Forecast: Sacramento Could Be California’s Hottest Housing Market in 2021

Key highlights from this report:

  • Sacramento’s housing forecast is stronger than many metro areas.
  • Tight supply and strong demand are boosting home prices in the area.
  • A lot of Bay Area residents are now eyeing markets like Sacramento and Fresno.
  • Home buyers in the state capital should be prepared for stiff competition.
Tower Bridge Sacramento
Tower Bridge in Sacramento, California. Public domain photo.

It’s strange to talk about “hot” housing markets at a time when there’s still a global pandemic taking place. But that’s essentially what is happening in Sacramento, California, as of summer 2020. This metro area keeps popping up on our radar, mainly because of the growing demand for homes.

Our forecast and outlook for Sacramento’s real estate market suggests that it could be one of the hottest markets in California in 2021. It might even be one of the hottest in the whole country.

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Sacramento Housing Market Outlook Into 2021

Sacramento is unique among California’s major real estate markets. It’s more affordable than most, particularly when compared to the expensive coastal markets like San Francisco and San Diego.

It’s also experiencing a significant supply-and-demand imbalance that’s putting tremendous upward pressure on home prices, at a time when many other markets are cooling.

According to the latest data published by Zillow, Sacramento’s median home value rose by around 8% the past year or so. That’s double the national average for that same timeframe. Looking forward, Zillow’s home-price forecast for the Sacramento real estate market predicts that prices will essentially flatline over the next year.

As of August 1, their website stated: “Sacramento home values have gone up 7.9% over the past year and Zillow predicts they will fall -0.0% within the next year.”

We consider this to be more of a data-based forecast than an actual in-depth analysis. When you drill down and look at current supply and demand conditions within the Sacramento housing market, you could argue that home prices in the area will likely continue rising over the coming months.

It helps that mortgage rates in the state have recently fallen to record lows. That trend has boosted home-buying demand in California and across the nation, in recent weeks.

A Shortage of Properties in the Area

Let’s start on the supply side of the equation.

Like many of California’s major cities, the housing market in Sacramento is currently experiencing a supply shortage. In other words, there aren’t enough homes listed for sale to meet the demand from buyers. But in Sacramento, that shortage is more severe than in many other major cities.

According to data published recently by the national real estate brokerage Redfin, the Sacramento metro area had about a one-month supply of homes for sale as of June 2020. That was significantly lower than the national average that same timeframe, and a lot lower than what is considered to be a balanced real estate market.

This is one of the reasons why our forecast for the Sacramento real estate suggests that home values could continue rising, despite the pandemic. It is a tight market with limited inventory, and that kind of thing typically puts upward pressure on home prices. But there’s more to this story, as we’ll discuss in a moment.

Housing economist Jeff Tucker recently commented on this when talking to Capital Public Radio. He said that in California, the Sacramento real estate market is even hotter than the Bay Area. And that’s largely because of the inventory situation mentioned above. He pointed out that housing inventory in the area was down by a “staggering” 30% year-over-year.

“That suggests to me that in the near term Sacramento is going to continue feeling a lot of pressure on the listings that are on the market,” Tucker said.

Above-Average Population Growth

That covers the supply situation. Now let’s shift gears and look at the demand side of the equation.

Sacramento’s population has grown steadily over the past few years. This is partly due to people leaving the more expensive San Francisco Bay Area real estate market in search of more affordable housing.

According to the U.S. Census Bureau, Sacramento’s population grew by around 10% in 2010 to 2019. That was quite a bit higher than the national average during that same nine-year period.

And over the coming months, we could see even more home buyers relocating into this market. The coronavirus (COVID-19) pandemic has a lot to do with that.

Recent real estate reports have shown that an increasing number of buyers are choosing suburban and rural areas over the more crowded — and often more expensive — urban city centers. And while Sacramento certainly has a crowded downtown area, it also has lots of outlying areas with open space, big yards, etc.

This new migration trend seems to apply to younger people in particular, especially those with tech or office jobs that can be performed remotely.

According to George Ratiu, senior economist at Realtor.com: “We were already starting to see a migration away from urban cores for younger buyers in the last two years, and I think the pandemic is pushing that [further].”

The key takeaway here is that there is now more interest in the suburbs surrounding major cities. Many home buyers in the New York City area, for instance, are now eyeing upstate New York and New Jersey. On the West Coast, a lot of buyers from the pricey and crowded San Francisco Bay Area are looking at housing markets like Sacramento, Fresno and Modesto.

And speaking of that migration pattern…

Are Home Buyers Flocking to Sacramento?

A recent report by Redfin found that Sacramento was the number-two metropolitan area in the country for people relocating from other areas. And that’s not just a California study. It looked at user behavior nationwide.

Sacramento was the second most popular choice for home buyers looking at properties in areas outside of where they currently live.

To quote the Redfin news release:

“The most popular places for Redfin.com users to look to move into are typically inland areas with affordable housing … Phoenix, Sacramento, Las Vegas, Austin and Atlanta had the biggest net inflows of Redfin.com users in the second quarter [of 2020].”

The table below shows the metro areas with the highest number of out-of-towners looking to move in. The “origin” columns on the right show where people are moving from. This is based on user behavior data from the Redfin website, during the second quarter of 2020.

Net inflow chart

As you can see, Sacramento was the second-highest metro area for “net inflow” of home buyers from other areas. Many appear to be coming from the San Francisco Bay Area. This trend will continue to fuel demand within the Sacramento housing market, well into 2021.

Disclaimer: This article includes real estate-related predictions and projections for the Sacramento area. Such predictions are the equivalent of an educated guess. They are based on dynamic, ever-changing conditions. The Home Buying Institute makes no claims or assertions about future housing conditions.