values more or less have experienced a normal seasonal increase, though when compared to sales during the Fall of 2014, prices are clearly MUCH higher since there was a lull in the market last Fall. Overall price levels now generally seem to have recovered back to the height of last Summer (or even a bit higher depending on the area). Well-priced listings are getting into contract VERY quickly, and there have been multiple offers. But at the same time buyers are tending to overlook properties that are overpriced and anything with an adverse location or a lack of upgrades. As housing inventory presumably begins to increase over the next few months, keep an eye out for more price reductions, unrealistic expectations from sellers, and buyers gaining more power from sellers. Remember too the market does not behave the same at every price level or in every neighborhood.

It’s The Economy, Steven

Waiting for the next shoe to drop is not a healthy way to live. My perception of the economy and its impact on the real estate market is described by one word: Really?

The news reporters, pundits, and economists are paid to hold our attention on their ideas and messages. Reporters, if they can’t use nudity in their stories, rely on shocking or bad news. Pundits want to appear smarter than the others on the panels so they create explanations that can use their words and “data points”. Economists, well, should have one hand removed to take away their popular hedge of “but on the other hand…”.

Specific to real estate, there are key forces that affect supply and demand: Employment, cost and availability of money, condition of housing, and total cost of ownership. There are other factors like weather that indeed impact a buyer’s ability to shop and evaluate houses. And there are “sub-forces” within the key elements that can [and do] drive the economics. The most important “sub-force” is regulation. While we all experience an overwhelming volume of regulation, most of us don’t see it because it’s not necessarily tangible nor can we remove it from our daily lives. The unseen impact of regulation is definitely massive. The Federal government regulates the cost of ownership; State governments regulate employment, health and safety; local governments regulate zoning; and even HOAs regulate specific living conditions and restrictions. All of these entities create a financial burden on homeowners beyond the tangible cost of money.

Three Pinocchios!

Most disconcerting is the desire and ability of these entities to twist and position the data to fit their message. The unemployment rate is the most highly visible example of this deception. But most people don’t hear the truth even though they are affected by it. Psychology is the intended target by these practitioners and they are good at modifying ours.

  • If you are unemployed but are paid at least $20 to mow your neighbors’ lawn, you are not considered unemployed.
  • If you have stopped looking for work, you are not considered unemployed.

Sadly, when the cheerleaders mislead us, there is a desire to increase the cost of money for buyers which, in turn, creates more downward pressure on employment.

Preventing Damage to Your Home from The Elements

Rain: Just in case we get heavy rain, these are some good tips. Rain damage can be one of the costliest repairs to a home due to its devastating effect on foundations and contribution to mold development. Below are a few steps to protect your property from heavy rain damage and to ensure the safety of your home and family:

  • Check your chimney and sump pump annually. Two vital areas susceptible to rain damage are a home’s chimney and its sump pump. Chimneys should be regularly examined to make sure bricks have no cracks or gaps, and sump pumps should be professionally inspected every year.
  • Ensure good drainage. Check all aspects of the rooftop and ensure its construction is not damaged in any way. Additionally, ensure all gutters are cleaned regularly and downspouts are directed away from the house. Ideally, the slope of your yard should be directed away from the foundation to ensure rainwater is directed away from the home and not into the foundation.
  • Fix water leaks. Plumbing leaks can be a potential catastrophe if left unresolved. It’s important to address these issues promptly by repairing any noticeably leaking pipes, checking for dark spots adjacent to pipes or on ceilings, repairing or replacing any cracked caulking, and inspecting the roof for any missing, loose or broken shingles.
  • Be aware of potential health hazards. Moisture promotes the growth of mold and other dangerous organisms–especially in already damp climates–which increases the risk for serious health problems. If your home does suffer from water damage, it is important to hire a water damage restoration company as soon as possible .

The downside of tighter built homes is the potential for mold to grow.  Mold needs darkness, moisture, and warmth.  Mold spores are toxic.  The solution involves removal and replacement of infected structures by abatement crews.  This is a costly process and is not covered under conventional homeowner’s insurance.

Mold is in every home, within the walls or under raised floor. Whether it’s toxic mold is another question and one that can only be answered by a licensed mold inspector. Bottom line: Keep water out from where it is not intended to be. Insurance companies are well aware of the issues of mold, and now require a separate policy to cover mold.  In some communities, there is no such coverage available.

Siding: House siding replacement is considered by most experts one of the wisest investments a homeowner can make. House siding cost may be high, but the payoff can put more dollars back in your bank account than you originally spent. And appraisers give stucco a better grade.

Expected house siding cost includes materials and installation. The expected siding cost is based on a 2,200 square foot home, the national average.

Plywood siding is a reliable siding that emulates real wood, but is vulnerable to fire, insects, warping, and requires a new coat of paint about twice a decade.

  • Plywood siding cost per square foot: $1 to $3.
  • Expected house siding cost using plywood: $6,000.

Vinyl siding is nearly maintenance free and emulates the appearance of other styles of siding. About 32 percent of homes in the country have vinyl siding. Return on investment for vinyl siding has been shown to be around 73 percent.

  • Vinyl siding cost per square foot: $2 to $3.
  • Expected siding cost using vinyl siding: $7,000.

Stucco is often seen in tropical climates, is a good insulator, is fire resistant, and needs nearly no maintenance.

  • Stucco cost per square foot: $4 to $10.
  • Expected house siding cost using stucco: $15,000.

The most popular and resilient siding in our region is stucco. Although it should be painted and sealed every 10 years.

Rain on a Tin Roof Sundae Pie

Ingredients

  • 4 cups honey and nut flavor cornflakes cereal
  • 1/2 cup peanut butter
  • 1/2 cup light corn syrup
  • 1 quart vanilla ice cream, softened
  • 1/4 cup chopped salted peanuts
  • 1/2 cup chocolate syrup

Instructions

  1. Lightly grease a 9 inch pie pan. In a large bowl, mix together cereal, peanut butter, and corn syrup. Press mixture into greased pie pan.
  2. Spread softened ice cream evenly into crust. Top with chopped peanuts. Freeze until firm, at least 4 hours. Top each slice with chocolate syrup before serving.

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