Category Archives: Woodland

Yolo County Market Trends for April 2024

My goal is to regularly produce local real estate market trend analysis on a monthly basis, focused on my primary markets of Yolo County and Northern Solano County. I’ll have Solano County analysis next week. I’ll also mix in relevant news and articles of interest.

New California Realtor Forms

The California Association of Realtors (CAR) is revising most of their forms for compliance to the recent settlement regarding buyer broker compensation. These changes are scheduled to be released the week of June 25th.

Because we are required to analyze purchase agreements by USPAP, you should take a look at the upcoming changes. It’s probably good practice going forward to request a copy of the Buyer Representation and Broker Compensation Agreement and Cooperating Broker Compensation Agreement until local markets adjust to the settlement. The forms are being finalized but should be essentially the same.

CAR June 2024 Forms Release Quick Summary

On the good news front, the Fair Appraisal Act Addendum, the form released in 2022 to address bias claims, is being retired with the language moved into a paragraph on another form. I appreciate that CAR is de-emphasizing this language unfavorable to appraisers.

Yolo County Market Trends

The never-ending story of residential is interest rates. Last year at this time I frequently heard predictions of mortgage rates near 5%, like here:

The Mortgage Bankers Association predicts rates will fall to 5.5 percent by the end of 2023 as the economy weakens. The group revised its forecast upward a bit — it previously expected rates to fall to 5.3 percent.

Here’s the reality:

Not quite 5%?

Freddie Mac’s Len Kiefer publishes a chart, below, showing the impact of rising interest rates on affordability.

The vertical scale shows loan amount while the horizontal scale shows interest rates. The blue lines show the payment for a given loan amount and interest rate combination. In 2021, the average loan amount of approximately $400,000 meant a monthly payment of about $1,900 per month. The 2024 average loan amount, approximately $475,000, requires a monthly payment of about $3,100, a 63% increase. Yikes!

We’re still in high interest rate environment with significantly reduced purchasing power from two years ago, reducing demand. At the same time, because so many homeowners locked in rates at 3% or lower, supply continues to sit below pre-pandemic levels.

Yolo County Data

Below is a breakdown of sales in 2024 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. All data from Metrolist MLS.

Yolo County 2024 Sales by Community

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

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

Yolo County Monthly Mean Sale Prices since 2016. I see the pandemic in the data, do you?

Let’s see how the market has reacted since the rise in interest rates in early 2022.

Mean Sale Price for all homes sold in Yolo County since 1/1/22

Prices peaked in early 2022 and declined the rest of the year as the market digested the massive change in affordability. Prices recovered somewhat in early 2023 and have tended towards stability since. However, prices are slightly down on a year-over-year basis, discussed below.

Inventory fell to historically low levels during the pandemic and rose in reaction to the interest rate increase in early 2022 but still sit well below pre-pandemic levels at present.

Inventory remains below pre-pandemic levels

Monthly mean days on market are slightly elevated from pre-pandemic numbers and need to be watched.

Monthly mean days on market are slightly above pre-pandemic numbers

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. A ratio is greater than 100% shows prices getting bid up while under 100% shows sellers forced to discount.

List Price/Sale Price Ratio for Yolo County sales, another measure of market strength

On average, buyers are paying more than the initial list price in Yolo County at present, a sign of market strength.

Yolo County Monthly sales volume is down

Sales volume continues to be suppressed below pre-pandemic levels.

Yolo County Summary

April 2024April 2023Change
Active Listings (May)19914240%
Inventory1.7 Months1.5 Months13%
Sales1099712%
Mean Sale Price$696,669$728,080-4%
Mean PSF$366.79$388.41-5.5%
Sale Price/List Price Ratio100.27%100.54%-0.2%
Mean Days on Market28 Days34 Days-18%
Mean Number of Offers2.12.8-25%

For Yolo County, listings are up, inventory is up slightly, sales volume is up, and prices are down slightly year-over-year. Market heat is down with decreasing sale price/list price ratio and fewer offers on average, but marketing time has decreased. Overall, the Yolo County residential market is softening.

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.

Declining sales is the clear trend for Davis
Sales volume trending down in Woodland

Number of offers on average for Davis and Woodland are trending up and are above pre-pandemic numbers.

More competition for listings in Davis
Competition for listings is rising in Woodland too

Davis and Woodland Summary

DavisWoodland
Active Listings as of May 93027
Sales Last Month1845
Inventory1.7 Months0.6 Months
Mean Sale Price April 2024$1,124,972$608,554
12 Month Change
Mean Sale Price
Mean PSF

13%
5%

12%
7%
Sale Price/List Price Ratio104.39%99.25%
Mean Days on Market April 20241827

The summary table above captures a point in time. Below are scatter graphs of all homes sold in Davis and Woodland since 1/1/23.

Davis prices evolve around UC Davis. Note the seasonal hump and decline following the university schedule

Davis is showing the typical seasonality we’ve seen prior to the pandemic, tracking the university schedule. Prices in 2024 are slightly ahead of 2023 prices.

Not captured above in the summary is that Woodland prices have been essentially stable in 2024

In contrast, Woodland shows no seasonality with prices increasing into late 2023 but relatively stable since. Notice how the summary table above misses the switch to stability in Woodland.

West Sacramento

Sales volume is down in West Sacramento as shown below.

West Sacramento declining sales volume

Offers received per sale in West Sacramento are below the pandemic era but above 2018 and 2019.

West Sacramento number of offers remains above pre-pandemic levels

West Sacramento Summary

Active Listings as of May 933
Sales Last Month29
Inventory1.1 Months
Mean Sale Price April 2024$628,097
12 Month Change
Mean Sale Price
Mean PSF
1%
-5%
Sale Price/List Price Ratio98.39%
Mean Days on Market April 202419

West Sacramento trends are mixed, showing increases on a sale price basis and declines for most of 2023 with an uptick in early 2024 on a price per square foot basis-see the two graphs below.

West Sacramento Sales on a price per square foot basis. Note the decline through most of 2023
Sale price trendline for West Sacramento sales since 1/1/23. Prices have mostly increased during this time frame

Why do we see declining prices in one graph and rising prices in the other?

This third graph will explain.

Home size over time for West Sacramento sales since 1/1/23

The graph above shows the reported living space for every home sold in West Sacramento since 1/1/23. The red trendline shows that the average size of homes sold increased 1 sf every three days, or about 150 sf from the start of the period to now. This change in home size is known as a composition effect, which I wrote about here.

The move towards larger homes pushes up the sale price trendline and pushes down the price per square foot trendline. For 2023, prices were stable to decreasing in West Sacramento but appear to be stable to increasing at present.

Summary

The overriding story for housing in Yolo County at present is the continued elevated interest rates and resulting lack of affordability. Supply continues to be restrained while demand is reduced by the reduction in affordability. Sales volume and inventory are both below normal pre-pandemic levels.

Countywide, prices have declined slightly on a year-over-year basis with other indicators of a softening market. Davis has rediscovered seasonality while Woodland prices are up year-over-year but have been relatively stable in 2024. West Sacramento indicators are mixed but prices have ticked up in early 2024.

I hope you find this useful. I’ll cover Northern Solano County next time.

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.

Thanks to Len Kiefer for this graph

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:

Thanks again to Len Kiefer

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:

Thanks again Len

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.

2023 Yolo County Sales by Community

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.

Yolo County Sales

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:

Multiple offers imply a seller’s market

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.

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

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.

Davis 12 Month Change in Sales Volume

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 year-over-year change in monthly sales volume distorted by the pandemic

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

as of February 16, 2022

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.

Another sign of lack of inventory

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

Another heat check

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.

Northern Yolo County Small Acreage Residential

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:

Sale scatter graph since 1/1/10

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

image copywrite Pixabay, free to use

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:

Thanks Len.

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

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

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

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!

Davis, Woodland, and Winters Market Update September 2020

Six months after the Covid-19 stay-at-home order hit Yolo County, what’s happened to residential real estate in local markets?

Sales activity in Davis was low at the start of 2020 before the pandemic hit and continued into the spring with a massive drop in May. As shown below, Davis is way behind in sales compared to last year but we may make up ground in the fall.

2020 vs. 2019 single family residential sales in Davis per Metrolist
12 Month change in Davis single family residential sales per Metrolist

In contrast, Woodland started 2020 with strong year-over-year sales activity, putting on the brakes in April and May. Some of the missing activity shifted into the summer but Woodland is still behind last year’s numbers.

Woodland closed sales 2020 vs. 2019 per Metrolist
12 Month change in Woodland single family residential sales per Metrolist

While demand (sales) fell over the past six months, supply fell even further in both Davis and Woodland. We have seen an increase this summer in homes listed in Davis, hopefully a sign of the traditional summer market spilling into the fall.

Davis single family residential new listings per Metrolist.

Woodland saw a sharp drop in new listings in April and May and is continuing to track lower.

Woodland new single family residential listings per Metrolist

Net effect on both Davis and Woodland is a supply imbalance leading to rising prices. Davis is showing year-over-year increases in five of the past six months.

Prices have increased on a year-over-year basis in five of the past six months in Davis per Metrolist

Woodland prices are rising too as shown on the scatter graph of all sales below.

The Woodland SFR market has increased over the past 12 months per Metrolist

Below is a quick summary of both markets:

The standout statistic above is the incredibly low inventory in Woodland.

Winters is a much smaller market than Davis or Woodland. As the graph below shows, sales are increasing at present. Also note the lack of sales in April and May in Winters, similar to other Yolo County markets.

Prices have increased in Winters over the past 12 months too

Takeaways for Davis and Woodland

  • Sales volume is down
  • Inventory has declined more leading to a supply imbalance
  • Prices are increasing

Pay Attention To

  • Interest rates. The historically low rates are jet fuel for the residential market. When rates go up, pay attention
  • The local economy. We’re still in a recession with massive job losses and a large percentage of mortgage forbearances. So far, impacts to local housing have been minimal but that may change in a hurry

Are you seeing the same things in your markets?

Early Pandemic Effects on Davis and Woodland, California Residential Real Estate

Monthly year-over-year change in homes sold, mean sale price, and mean psf for homes sold in Davis, CA

As I type this, the 100,000th person in the US has died from the novel coronavirus 2019. The country has shut down to bend the curve. Shelter in place started in Yolo County on March 19, forcing most people to stay home. Unemployment exploded nationwide, going from 3% to nearly 20% in a month while mortgage forbearance levels jumped to 2008 levels. How has the economic crash affected residential real estate in Davis and Woodland?

Shelter in place stopped in-person interior inspections for buyers and real estate agents while the stock market crash and jump in unemployment shook consumer confidence. However, interest rates dropped into the low 3s, increasing affordability.

Davis monthly sales 2019 to 2020

The graph above shows all single family residences sold in Davis by month for 2019 and 2020. Year-over-year change in January, February, and March was somewhat negative, indicative of a slowing market. April 2020 was lower still and probably represents sales that went into contract before or at the beginning of the shut down. May sales are probably the first period to reflect the post-shut down period. I was so surprised at how few sales in May to date that I ran the search multiple times to make sure I wasn’t making a mistake….

The Davis residential market ground to a halt. Current listing volume is still low but homes in contract is starting to recover (35 in contract in May 2020 to date compared to 41 in 2019). Prices have held up surprisingly well on a year-over-year, price per square foot basis as shown below.

Davis prices have held up surprisingly well

After a period of decline in the fall, prices shifted to stable to slightly increasing. Early days and less reliable than typical because of the sales volume decline.

Woodland, in contrast, was poised for a strong 2020 before the pandemic. Sales volume was up 38% in January and 25% in February from 2019. March sales this year slowed to the 2019 rate and declined steeply in April and May to date.

Woodland sales stated 2020 strong but declined as the pandemic hit

Sales volume declined sooner in Woodland but not as steeply as Davis. Once again, prices in Woodland have been relatively stable overall. Homes currently in contract are low and point to continued sales volume decline in at least the short run.

Woodland prices have been relatively stable in 2020

We’ve seen a significant slowdown in activity that has yet to affect prices significantly. Inventory is slightly higher but not yet affecting prices. Historically low interest rates have certainly helped prop up the market. Buyers and agents have adjusted their protocols to stay healthy while shopping for homes.

I’m concerned at the trickle of sales in Davis. Davis is a really hard place to value properties because of differences in location and the high degree of seasonality from the university. Reduce sales volume significantly and sales comparison is going to be difficult. Here’s hoping my Davis Realtor friends have a busy quarter…..

What’s A Comp And Why Should You Care?

Sample Comparable Search in Woodland, CA

Two recent posts from my friend Jamie Owen at the Cleveland Appraisal Blog plus a planned realtor office visit inspired me to write this. Jamie did a great job blowing up the myth that comparable sales need to be within one mile of the subject in this post. He also tackled geographical competency, or the need to have boots on the ground knowledge about a market in order to credibly value properties in a second post.

Both posts touch on the subject of what is a comparable sale and why should anyone in real estate, or even the general public, care? The quick answer is that “comps” are the basis for how we, both those in the real estate industry and the man on the street, value residential real estate.

Per the Dictionary of Real Estate Appraisal, 3rd Edition, comparables are:

…similar property sales, rentals, or operating expenses used for comparison in the valuation process; also called comps.

Comps are used in the Sales Comparison Approach to Value, especially in residential real estate appraisal. All of us, appraisers, real estate agents, and folks considering buying a home, use the theory of substitution to determine the value of a home. What would the typical buyer shopping in that neighborhood buy instead of the subject?

A comparable sale is a sale of a home that the typical buyer of the subject would buy instead of the subject.

Subconsciously, everyone who owns a home compares it to homes in their neighborhood. We learn about a recent sale on our block and place a price on ours based on whether we think it’s better than ours, relatively similar, or inferior.  The formal version of this is the sales comparison approach used by appraisers.

We appraisers find the most similar sales, adjust the comparables for differences from the subject, leaving each adjusted comparable sale an indicator of value for the subject. The vast majority of single family residential appraisals in the US rely upon this methodology.

In the context of the sales comparison approach to value, the key is to identify the comps for the subject.

The easiest way to get the value of a single family residence wrong is to get the comps wrong!

As my mentor George Dell says, “What does similar mean?
(Now go subscribe to his blog. He’s really smart. Then take his classes)

Residential real estate, such as a house, a condominium, a home on a small acre lot outside of town, etc., have characteristics (“dimensions”) that serve as descriptions of a specific sale for a specific property. The more similarities between a sale and the subject under consideration, the better a comp. We can go into a deep dive, like George does in his classes; instead, I want to talk about what I do specifically for simple single family residential work in conforming neighborhoods.

Some examples of dimensions and characteristics important to valuing homes include transaction terms (financing, credits, etc.), motivations, location, views, quality, design, condition/age, floor area, and amenities.

Some dimensions/characteristics are more important than others and can vary dramatically in importance depending upon the location. For example, pools are valuable in the Sacramento region but have less value in the Pacific Northwest where the weather is cooler. Basements are common in the Midwest and East Coast but not so here. In the Whisper Creek Subdivision in Arbuckle, CA, a tract of large homes on half acre lots, RV parking is a significant factor unlike other nearby markets. This is why the geographical competency that Jamie discusses is so important. Appraisers with geographical competency understand what characteristics define a true comparable and get the subject’s value right.

Time usually matters except when it doesn’t. If a market is rapidly changing, using the most recent sales can reduce the impact of market change. When a market is relatively stable, time is less important and so using older comparables is reasonable. I downplay time frequently because time is usually the easiest and most reliable adjustment to make.

For a typical tract home in my area, the most important factors are motivations for the purchase or sale, time, location/proximity, and size/floor area. I start with a map search using my neighborhood boundaries and go back 12 months prior to the date of value for closed sales. I exclude from consideration REO sales, short sales, and other transactions where motivations likely had an impact on sale price.

I search for homes a little smaller than the subject because most buyers can make do with a slightly smaller home. Because the typical buyer can accept a larger home than the subject, I set the upper boundary on my floor area range wider than the lower bound. For example, if the subject has 2300 sf of living space, I will search for comparables with 2000 sf to 2800 sf of living space (300 sf smaller to 500 sf larger).

After I set my criteria in the MLS search, I run the search and review the results.

Metrolist Search Results
Search Results

I mentally draw a box around the subject’s important characteristics so I can place it in the competitive market. This is known as bracketing. Reasonably, would the typical buyer consider the sales found suitable substitutes for the subject? Are the sales similar in quality and design? Are there differences in lot size or age? Do I have larger and smaller homes? Do I have homes in similar condition, or inferior and superior? I try to account for every significant characteristic of the subject so I can show, by comparison, the value of the subject by using these comparables.

If I’m comfortable with the sales found, I can start my adjustments analysis. If not, I revise my search criteria and run the search again until I am happy that the sales found reasonably describe the subject.

Once I have my initial candidate comparable sales identified, I dig in and look for most representative comparables of the subject and decide on which sales to research further (view the exterior, contact agents involved in the transaction, etc.). I review outliers, sales outside the normal range, and try to determine why the sales deviate from the norm. I either adjust for the issue or remove the outlier from consideration. The remaining comps, after adjustment, are my indicators of value for the subject.

Comps are usually easy to find in conforming neighborhoods as long as the subject is similar to the rest of the neighborhood. When the subject is unusual, or when there are few sales available and they are all different (“non-conforming”), comparable selection is difficult. The appraisal becomes complex and beyond the scope of this article. I do have tips in my article about appraising complex residential properties.

How do you search for comparables? What are some tips for a real estate agent or new appraiser you can share?

The Role of the Appraisal in Residential Real Estate Lending

 

I had the opportunity to write an article for my local paper, the Woodland Daily Democrat. Here’s what I came up with:

The Role of the Appraisal in Residential Real Estate Lending

Most of the time when you buy a house or refinance your existing residential loan, the lender will require an appraisal of your house. What is an appraisal? An appraisal is an independent opinion of value about real estate. In this context, the appraisal is a report that describes the subject, the subject’s neighborhood, includes at least one of the three approaches to value used by us appraisers, and includes the market value of the subject home on a given date. The client for an appraisal, even if the borrower pays for the appraisal, is the lender. I write my residential appraisals for lenders, not buyers or borrowers.

Residential real estate lending appraisals use a standard definition of market value from FNMA (https://www.fanniemae.com/content/guide/selling/b4/1.1/01.html for reference).

Key points from the FNMA market value definition:

  • “Most probable price”-My values are not the highest value possible, not the contract price, not the amount you need to complete your refinance. It’s the value supported by evidence in the subject’s competitive market.
  • “Buyer and seller are typically motivated”-Market value assumes no unusual motivations like short sale, foreclosure sale, sale to a relative, etc.

When deciding whether to loan hundreds of thousands of dollars to someone, the lender will evaluate the borrower’s credit history, income, and expenses. My appraisal will be included as part of the lender’s risk assessment. If the lender were to take back the subject home today, how much would the subject be worth? Is the subject worth more than the loan? Are there any issues that would make it difficult to resell? Are there any obvious repairs that might reduce the value of the subject long term? Are there any obvious safety issues that might open the lender up to liability? My appraisal helps the lender with these questions.

Us appraisers serve as a check for over-exuberance in the residential real estate market. The real estate agents and loan officer get commissions only if the loan closes. The lender makes money only if it makes a loan. The seller gets paid only if the home sells. The buyer gets a house only if the loan closes. Since I get paid whether the loan funds or not, the underwriter and I are the only truly independent parties in the typical residential transaction. The lender relies on me to report any issues with the home and to honestly arrive at my opinion of value. If my appraised value is above the amount needed for the loan amount, and there are no other issues, the lender can move forward with the loan with confidence. In those cases where my opinion of market value is lower than needed to fund the loan, my report warns the lender that the loan may be risky.

The independence of the residential real estate appraiser is vital with the housing market crash of the 2000s fresh in mind. We don’t want to go through that again.

Anything to add? What did I miss?

(I’ll add a link to the article once it’s published)