Sacramento Area Real Estate News, Market Trends, and Living in Sacto

Sacramento factors into the history of California going back to the Gold Rush days.  Its history is long and storied and often ignored by our SoCal neighbors, but the Pandemic created another opportunity for the Sacramento Valley to flourish even more.  Housing prices in the Sacramento Valley have long been affordable and with its proximity to the San Francisco Bay Area and Silicon Valley, the growth of tech workers migrating has only increased with an opportunity for them to work remotely permanently. The cost of living and affordable housing draw people in but the people and lifestyle encourage people to feel they belong.  There's a friendliness here that's pervasive.  Open spaces, views of the coastal mountains and the Sierra Nevadas beckon a day tripper.  Miles of bike and walking trails, parks, shopping, restaurants and history at the confluence of our two major rivers - the American River and the Sacramento River meet in Old Town Sacramento.  This is also the Capital of California with a beautiful State Capital building.  The business community has grown to include tech companies and being that Sacramento is part of the California food ecosystem that feeds the world, the restaurant scene has promoted that fresh Farm to Fork connection.

Real Estate here in the Sacramento Region has many flavors.  There's trendy mid-town, East Sacramento old money with stately homes and broad streets with leafy canopies, Carmichael which nests in the curve of the American River along the bike trails, the suburban communities that border Folsom Lake:  Roseville, Rocklin, Folsom, and El Dorado Hills.  The foothills with towns like Loomis, Auburn, Grass Valley, and Cameron Park that tend toward a bit more land and take you further onto the shoulders of the Sierra Nevadas.

April 29, 2021

The Big Picture at 30k feet and a Day on the Ground

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The Big Picture at 30k feet and a Day on the Ground

It looks so peaceful way up high.  Only the BIG themes grab your attention because you aren't seeing it from the sidewalk.

I'm asked multiple times a day why there's such a shortage of inventory and in a nutshell, we've never recovered a healthy inventory since the last downturn.  Construction never came back to produce the number of homes needed to house both homeowners and renters.  Exacerbating all this is the Pandemic, but I think it's interesting to look at some of the big economic themes with the micro effects that even surprise me at times.

With a lack of inventory, the price increases with increased demand.  It should be noted that strong price appreciation we're seeing and feeling is worldwide.  China's prices are up 19%.  Canada's are up 17%.  Europe's are up 6-9%.  The US prices are up 9.2% while US inventory levels dropped 24% below 2019 levels as homeowners delayed selling.  

The High Up
  1. There's a sizable number of homes in forbearance (2.5M).  So it seems logical to draw a conclusion that those homes are going to create a glut of inventory and flood the market so that prices drop, BUT consider that if every one of those homes hit the market, there would be just four months of inventory which is pretty close to a balanced market. 
  2. Today's construction is not meeting the current demand.
  3. Multiple Offers and Over Asking Prices are still with us.

The Low Down
  1. The reality is that almost every one of the homes in forbearance has gained equity since the start of the pandemic and therefore, they won't have to short sell but rather the owners will have a choice to sell for a profit or begin repayment.  Another KEY to the difference between the last meltdown and now is lending practices were slipshod and now they actually pre-approve on more than a pulse and in fact, there's a lot more rigor around qualifying anyone these days.
  2. Construction costs have increased substantially.  1000 Board Units (a unit of measure for lumber pricing) sold for $278 pre-COVID and $1,300 yesterday.
  3. For each multiple offer, there's a buyer.  The really interesting thing is who these buyers are.  I've seen an enormous increase in the number of first time home buyers.  Why?
Interest rates.  Anyone with an interest rate lower than 3.5% will be sitting in a great position in another 5 years not to mention today.  First time homebuyers get this and want in.  Why should they pay someone else's mortgage when they can pay their own and build equity faster because 97% of their payment is principal?  There's a great opportunity to pay off PMI (private mortgage insurance) and have a monthly housing payment that's not just affordable but their very own.  In fact, because interest rates will rise in the future, many people are trying to buy that forever home and lock in an interest rate that won't last forever.  The rates will inevitably increase as inflation increases and when the Fed stops buying mortgage backed securities.

On the Ground

I have a listing that went on the market last week and it's an auction property with a starting price that's very low:  the crowds to see the house represented mostly first time home buyers.  The open house started like any pre-covid one as I put signs out and drove up to the house.  As I was grabbing my things out of my car, the first 3 cars pulled up and then another just as I was walking in. Because of COVID policies, I was only able to allow one group in at a time and so the people pooled out on the lawn and spilled onto the sidewalk  As a person stepped inside, they signed in with covid compliance forms and learned about the features of the home.  All the while, the crowd outside grew.  These buyers were hungry for the opportunity to own.  Some had agents, some had only a Zillow app and admitted that they knew next to nothing about buying, but all were excited to participate in the hunt for a home to call their own.  A large majority of these buyers had budgets in the $300k's and the inventory to support that is slim and dwindling quickly.

Another house I got on the market last week had 20 offers. We countered the two top offers and we went with the highest net to the seller, but within an hour of the buyers accepting the offer, they sent a cancellation of contract.  Buyer remorse or did they find another house they liked better?  The second buyer was ecstatic to be the accepted offer as he had lost out on so many prior to that one.  His agent said, "Jane, you made my day!"  I love that feeling.  When my buyers and sellers win, we all win.  The road to get from the sidewalk to the door isn't always easy.  It's rare in this market where a buyer is going to score a home on their first try so success feels like a grand accomplishment.

There's a massive shortage of inventory.  Would YOU consider selling?  As a seller, you benefit from superlative price points and buyers benefit by buying into the market with a very low interest rate.  Let the good times roll!  Just remember, that it's one act in a larger play.  The sidewalks get rolled up when the music fades and the interest rates go up.  

Call me.  Let's talk about the possibilities.

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For all you investors out there, there's another problematic area and that is the laws governing tenant rights during the Pandemic which has had the effect of hurting some smaller investors.  Here's a timely blog post by a great local law firm dealing with real estate - I've met two great attorneys there:  Keith Dunnagan and Matthew Kirkpatrick.  They are a great resource for all things related to real estate law.  This blog is about the practice of Cash for Keys.  Click the photo to go the BPE Website blogpost.

Have a great weekend!






 
 
 
 
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Posted in Market Updates
July 31, 2017

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