Sacramento real estate scene changing fast, going into 2013

Sacramento neighborhood
Sacramento neighborhood. Photo by Greg Balzer.

Something is happening in the Sacramento real estate market, and it affects home buyers and homeowners alike.

Asking prices have skyrocketed over the last year or so. At the same time, the number of homes for sale has plummeted.

There is little doubt 2013 will be an interesting year for this housing market. It could also be a tough time for first-time buyers who may have to compete with all-cash investors.

Here are the latest numbers coming out of the Sacramento housing market:

Real Estate Data Shows Rapidly Changing Market publishes a monthly housing summary with market data for 146 of the largest metro areas in the country. Areas of measurement include median list price, total number of listings, and median age of inventory. The Sacramento housing market has changed dramatically in all of these areas. Consider the following.

  • Sacramento had the biggest gain in its median list price, out of 146 metro-sized cities. The median asking price rose by 31% from October 2011 to October 2012. When measured at the monthly level (September – October of this year), no other city came close to Sacramento’s 14% jump.
  • Sacramento had the third largest reduction in for-sale inventory, out of 146 cities. The number of homes for sale in and around the city dropped by 57% during the 12-month period mentioned above. Much of this reduction has occurred in the lower price range, where first-time home buyers typically make their purchases. Related story
  • Sacramento is also the third ‘fastest’ real estate market in the country, when compared to the 146-city control group. The city’s median age of inventory in October was only 32 days, down 57% from a year earlier. This gives us some indication as to how quickly homes are selling in the area, compared to other cities.

Investors have had a lot to do with the second and third items on this list. Inventory has fallen considerably in this real estate market, largely the result of investor activity. These are cash buyers who either ‘fix and flip’ properties for a profit, or rent them out as income properties. These market-savvy buyers sensed the recovery months ago, so they’ve been snatching up properties before prices rise to the point of reducing their profits.

Demand is growing among ‘regular’ home buyers as well, but at a slower pace. Sacramento’s unemployment rate is still well above the national average. So the pool of qualified buyers is much smaller than it was during the housing boom.

Sacramento Sales Prices Up, Year Over Year

Given the changes mentioned above, it should come as no surprise that sales prices are also rising. According to DataQuick, the median sales price for existing homes in Sacramento rose by 14.6% over the last year or so. In October 2011, the median price was $157,000. It rose to $180,000 in October 2012. Condo prices jumped 32% during the same 12-month period.

Existing home sales rose by 11.6% over the last year. New home sales rose by a whopping 56% during the same period, further evidence of a revitalized construction industry.

Zillow’s proprietary Home Value Index for Sacramento shows a 6.9% rise in prices over the last year.

First-Time Buyers Feeling the Squeeze

Sacramento is a tough market for first-time home buyers with little in the way of capital. USA Today recently told the story of Lauren Vance, a 26-year-old police officer in the area, who had more than a dozen homes slip through her fingers. It’s tough for these buyers to compete with investors who are typically more flexible and better financed (most investors pay cash for homes).

While this may be discouraging for first-time buyers, it will also be short-lived. Investment activity is strongest when a real estate market hits bottom and starts to rise. Sacramento’s housing market bottomed out months ago. Prices have risen considerably since then. The herd of investors should thin out as prices continue to rise, further reducing their profit potential. In the meantime, first-time buyers will have to be patient but aggressive.