It’s Your Economy
The economy, to a thinking lay-person, is how many people are satisfied with their financial position and prospects. To a non-thinking lay-person, “economy” is like politics and religion; don’t discuss it because eyes get glazed. Once you turn 40 or 50-years old, the economy is much more individual and opaque. That is, the health of the economy is a personal and somewhat private situation. If your situation keeps you up at night, then your economy is not doing well. If you’re able to remodel your house or even buy a bigger house, your economy is faring well.
When a paid economist talks to a crowd of people and lays out all of the data to support their conclusions, it can be evident that they are either honest, dumb, evil, or just not very thorough. Since there are many forces that affect the sales of a commodity (e.g., real estate), an economist has many facets to research and analyze. If that economist fails to include an obvious force (obvious to me) in their analysis, it makes me want to raise my hand and interject. But I’m not an economist so how do I know? I don’t. But I see, hear, and feel the forces AND see the resulting data and trends. And I experience a lot of individual economies; good and poor.
As most economists, like the rest of us, have become “educated” by the media and our employers, we start to tweak our perspectives to see what the media and our bosses see. But that’s where I am an outcast. I refuse to believe that NOBODY is evil, bad, or dumb. I can’t believe that everyone is completely thorough with data and analysis.
So when an economist is finished laying out the data and conclusions, am I supposed to stay quiet and continue to tweak my perspective to match theirs? Am I supposed to “get in line”? I can’t do that anymore and regret if that has been happening in my first 50 years.
So here are the two things ALL/MOST economists fail to incorporate into their analysis (and I will use metaphors to explain my position):
- Fallacy of the Fed — The Federal Reserve, having gained more influence and power from Wall Street, the Oval Office, and Congress, is a fallacy. That is, it is a falsehood that the Fed is good at managing money supply, velocity, and strength. (Good can be defined as competent and transparent.) The Fed is a group of people who only tell you about the rainy weather because the ground is wet outside. The Fed is and was a bad experiment. And now they are entirely controlled by political power – the Oval Office, in particular. When an economist fails to verbalize this fallacy, it makes ALL of their conclusions suspect.
- Pie (your choice of flavor) — A pie is a metaphor for the income that is received by an individual – all workers have a pie (even Welfare recipients have a pie but is made from other peoples’ expended pies). My pie is divided each month into amounts for required spending, discretionary spending, and savings. If my pie doesn’t get bigger but required spending increases, then something has to get less pie each month. Most people decrease the amount of pie going to savings. Recently, the economists are sad that lower gas prices aren’t increasing discretionary spending (“GDP”). That means they were wrong about the cause-and-effect of low gas prices. As a consumer-based economy, which may be our fundamental problem, without an increasing level of consumption (spending), we don’t have GDP growth. Likewise, if some new required expenditure takes a bigger piece of my pie, then I need a higher income or make the slice of pie smaller for the discretionary and savings allocations. We all know that incomes are not increasing, except nominally. We all know that required expenditures ARE increasing (or newly required) without the desired increase in the size of the pie. Healthcare and taxes are two major expenditures that are taking larger “bites” of my pie with no increase in the size of my pie. Healthcare and taxes are both levied by the government. The pursuit of happiness and prosperity includes sufficient pie.Our government is failing us and violating our right to prosper. It’s just logic. I don’t hate government but they have stopped fearing and representing us.
The year has been interesting. Momentum stalled in July ‘13 and has not wanted to return to a positive trend although almost all of the zip codes are still in above zero. Inventory has been decreasing and buyers have been hesitant since mortgage rates haven’t changed much at all.
The Swing Indicator (below) has shown unique movement this year. In the past 15 years, when a swing has started (Ups cross Downs), it continued. This year, the swing has sputtered but hasn’t committed to one direction. In short, the swing won’t.
In Fair Oaks, Folsom, El Dorado Hills, and Roseville, the momentum had a year-end surge.
Fair Oaks Trends
The momentum line for Fair Oaks median price (95628 p) is showing the typical shape for the zip codes in our area this year: Down then flat. Since 2012, this zip code median price has appreciated quite a bit. However, the rate of this change started slowing in, you guessed it, July ‘13.
Your timing is more important than location. If you are a seller in today’s market, prepare your home for inspections and appraisal. If you are a buyer in today’s market, get your financing squared away before you start shopping. The nice homes, the ones well-prepared, repaired, and updated, still move quickly. If you’re not ready to submit a strong offer, there is no sense shopping. And it’s not fair to sellers who want motivated and capable buyers to view their home.
Once you understand your goals, meet with me to formulate your strategy, meet with your team to prepare your house or financing, and prepare your mindset for the coming weeks or months. Depending on your house or requirements, it may take months to reach your goal.
Although “Time” trumps “Location”, there are locations in every zip code that represent the low or high home values. A “median price” means half of the sales were lower and half were higher. So the number is meaningful and different than “average” price.
The higher values in Fair Oaks are in subdivisions like Hammersmith, Clover Meadow, Curragh Downs, Winding Woods, and other pockets.
The critical path in a purchase, when a loan is required, is getting the appraisal done. Formerly, the problem was getting the appraiser to fairly evaluate the property. This evaluation, “the appraiser’s opinion on that day”, can come in “at value”, high, or low. Since ‘08, the appraisal process has been revamped giving the government ultimate control over the “science” of the effort. In my opinion, the appraisal process MUST be reached using an art, not just science.
As a listing agent, this appraisal will support the asking price (or not). If it doesn’t, then the seller and I didn’t use the best comparables or we didn’t foresee the adjustments an appraiser might apply. Adjustments, however, are difficult to standardize and frequently separate the good from the bad appraisers. After all, adjustments are where an appraiser can hide their ignorance.
As a buyer’s agent, the appraisal is not as critical since any outcome is (or can be) a benefit to the buyer. If the appraisal comes in “at value”, the transaction moves forward with no disputes. If the appraisal comes in high, the buyer has some immediate equity [on paper]. If the appraisal comes in low, the default reaction is to ask the seller to reduce the price (which occurs more than not). But this is why the buyer’s offer amount should NOT have a big impact on the appraiser’s opinion — because the buyer is motivated mostly by a low appraisal hence a lower offer would bias the outcome.
So these are the critical steps that must be taken to get a successful appraisal: 1) Prepare the house and correct any safety, security, and structural issues before listing the property, 2) Don’t over-price the property, and 3) Give the appraiser information to justify the contract price. We don’t have any control over the appraiser’s eventual adjustments, regrettably.
Questioning Value Adjustments — An Appraiser’s Thoughts
Does the adjustment represent how buyers behave? When valuing a property, we adjust the comps when there are value-related differences compared to the subject property. The adjustments are not about what one buyer would pay, but rather what a representative buyer in the market might pay. In other words, if you lined up a group of 100 interested and qualified buyers, and they would pay a difference for that certain feature, we then adjust by that difference. Remember, there is always going to be one buyer who is going to love a feature, and pay way more because of it, but we have to ask, “How much is the market going to pay for this?” Example: House shaped like Darth Vader’s light saber.
Does the adjustment seem reasonable? Take a step back from the adjustment you are giving and just ask, “Is this reasonable?” If you’re giving a $500 fireplace adjustment, does that really seem like a reasonable adjustment, or is it purely made up? Does a $10,000 location adjustment for the busy street really represent what the market is willing to pay? Or does a $25,000 condition adjustment between the fixer and remodeled home make reasonable sense? This is a big question to filter our adjustments through, and I recommend getting into the habit of asking it. By the way, I find sometimes when it comes to condition, the adjustment might be more like 20% instead of $20,000.
Is the adjustment supported? It’s easy in real estate to pull out a list of canned adjustments and start giving them whenever we see any difference between a comp and the subject property. So we see a built-in pool and automatically give a $10,000 adjustment for the difference. Yet we need to do some research in the neighborhood. Is there a price difference between similar homes with and without pools? At times our canned adjustment at $10,000 might actually make really good sense, so it’s perfect to use, but other times we might see a different story of value. It’s easy to get stuck giving that $10,000 adjustment in every case, but this is where we need to let the market speak to us. Research the sales and let them set the tone. This means the adjustment might look different in each valuation. Maybe you’ll have no adjustment at all for a pool if there really isn’t a discernible price difference, while other times you might adjust twice as much as you normally do because the pool is something special and it looks like buyers paid a premium for it. Remember, the goal ought to be to find other homes that actually don’t need any adjustments at all because they are truly comparable. I know that’s a fat chance, but keep that in mind.
Does the adjustment fall in the range of value? As much as we’d like to think there is one perfect and precise adjustment out there to give, it’s most likely we will see a range of value emerge. For example, if we surveyed a neighborhood and found homes with built-in pools were tending to sell between $8,000 to $15,000 higher in price, we have to make a decision. What should the adjustment be in the case of the subject property’s pool? If it’s an older pool, maybe we end up giving a value adjustment closer to $8,000. But if it is a higher quality newer pool we might reconcile the adjustment closer to the top of the range.
(See this appraiser’s blog here: www.SacramentoAppraisalBlog.com )
Spinach and Strawberry Salad
- 2 bunches spinach, rinsed and cut to size
- 4 cups sliced strawberries
- 1/2 cup vegetable oil
- 1/4 cup white wine vinegar
- 1/2 cup white sugar
- 1/4 teaspoon paprika
- 2 tablespoons sesame seeds
- 1 tablespoon poppy seeds
In a large bowl, toss together the spinach and strawberries. In a medium bowl, whisk together the oil, vinegar, sugar, paprika, sesame seeds, and poppy seeds. Pour over the spinach and strawberries, and toss to coat. Enjoy!