Category Archives: Appraisal

Yolo County Market Trends August 2023

Here are Yolo County residential real estate market trends as of August 23, 2023, based on analysis of sales in Metrolist MLS for my presentation at the Yolo County Association of Realtors marketing meeting last week. In the past, I’ve not included county-wide data nor West Sacramento. I’ve added both at the request of local agents.

The Elephant in the Room-Interest Rates

Every presentation I’ve done since the pandemic started has included a discussion of interest rates. The drop in interest rates at the start of the pandemic helped fuel the rapid increase in prices we experienced. The rapid increase in interest rates in early 2022 put the brakes on residential real estate, especially in California, by hammering affordability.

The graph above shows the longer run of interest rates this century, trending down to a low below 3% during the pandemic with a rapid return to 2002 levels in less than two years. Interest rates are now at their highest point since I started my career as an appraiser in June, 2002.

This graph explains the residential real estate inventory effects from the change in interest rates since 2019:

Almost 2/3 of current mortgages have interest rates below 4%. There is a very strong financial incentive for anyone with one of these mortgages to not sell their home because a replacement will trigger a much higher monthly payment, thus reducing the available inventory.

Let’s look at the demand side:

This graph is a little difficult to decipher but tells a crucial story for residential real estate. The left Y-axis shows the monthly payment for the given terms. The right Y-axis shows the average loan size. The X-axis shows the interest rate. The dots show the meeting of the average interest rate, loan amount, and monthly payment for each year.

To buy the typical house in 2021, the payment was approximately $1,800 per month. Now, in 2023, the typical house payment is $3,000 per month. Affordability has been hammered by the rise in interest rates and not helped by increasing prices.

Combined, we have very reduced inventory combined with reduced demand. In 2022, the demand reduction “won” in our region, leading to price drops. In 2023 so far, the reduction in supply seems to be “winning” with price increases common. The residential real estate industry is probably the biggest loser in 2023 with significantly fewer sales this year compared to previous years.

Yolo County Data

Below is a breakdown of sales in 2023 by community for residential sales on 60 acre or less lots, excluding condominiums, townhouses, and halfplexes. Note that small acreage residential sales are included in this snapshot.

Most of the sales in Yolo County occur in Woodland, West Sacramento, and Davis.

Below shows the growth in mean sale price for Yolo County since 2016. Prices have increased significantly over the past seven years.

A closer look at sales since 1/1/22 shows a different story:

Prices peaked in the spring of 2022, declined the rest of the year, and started to increase again in the spring. The last two months show some softening of prices.

Current inventory countywide is above the lows of the pandemic era but significantly lower than typical:

Yolo County inventory is on the low side at present

Inventory is lower than typical but monthly mean days on market countywide is back to pre-pandemic levels:

Days on market are closer to longer term averages

Another measure of market strength is the sale price to list price ratio, or how much the sale price of a home changes from the reported list price. If the ratio is greater than 100% shows prices getting bid up while under 100% it shows sellers forced to discount.

Homes are selling for close to asking at present

This measure increased dramatically during the pandemic, dropped after the rise in interest rates in 2022, and has recovered to a somewhat stronger level.

Sales volume drop is the biggest issue for real estate professionals looking for work

Sales volume is depressed below pre-pandemic levels because of lack of inventory meeting lack of demand. After two/thirds of 2023, Yolo County has about half the number of sales typical year to date before the pandemic.

Countywide, prices are stable to increasing with low inventory and typical days on market. Let’s take a look at the larger Yolo County markets.

Davis and Woodland

This analysis only includes sales of homes on less than one acre of properties labeled as “single family residences” in Metrolist, the local MLS. The same rules apply to the West Sacramento analysis below.

Sales volume has drifted downwards for both Davis and Woodland:

Davis sales volume since 2018 per Metrolist

The change in sales volume is more pronounced in Woodland

Metrolist tracks how many offers were received for each sale, another indicator of market activity. Davis and Woodland both show elevated numbers of sales receiving multiple offers in 2023 so far:

Below are summary statistics for Davis and Woodland:

Inventory is relatively low but above pandemic levels. Days on market, multiple offers, and the sale price/list price ratio show both markets overall are leaning towards sellers at present.

Davis price trends since 1/1/22 show a peak in the spring of 2022 followed by decline to a low at the start of 2023, with prices increasing so far since:

Woodland follows a similar pattern:

To recap, Davis and Woodland are showing low inventory, low sales volume, some buyer competition, and increasing prices.

West Sacramento

The story is familiar for West Sacramento.

Sales volume for 2023 so far is about half prior to the pandemic with two-thirds of the year gone with the longer trend declining.

Multiple offers in West Sacramento are elevated but appear somewhat more volatile than in Davis and Woodland:

West Sacramento Summary:

Price trends in West Sacramento follow the same pattern as in Davis and Woodland: peak in the spring of 2022, followed by decline to a bottom in early 2023, with rising prices now.

West Sacramento is trending along the same lines as Davis and Woodland

Yolo County Small Acreage Residential

Finally, let’s look at the Yolo County Small Acreage Residential market. In this analysis, I included homes sold on 1-60 acres reported to be one home on a lot, two homes on a lot, manufactured homes, or modular homes. I excluded Davis and Dunnigan addresses because these two markets trend differently from the rest of the county.

Inventory is on the low side at present in shortage. This market typically has 6-12 months of inventory but is somewhat more volatile because of lack of activity.

Recent price trends are stable to increasing. Please keep in mind that conclusions are significantly more uncertain because of lack of conformity between the properties sold.

Note that this market did not have the same protracted dip seen in other Yolo County markets throughout 2022.

Takeaways

Rates continue to dominate our local residential real estate markets.
Very low supply is overriding low demand.
Prices switched from declining to stable to increasing throughout the county.
We have a very low number of sales.
Valuations are difficult at present because of changing market trends and few sales to use for sales comparison.

Thanks for reading. Please leave any comments or questions.

Review: Residential Market Analysis and Highest and Best Use

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Review of Mark Ratterman’s book

I wrote the following for the December, 2022 Appraisal Today newsletter. This month Ann O’Rourke has published my article “Appraising in a Changing Market” which I will publish here next month. That said, if you’re a residential appraiser, you should sign up for the Appraisal Today newsletter. Each newsletter has advice that I can use in my business or my appraisal work. Go here for more information.

Disclosure: This book was provided by the publisher, the Appraisal Institute, free of charge to Appraisal Today to review. Ann provided it to me so I can share my thoughts about it.

Cost is $75/$60 for Appraisal Institute members for either the soft cover book or the PDF. 252 pages

I don’t understand why the PDF is the same price as the book. Apparently, the cost approach does not apply.

This is the book to get you thinking about residential market analysis.

As noted in the Acknowledgements, this book is based on Stephen Fanning’s Market Analysis for Real Estate, the general appraiser’s market analysis book. Residential Market Analysis and Highest and Best Use follows the same outline as the other book but focuses on residential properties. Both books use the same 6 step process for market analysis and 8 step process for highest and best use analysis. Most of this book is spent discussing and reviewing the 6-step market analysis process with highest and use analysis left for the last chapter.

The book discusses the difference between fundamental market analysis and inferred market analysis and provides advice on how to know what to include for your assignment. Much of the book is timely with many examples from the Covid era plus specific discussions of rapid interest rate increases and the impact of concessions on market value.

The explanation of the market analysis process is the framework for the author to share many suggestions for best practices. For example, Mr. Ratterman makes a strong case for almost always completing at least a very basic, high-level land valuation to support the highest and best use conclusion even if a cost approach is not necessary. A specific example included in the book of a mistake that residential appraisers make, not seeing that an attached duplex could be split into two one-unit properties, was a mistake I made twelve months ago. My client was kind enough to let me rewrite the appraisal instead of suing me. Examples and advice like this are what sold me on the book.

Mr. Ratterman’s writing is easy to read. As Ann’s previous reviews of his books note, his writing is the opposite of the academic, stilted style I see in other appraisal books. He repeats important concepts and provides useful examples.

I have a couple of minor quibbles. First, I found numerous typos, unexpected in a $75 book purchase. None were significant but all were distracting. The other issue I had was with the example in the Statistical Analysis chapter. I applaud Mr. Ratterman for including a detailed example of using linear regression to value a vacant lot. His example walks through the steps to do the analysis and includes a very useful discussion of how to choose the best predictor/unit of comparison (in this case, price per acre). However, his discussion is undermined because he doesn’t mention time. It was strange to read a book where market changes are discussed at length but not included in the most detailed example.

Who is it for?

The primary audience of this book is the seasoned residential appraiser with some experience appraising complex 1-4 unit properties. The book is ideal for residential appraisers working on upgrading to certified residential. It’s also ideal for folks like me working on their SRA designation. Less experienced residential appraisers may avoid future issues by reading this book.

Conclusion: I’m keeping it. Ann saved me from having to buy it. Thanks Ann.

Click here if you want more information on purchasing this book from the Appraisal Institute. (I am not getting paid for any sales)

Table of Contents

Acknowledgements
Introduction
Chapter 1: Overview of Market Analysis and Highest and Best Use Theory
Chapter 2: Market Research in Real Estate Appraisal
Chapter 3: Levels of Market Analysis
Chapter 4: Urban Patterns, Development, and Externalities
Chapter 5: Location
Chapter 6: Productivity Analysis: The Subject Property
Chapter 7: Market Area Delineation
Chapter 8: Demand Analysis
Chapter 9: Competitive Supply Analysis
Chapter 10: Evaluating Market Cycles
Chapter 11: Marketability Concepts
Chapter 12: Data Sources
Chapter 13: Statistical Analysis Tools
Chapter 14: Highest and Best Use

About the Author

Mark R. Ratterman, MAI, SRA, has been a real estate appraiser and broker in Indianapolis since 1979. He initially worked as a residential broker only but soon moved on to focus on real estate appraisals. He has written ten books about real estate and appraisal with a focus on both residential and nonresidential topics.

Additionally, Mr. Ratterman has written courses and seminars for the Appraisal Institute and has been a teacher of appraisal courses and seminars for over 35 years. He has lectured in 45 states and four foreign countries and has written over 20 seminars for both online and classroom presentation. He has been published many times in The Appraisal Journal.

Mr. Ratterman lives in the Indianapolis area with his wife of 36 years, Jeanine. They have four grandchildren who all live in their area. His contact information is listed on the Appraisal Institute website (https://www.appraisalinstitute.org/) and can be located by clicking on “Find an Appraiser.”

Northern Solano County Residential Real Estate Update April 2023

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This update is based on a presentation at the Northern Solano County Association of Realtors on April 25. I pulled the data on April 24 from Metrolist/BAREIS.

The key story in residential real estate over the past 18 months has been the rapid rise in interest rates in early 2023. Here’s the picture:

Interest rates 12 months ago were below 4% and are now above 6%, significantly reducing affordability for buyers and buyer demand overall. Sellers locked into low rates have strong motivation to stay in their homes, reducing supply. In Northern California, many markets have reached a new equilibrium of significantly fewer buyers, sellers, and transactions.

Below is a summary for Northern Solano County.

Dixon, Fairfield, Suisun City, and Vacaville are properties reported in Metrolist/BAREIS on less than one acre and reported to be single family residences. Northern Acreage are properties located in unincorporated Solano County with Dixon, Vacaville, and Winters mailing addresses on 1-60 acres and include single family residences, two homes on one lot, manufactured homes, and modular homes. Note that there were 0 sales of acreage properties last month but 3 the month before, low but not unheard of.

Listings are less than homes in contract for the cities, indicative of a stronger market. Sales volume for all five markets are less than March, 2018, and March, 2019 sales volumes.

12 Month Change in sale price is a common metric in residential real estate. All five markets are trending lower than 2022, as expected based on the larger market trends. However, focusing on 12 Month Change can miss when a market changes direction.

Below are scatter plots showing trends in each market area:

Dixon

Fairfield

Suisun City

Vacaville

The four Northern Solano cities show similar trends. Prices peaked in the spring of 2022, declined for the rest of the year, and hit bottom in late 2022/early 2023. Prices are now relatively stable.

In contrast, take a look at the Northern Solano small acreage residential market:

Northern Solano County small acreage residential sales since 1/1/22

Prices peaked later, in the summer, and declined since. This is a declining market at present. Note that the Northern Solano County small acreage residential market has more uncertainty because of fewer sales and significant differences in property characteristics.

Context

Prices appear to have bottomed out, at least temporarily, in Northern Solano County communities with the exception of small acreage residential properties. Low demand is matching low supply with a new, maybe temporary equilibrium.

This simple analysis shows trends for all homes sold in each market. Each market is made up of a collection of individual submarkets that can trend in different directions. For example, I recently appraised two homes in Woodland with the only real difference between the two was one was 2000 sf and the other was 2800 sf. The 2000 sf home’s submarket was declining like the overall market but the 2800 sf home’s submarket was increasing. Each home requires its own analysis to determine trends and value.

I hope to write more this year. If you have something you would like me to discuss here, please leave a message or email me.

Thanks to my friends at the Yolo Association of Realtors

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Rachel Medina and I receiving the 2022 YAR Affiliates of the Year from Don Sharp

I’m grateful to my friends at the Yolo Association of Realtors for naming me, along with Rachel Medina, the 2022 Affiliates of the Year for the association. Sharing this with Rachel, on the same night my friends and colleagues Don Sharp and Francisco Jimenez were named 20222 Realtors of the Year, made the recognition special.

I spent much of last year in presentations sharing photos of my favorite mountains since the local markets had clearly peaked. Here’s hoping I can share valley photos in 2023….

Here’s hoping I can retire peaks from my market presentations and start sharing valleys

Early 2022 Sacramento MSA Rental Vacancy Rate

Davis, Woodland, and Northern Yolo County Small Acreage Residential Update

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For my appraiser friends: will this pass an FHA inspection? image copywrite Joe Lynch

Hey, it’s been a while. Since the start of the pandemic, demand for appraisal services has gone through the roof, limiting my ability to write. Thank you if you’ve sent me work. That said, I hope to write more frequently in 2022. This is the start.

Market Analysis Ground Rules

Below are market updates for Davis, Woodland, and the Northern Yolo County small acreage residential markets. My data source is Metrolist, the MLS for my region and part of the Norcal MLS Alliance. I’m very fortunate to have such great data partners.

For suburban markets like Davis and Woodland, I limit the analysis to sales of single family residences on one lot. I exclude condominiums, townhouses, halfplexes, and small income residential properties (2-4 units) because these types of transactions in general add noise to the analysis in markets I cover. For small acreage residential properties, I include one house on a lot, two houses on a lot, manufactured homes, and modular homes outside of city limits. I usually narrow the lot size range of transactions included in the analysis. For example, the analysis below is limited to sales on lots with 1-60 acres of area.

Davis

Sales volume in Davis was significantly higher year-over-year in early 2021 because of lockdowns in 2020 but over the past six months are down year-over-year because of the surge in late 2020.

My favorite way to measure sale price trends in Davis is to look at monthly year-over-year metrics because of the high degree of seasonality in the Davis market. Look at the graph below. The past six months prices are up on average 20% overall in Davis. Pre-pandemic, prices were stable to declining slightly…

Davis residential real estate prices have increased rapidly over the past year

Woodland

Sales volume in Woodland has been distorted by Covid, too. Volume in early 2021 increased significantly over the prior year but were below 2020 over the summer of 2021 and are mixed most recently.

Woodland is a much less seasonal market than Davis so I use a sale price or sale price per square foot scatter graph model to show market trends. Prices have continued to rise in Woodland significantly over the past 12 months.

Woodland prices continue to increase strongly

Davis and Woodland Recent Activity

Prices continue to show strong appreciation. The key issue is the lack of inventory. Normally, Davis and Woodland have 50-100 single family homes listed for sale. Lack of inventory is driving competition and prices.

Competition is frantic in Davis now with the vast majority of homes receiving multiple offers. Woodland homes are receiving multiple offers at a higher than typical rate, too, but not at Davis levels. Great time to sell, terrible time to buy.

Cash Buyers in the Market

With most listings receiving multiple offers, I’m not surprised to see a rising percentage of all-cash buyers.

These trends are telling the same story.

Northern Yolo County Small Acreage Residential Market

As noted above, I analyzed sales of properties on 1-60 acres sold in unincorporated Yolo County. I excluded Dunnigan because it is a different market from the rest of the county with 1 acre lots next to the interstate and many manufactured homes adding noise to the analysis.

With so few transactions, best way to understand the market is by sales per date scatter graph. First shows all sales from the start of 2020:

Sale scatter graph showing increasing prices

Longer view:

Those familiar with this market will be able to explain the price bump in 2016 and subsequent flattening. In early 2016, Yolo County changed the code to allow for medical marijuana grows on small acreage lots. This led to a rush in outside investors competing for small acreage residential properties and rapid price increases. When Yolo County put a clamp on new permits, prices stabilized and were relatively flat heading into the pandemic. The overall lack of inventory and desire for separation from neighbors led to a return of price increases.

The Elephant in the Room

The Covid pandemic surprised many of us by leading to rapid price increases driven by low inventory and historically low interest rates. Low inventory is still here but interest rates are rising rapidly:

If trends continue, at some point rising interest rates will reduce affordability enough to reduce sales activity and prices. Here’s hoping for a soft landing.

Brownie points to anyone who was not on the Yolo County Association of Realtors call last week who can tell where this is:

Small acreage residential (but not Yolo County) image copywrite Joe Lynch

Youtube conversation

Davis, Woodland, and Arbuckle Market Update for April and a quick discussion of appraiser shortages

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I hope you’ve had your Covid-19 vaccine shots. If not and you’re in California, sign up now here.

Inventory continues to be low in the region with rising prices and competition for most properties. Sales volume is rising as shown below for Davis and Woodland:

Activity is up in Davis from the previous 12 months

Woodland sales volume continues to increase

Inventory has risen in Davis but is still on the low side. Woodland continues to run significantly below normal.

Prices overall are increasing rapidly in Woodland and moderately in Davis. Keep in mind that specific market segments may be trending differently depending upon demand.

Includes only single family homes in Davis city limits sold through Metrolist

Woodland sales reported to Metrolist in city limits of single family homes only

Multiple Offers

Everyone is talking about competing against 15 offers and prices 30% over initial list. Davis and Woodland are competitive, but not that competitive, as shown below.

Mean number of offers received trending up in Davis. Source: Metrolist

Woodland showing a significant increase in offers received

Arbuckle Market Trends

Arbuckle is an unincorporated community of approximately 5,000 people located about 45 minutes northwest of Sacramento along Interstate Highway 5 in Colusa County. It features homes built in the 1940-50s plus newer subdivisions built over the past 20 years and is surrounded by farmland.

Inventory is very low, not that unusual given how small the Arbuckle market is. Sales volume in 2020 was down 10% from 2019, not unusual for the area. Prices have increased significantly over the past 12 months as shown below.

Rapid price increases in Arbuckle during the pandemic per Metrolist

A longer look shows the effect of the pandemic on pricing:

Prices were stable heading into the pandemic but increased as most markets I cover did over the past 12 months

Arbuckle, CA is surrounded by farmland and split by I-5

Of the 37 homes sold in Arbuckle since 1/1/20 in Metrolist, 17 had one offer and 20 had more than one with a peak of 17 offers for one property. Competition has picked up in Arbuckle, following trends throughout the area.

Every day I receive calls and offers from lenders, agents, and buyers hoping I can help them with a purchase appraisal. I’m very fortunate to be busy and can’t finish anything quickly now because of my workload. I strongly suggest everyone to be patient if an appraisal is part of your transaction. This graph below from Freddie Mac will help explain the situation.

Source: The Effect of COVID-19 on Appraisal Volume – Freddie Mac Single-Family

Appraisal volume ties directly to interest rates. When rates fall, mortgage financing rises and drives appraisal volume up. When rates rise, appraisal volume falls. However, as shown above, the number of appraisers in the US who work with lenders has been relatively stable over the past eight years. The interest rate cycle rises and falls much more rapidly than the time it takes to develop a productive appraiser, causing appraiser shortages in times like now.

Good luck.

Davis, Woodland, and Northern Yolo County Small Acreage Residential Market Update for March, 2021

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The pandemic has changed all of our lives in the past year. In local real estate, activity paused in March and April as shelter-in-place orders took effect. The Fed dropped interest rates to zero, pushing mortgage rates to historic lows. Homes became more affordable but inventory (the amount of time to sell the current number of active listings in a market) tightened because people didn’t want strangers walking through their homes during a pandemic. Low rates combined with low inventory has supercharged the local residential market.

Davis and Woodland have very few homes for sale at present with multiple offers received on most listings. The lack of inventory, very low interest rates, and lots of competition are pushing prices up as shown on the graphs below.

Davis has relatively few sales in January and March so take the 26% price increase with a grain of salt-that number is likely influenced by a change in what sold, potentially a compositional effect. I wrote about compositional effects recently.

Woodland prices have increased relatively rapidly during the pandemic on a price per square foot basis but have leveled off on a sale price basis.

Because of seasonality, I look at 12 month change in prices for Davis. Prices have increased the past 5 months compared to the previous year. Davis is a clearly appreciating market at present.

Much of my work is in unincorporated Yolo County appraising small acreage residential properties. The graph below shows a significant upward trend in these types of properties. Once again, part of the increase can be attributed to a compositional effect: the average size of homes and lots have increased, pushing up the sale price trendline somewhat. That said, prices are still increasing in this market.

Inventory was 2.5 months when I compiled this graph at the beginning of the month, shockingly low. I have not seen this market with less than 5 months of inventory in the past 10 years. Buyer preferences have shifted to having more space away from neighbors.

My friend Ryan Lundquist posted an interesting question last week: How much have prices risen since 2012?

This was the bottom of the market for the Sacramento region. Here’s the summary from his post:

If your timing was great, your median home purchased in 2012 for $199,000 has increased $311,000 to $510,000 today!

The Best Part Of My Job As An Appraiser

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I enjoy many aspects of my career as a residential real estate appraiser. I’m self employed so I have no one to blame but myself; I set my own hours; I get to see a lot of places in the region; I spend much of my time trying to find meaning in data then communicating my findings; I even get to use a laser.

The best part of my job is the great animals I get to meet every day. I grew up with dogs in the house and have always gotten along with them. After college in the first year of our marriage, a friend offered us a kitten, Damien, who enriched our lives for 21 years. Thanks Dave.

Being able to read animals and owners is a key skill. I have yet to be bit after entering more than 5,000 homes over the past 18+ years which shows I’ve been successful.

(So that means I’ll get bit on my next inspection, I know how it works)

Anyway, here are pictures of some of the animals I’ve met over the past year.