Northern California

Sacramento Surging

Dean Wehrli

Dean Wehrli

November 8, 2012

Sacramento’s housing market is surging. I live here and see the evidence everywhere I look. Here are a few statistics that might surprise you:

  • There is virtually no supply. There is only a 1.0 month supply of resale homes on the market. Compare this to the national average of 6.1 months.
 
  • Prices are rising. Three out of every four zip codes with at least five sales in September experienced an increase in price. Our Burns Home Value Index™ (BHVI) calculates that homes in the Greater Sacramento area have appreciated an average of 3.2%.
 
  • More prospective buyers are emerging. New home model home traffic was up 23% in September compared to the same period last year.1
 
  • There are more actual buyers. New home sales in September nearly doubled in comparison to last September despite the number of active projects declining 17%.1 Read that again; it’s an impressive statistic.
 
  • Construction is surging. Single-family permits issued over the prior 12 months have risen 32% from March to September as builders are starting more homes to meet demand.
 
  • Demand is widespread. Almost every community from Yolo to El Dorado Hills, from Elk Grove to South Placer, is selling three to four homes per month-if they have inventory left to sell.
 

We think this is the “walk before the run.” So, what is driving the resurgence? Here are the key factors:

  • Bay Area spillover. Over in the land of the World Series champions, the market has been healthy for a while. We are starting to see buyers pushed out in an ever-widening ring, in search of relative affordability. This includes those who are relocating to Sacramento.
 
  • Improving employment picture. The Sacramento region has added 24K jobs over the last year, including government jobs2 California’s government may be flirting with its own fiscal cliff, but that hasn’t stopped employers from expanding.
 
  • Fantastic affordability. While the locals see the great affordability, Sacramento is an unbelievable value to those buyers relocating from the Bay Area.
 
  • Increased confidence. While a bit amorphous and hard to predict, there is just a sense that buyers have more confidence in their purchases, are more secure in their jobs and income, and feel that the time to buy is now. This becomes a self-fulfilling prophecy as buyers start to drive prices up.
 
  • Investors. The bigger impact from the Bay Area, though, is in the form of investors. Investor buyers shop Sacramento looking for bargains they can rent and hold, or increasingly, fix and flip. Investors, in turn, have helped clear out the underbrush of distressed homes, leaving in their wake extraordinarily low inventory levels.
 
  • Difficulty buying foreclosures and short sales. Finally, low inventory leads to a resale market that has become immensely frustrating to buyers. Buying distressed has become distressing, in other words. “Organic” buyers, those who will actually live in the home they buy, face multiple offers and all-cash investors they can’t compete with. And at one month of supply, there is simply no slack in the market. Buyers often can’t find what they need even if they were not competing with investors and other buyers. Even when a new home community can’t deliver that home for a few months, it is a far more inviting environment.
 

In summary, the economy is slowly healing, affordability is fantastic, supply is low, and new homes have never been a better option. But maybe more than anything else is a sense that buyers are just tired of waiting. With all these factors working in their favor, more and more buyers in Sacramento are getting pushed off the fence and into a new home.

1. North State BIA

2. Bureau of Labor Statistics, average of both surveys

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About The Author

Dean Wehrli
Dean Wehrli
Principal
Dean helps housing sector clients figure out not just what might work and what might not, but why.

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