Is Sacramento’s Hot Housing Market Finally Hitting a Price Plateau?

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Highlights from this article:

  • The real estate market in Sacramento, California appears to be cooling in 2019.
  • Home-price appreciation in the area has slowed to a more sustainable pace.
  • One forecast suggested that prices could level off, as we move into 2020.
  • But it’s still mostly a seller’s market, due to very low inventory levels.

Home Price Growth Slowing in the Sacramento Area

Earlier this year, the Sacramento real estate market was predicted to be one of the strongest performers of 2019 — at least in terms of home price growth. But much has changed since then.

Today, as we approach the end of summer, house values in the Sacramento area are rising more slowly than they did during 2017 and 2018. And one team of researchers recently predicted that home prices in and around the city would essentially plateau over the next year or so.

We’ll get to that forecast in a moment. But first, let’s back up a bit.

Over the past few years, the Sacramento housing market has gotten a boost from an “exodus” of people leaving the Bay Area. As we reported back in April, Sacramento and Seattle were the top two destinations for home buyers fleeing the more expensive San Francisco Bay Area.

That trend has increased demand for housing within the Sacramento real estate market, putting upward pressure on prices. As a result, the median home value in California’s capital city rose significantly from 2013 to 2018. But that growth now appears to be slowing.

A Modest Forecast for the Year Ahead?

In September, the housing research team at Zillow wrote:

“Sacramento home values have gone up 2.6% over the past year and Zillow predicts they will rise 0.1% within the next year.”

As of September 2019, the median home price for the area was around $326,000. In September of 2013, the median was closer to $200,000. So it has risen by more than $100,000 in only six years.

This rapid rise in home values has created affordability issues for many would-be buyers in the Sacramento area. And that is one reason why annual price growth has slowed. House values are starting to bump into an invisible “ceiling” of affordability.

The chart below shows Zillow’s proprietary “Home Value Index” for Sacramento, California, going back nine years or so.

Sacramento home price chart
Chart: Home value index for Sacramento, CA. Source: Zillow.com.

A couple of things will jump out at you. First, you can see where prices dropped a bit in the wake of the last recession. You can also see how they turned north again in 2012, and accelerated even more during 2013. That upward trend would last for several more years and continues to this day.

The company’s forecast is shown in the green shaded area. As you can see, they expect home prices in the Sacramento housing market to slow considerably over the next year or so.

But a ‘Crash’ Is Unlikely

Based on the emails we receive, it seems that a lot of home buyers today are worried about a real estate market crash. These concerns often stem from the economic uncertainty surrounding Trump’s trade war with China, among other factors.

While home prices are in fact slowing down in many U.S. cities, a full-blown housing crash seems highly unlikely at this point. This is true for the Sacramento real estate market as well.

In Sacramento, there is currently a major imbalance between supply and demand. There are plenty of buyers in the housing market seeking a property to purchase, but not enough homes to go around.

Population growth has boosted demand for housing in this part of California. We talked about the large number of people relocating from the Bay Area to the state capital. This and other factors have led to steady population growth. According to the U.S. Census Bureau, the population of Sacramento County, California rose by nearly 9% from 2010 to 2018.

This influx of residents comes at a time when housing market stock is seriously depleted. According to recent data from the national real estate brokerage Redfin, Sacramento had about a 1.5-month supply of homes for sale in July 2019 (note the all-important decimal there). That was well below the national average for the same period, and also well below what’s considered to be a “balanced” real estate market.

It is these two factors — population growth and limited supply — that will likely shield the Sacramento housing market from a severe price crash in the months and years ahead.

Still a Seller’s Market, for Now

Is Sacramento more of a buyer’s or seller’s market in 2019? And what will it be like in 2020? These are common questions among home buyers in the area, and with good reason. Such conditions can affect a buyer’s ability to (A) find a suitable property and (B) negotiate the price.

As of late summer 2019, Sacramento is more of a seller’s market. This is due to the lopsided supply-and-demand situation in the area, among other factors. Limited inventory combined with strong demand from buyers tend to give sellers more negotiating leverage.

Given these conditions, it’s no surprise to see homes selling quickly in the Sacramento area. As of August 2019, this housing market had a “median days on market” of around 14 days. (This metric gives us some insight into how quickly houses are selling within a particular area.)

During that same time period, the nation as a whole had a median DOM of around 38 days. So, by this measurement, Sacramento is still a very active real estate market. Competition among buyers remains high, as we approach fall 2019.

Recap: Sacramento Housing Market Trends

  • Home prices across the Sacramento metro area continue to rise. But they appear to be slowing down.
  • One forecast predicted that the median home value for the area would remain mostly flat over the next 12 months.
  • But a real estate supply-and-demand imbalance remains, and that is putting upward pressure on prices.
  • Sacramento still has a net inflow of new residents, which increases demand for housing on both the purchase and rental side.
  • This real estate market still favors sellers over buyers, mainly due to tight inventory conditions.

Disclaimer: This article contains forecasts issued by third parties not associated with the Home Buying Institute. Such predictions are the equivalent of an educated guess and should be treated as such.