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REPORT: April 2016
Major Indicators Are Mixed
If there is a snapshot that helps explain the local real estate market, in general, the summary below does it for me. I would love to know your translation of these. Also tell me if someone else would benefit from my newsletter.
Resale Home Sales — since March 2001, the average number of resales in March is 1,500. This is not far from that average but, with a low inventory, there’s not much room for more demand.
Pended Sales — this indicator is curiously higher than inventory. How can that be? Because the word “pended” can mean the listing “went pending and may not still be pending”. But it went “pended” during March. Momentum for Pended Sales has been flat or down since October ‘15. Also a sign of feeble demand, in my opinion.
Distressed Sales — although only 10% of sales, there was an increase in March — hopefully an anomaly. REO and Short Sale listings are a sign of desperation and trouble.
Sacramento Median — this price hasn’t been seen since October ‘07. And it’s now only 22% off the high in Aug. ‘05.
El Dorado Median — this price hasn’t been seen since July ‘07. And it’s now only 15% off the high in Apr. ‘06.
Placer Median — the last 3 months have been above $400K, last seen in September ‘07. And it’s now only 22% off the high in Aug. ‘05.
Mortgage Rate — first-time buyers have NO knowledge of rates above 5%. We keep forecasting an increase but it doesn’t happen.
Inventory — getting most of the blame for this feeble market, inventory is low and barely gives more than 1 month to sell every listing.
Months Inventory — explains how many months it would take to sell all listings — just over 1 month.
Swing SEVEN Times
Over the last 20 years, when applying my Swing Indicator to historical real estate sales data, there has been ONE period (1999) in which the Up Swings and Down Swings crossed each other more than twice in a short time period. Now we’ve seen 7 “swings” (head-fakes) in only 10 months. My opinion is this is a sign of chaos in the market. It’s an election year so the market is anything but normal. Demand is feeble, supply is feeble, mortgage rates still resemble “welfare”, lenders are still strict about borrower credit and future earnings, and employment now has to adjust to higher labor costs with no expectation of higher performance from labor. (Is that a sign of Socialism?)
Zip Code Indicators
The median price for a County or zip code is based on MLS reporting each month; half of sales are higher and half are lower than the median.
The Indicators and charts with momentum and my watermark are my creation and can be seen on my website.
Momentum can be used to “guess” at future direction of a commodity in a free market (capitalism).
Fair Oaks — The momentum halted for Fair Oaks median price. After 3 months of decreases, the spike in March had a material affect on the momentum. This zip code has really not done much since Fall 2013. And the spike this month may be an anomaly.
Folsom — Folsom median price momentum halted and has been sputtering since Fall ‘13. But sputtering and slowly increasing is MUCH better than gross appreciations, in my opinion.
Orangevale — Orangevale momentum swung to “down”. Last month’s spike was just a spike. Last year was full of green for Orangevale.
Granite Bay — Granite Bay price momentum is flat but is also highly variable and usually priced twice as high as the “sweet spot” of sales (<= $300K). If you view the 3-year median price chart for Granite Bay on my website, the momentum “bounced off” the zero axis last year. This can indicate equilibrium, if it was any other zip code.
Rocklin (95765) — Rocklin momentum has been unchanged since September ’15. That supports my “gut” feeling that this is a feeble real estate market. But pricing in this zip code is typically higher than the market “sweet spot” of sales.
Roseville (95661) — Roseville, like Orangevale, had a “green” year in 2015 (mostly). It seems to be continuing in this year. The momentum is much easier to see on my website.
El Dorado Hills — EDH was the opposite of Roseville and Orangevale last year—EDH had a flat 2015 and has recently shown an increase in momentum.
Cameron Park — Cameron Park momentum has been mostly “down” since the bounce in 2013. Price and its momentum is still in the “buy” zone (above zero) but is not moving upward. Again, see my website for a better view of this behavior.
No man’s land & the aggressive real estate market
By Ryan Lundquist on Apr 12, 2016 06:19 am
It’s easy to explain what the [real estate] market did, but what is it doing now? Everyone and their Mom can sound like an expert with the benefit of hindsight, but how do we see the current market? Do we give more weight to recent sales or listings? Do we have to wait for sales to close to know how the market is unfolding?
Four points to consider:
Sales show us the past: A sale might close escrow today, but does it really tell us about the market today? Not necessarily. A closed sale on April 12, 2016 probably got into contract in early March, so it likely tells us more about the market 30-45 days ago rather than today. The current market in April could actually be higher or lower, so it’s important to ask how value has changed if at all.
Pendings help us see the current market: The current market is often better seen in the pendings and active listings rather than the closed sales. This assumes we have enough solid data, of course. One of the most practical questions we can ask is whether properties are getting into contract at higher levels or not. Simply put, if pendings are higher than the most recent sales (and they’re not padded with concessions), they help us see the current market has probably increased in value. Other questions to consider: Are properties getting into contract more quickly? Is inventory going up or down? Is the sales-to-list price ratio increasing or declining in the neighborhood? Are sellers offering incentives to buyers or not? It’s easy to be so fixated on sales that we don’t ask these questions, but the answers help us gauge current trends. Remember though, sales might tell us about the past, but we still give them strong weight because they actually closed at that level. After all, pendings might not end up selling. In that sense we have to “appraise” the pendings too. Are they reasonable? Do they reflect the market? Or are they outliers?
Getting bid up to “no man’s land”: Sometimes in a frenzied market, properties can easily get into contract for more than they are worth. Yes, the market has been aggressive and values have been increasing, but sometimes properties are simply getting bid up to “no man’s land”, so to speak. In other words, there just isn’t any support for a value that high based on all market data. Remember, even when housing inventory is incredibly sparse like it is right now, there still has to be support for the value. We can’t just list at an astronomical level or let offers get bid up way beyond what is reasonable and expect a magical appraisal to meet the contract price.
Making or not making market adjustments: If the market has changed since the sales went into contract, appraisers may need to account for that with a market conditions adjustment. If you didn’t know, appraisers can give an up or down adjustment to the comps if the market has changed since the comps went into contract. In fact, if an adjustment is not given when it should be given, the appraised value could easily reflect the market in the past rather than today. Appraisers need to consider what a real market adjustment for time might look like. For instance, last week I used a comp that was nearly one year old since recent sales were sparse, and I gave an 8% adjustment up since the neighborhood market has increased in value by that much. I could have given a small token adjustment that I just made up, but 8% was very reasonable based on more recent sales and current pendings.
Quick Sacramento Market Summary: It’s been aggressive out there. This is why many real estate professionals are comparing the current market with the beginning of 2013. There are certainly similarities, though the market three years ago had very rapid appreciation and all the metrics show it was hands-down more aggressive than it is today. We can talk about the differences in the comments if you’d like. Values overall saw a healthy uptick last month, it took 12 less days to sell a house compared to the same time last year, and housing inventory is currently over 25% lower than it was last March. Sales volume was up about 4% last month compared with the same time last year, and interest rates declining has certainly helped draw more buyers out (which doesn’t help with the low inventory problem). FHA had been increasing in the Sacramento market, but in light of how aggressive the market is out there, FHA buyers have begun to get squeezed out. FHA buyers were still 23% of all sales last month, but that’s down from 25-28% for multiple months in a row. It’s worth noting bank-owned sales are up very slightly. Some REO brokers have said they are starting to see more action in their REO pipelines, though so far there really isn’t any big change as REOs were only 5% of all sales the past quarter.