Sacramento Fastest Growing Rental Market

17 Replies

I'm sure people have come across these articles, just looking for others take on them

Sacramento Rental Market Growth

1) I can't find another site to substantiate this data, I believe the Yardi Matrix is a fairly trustworthy data source though, have others witnessed this first hand as a Sacramento landlord or found other sources to substantiate this?

2) How far do you see our median rent rising before it tops off?

3) Do you see the passage of Senate Bill 1069 having any substantial effects on the market?

@Tim Kunz , As long as there is a limited number of available units in a particular area rents will at least stay steady. However, ultimately, renters will only pay so much in particular areas. I had one client who insisted on setting his rental price at least 20 percent above the comps in a C area simply because he thought he could get it. He had put in new, updated appliances, flooring and some trim moulding. It stayed on market for 20 days before he dropped some in price. 

To your other question, I love the idea of allowing homeowners to build in-law quarters on their parcels. Lack of more affordable housing is what is driving the groups advocating for rent control and mandatory acceptance of Section 8 applicants. Any bill that seeks to provide a solution to ease the housing crunch and deter these groups from getting their way has my vote! 

@Tim Kunz , a couple of these articles are slightly older but might provide some insight with metrics regarding the rental market in Sacramento:

Sac No 2 in rental price increases: http://www.bizjournals.com/sacramento/news/2015/10...

Blackstone continues investing in Sac: http://www.bizjournals.com/sacramento/news/2015/12...

Striking Gold in Sacramento: https://blog.livechalet.com/striking-gold-in-sacra...

I've worked with several clients recently who relocated to the Sacramento area (Placer County specifically) from other areas of California.  When they looked at what they had to pay for rent, it certainly motivated them to be buyers, not renters, and helped them decide on a home more quickly (rather than rent while they are home shopping)!  Great for me as a lender, but makes me wonder if we might be near a tipping point on rents...

Related to SB 1069, I'm seeing a lot of new home builders incorporate in-law units into their plans and according to the salespeople, these are incredibly popular.  I haven't done enough research to know if this legislation is going to force cities like Lincoln, who have discouraged these options, to allow these kinds of additions. @Tim Kunz or @Penny Clark  do you know?   

Originally posted by @Carrianne Mucho :

@Joe Bertolino seems to follow these kinds of stats pretty regularly and might have something to add to this thread...

It is almost hard to say what rents you can command in East Sac,  Land Park and parts of Curtis Park.    There is very little rental inventory and a lot of people with high incomes that want to live there.   I have not seen any rentals sit on the market because of the rent being asked.  

Oak Park is very much block to block but there have been 15-20% rent increases even in the sketchier blocks.  There are still a ton of long time landlords there that have a very low cost basis who have not increased rents in a long time.  

I can say that as an agent in the Sacramento area, I get at least one person from inside my network, or a random person that calls on a listing of mine, asking if I know of a rental available. 

I've consistently heard that there is nothing on the market for rent and if there is it is incredibly expensive. 

We're struggling with how to price rentals in Sacramento. At the prices I'm seeing, the 1% rule doesn't hold for anything on MLS. Purchase prices have gone up dramatically in the last couple years, but it seems rents have lagged, putting a real squeeze on margins. At the same time, nearly every prospective renter talks about how hard it is to find something, which suggests inventory is low and perhaps rents are low. We're filling 2 spots in the next couple months, and I'm considering going higher on the price than I'd originally planned to see if someone bites.

@Carrianne Mucho from what I've read the bill limits the reasons approving jurisdictions can use to deny permits for building "granny flats", and also shortens the time in which the jurisdictions must approve or deny the permit.  So this should have some effect on Lincoln since it applies to all of California, but cities may find other ways to limit them.

This seems like a basic question but where are most of these people who are looking to rent currently living? Are these millennial living with there parents? Multiple families living under one roof?

Things I see affecting the rental market:

Increases in number of renters:

- Housing affordability due to a fed rate hikes subsequently raising mortgage rates

- Millennial's desire to both live in urban areas which are more expensive and the desire to remain mobile

- Baby boomers moving to retirement communities?

- Less desire to own homes amongst millennials. (Several studies showing desire for "experiences" rather than material objects)

Increase in rental prices

- Low availability paired with minimum wage hikes

Decrease in rental numbers and prices:

- Increase in home building

- Legislation such as SB1069 driving prices down by increasing available units

Obviously in terms of the Sacramento market I can only imagine there will be continual spill over from the bay area with the ability to work remotely and affordability for first time home buyers (millennials) still relatively low in the bay area

These are just a few things that come to my mind I would like to know others take on these and other factors.

@Tim Kunz Thanks for the reply.  I guessed as much but lacked confirmation. 

I read in an article this week, I think it was CoreLogic's latest study that although the majority of renters believe it is still a good time to purchase, that percentage is declining; most likely due to affordability.  

On the flip side, I've also come across several studies which show millennials are increasingly open to moving to suburbs as they grow their families and careers.  A couple years ago, there were loads of articles claiming that the American Dream of Homeownership was dead but the latest stats show that the desire is still there while affordability despite low rates is the main deterrent.  What I am seeing is huge student loans, many with reduced payment or deferral agreements that prevent or at least challenge millennials in qualifying.  

I agree, I think we have only seen the beginning of the next wave of migration from the Bay to Sacramento.  

Originally posted by @Carrianne Mucho :

 What I am seeing is huge student loans, many with reduced payment or deferral agreements that prevent or at least challenge millennials in qualifying.  

.  

 Have you ever thought of these crazy $200k humanities degrees from a predatory lending standpoint? 

If you or I lent a 40 year old rocket scientist with a Ph.D a million dollars for a rental property commanding $500/month in rent, and there was no other income, they would call it "predatory lending" at best, and possibly investigate for fraud (for self evident good reasons).

Yet somehow it's OK to lend teenagers $200k for degrees with little to no value? Something here isn't right.

I agree that "technically they are adults, so they should know better," but what about our rocket scientist above? We can't have it both ways.

@Chris Mason Have I ever?  Don't get me started!  It bothers me that our whole society was basically told that degrees are a necessity yet many with degrees are still having difficulty finding jobs in their chosen field.  The costs of education are grossly inflated (I'm not talking about teachers here, I'm talking about waste).  And if students were taught basic finance in high school, they could do the math to see it doesn't add up to take out $300K in student loans to get a $60K-70K per year government job (sadly this is a real life example).  That "drop-out" just got a 6 year head start on you and has earned what you owe in that time, now they have seniority and are up for promotion and make the same pay you will start at after graduating but with zero debt.  What a scam.  I suspect that many of these loans will eventually be "forgiven."  

"They are adults and should know better" could just as easily be argued (and has been) for the housing bubble.  There are two sets of rules and the difference is, government is the beneficiary of the education bubble and government benefits from keeping citizens under their care and tutelage for an extended time.  I think it is worse than the healthcare situation but I fear the eventual "solution" will be similarly counterproductive.  I will stop here before I offend anyone with my politics.  But my heart breaks for those who've been duped!  

@Chris Mason @Carrianne Mucho  I agree the student loan debt in the country is a huge issue and must come to a head at some point.  

I don't know if they qualify as predatory lending as much as they point to the lack of common sense by the lenders and the government, who has guaranteed a majority of these loans.  When I think predatory I think duping the borrowers through shady tactics, other than the false idea that a degree automatically leads to a great job with great pay, which the lenders don't promise these loans are straight forward (at least mine was).  Now with the realization that these loans may never be paid off and "forgiven" in a lot of cases I don't know how the financials play out, maybe the interest from those who have paid covers the loss from those who default.

I think this will definitely affect the potential for young homebuyers to enter the market, due to both high debt and credit issues from defaults.  I don't think we've seen the full effect of it either.

I managed an apartment community in Carmichael for the past 2 years (just left in January) and I was able to keep it occupied. I didn't over improve the units for the neighborhood or raise rents to crazy levels. You just have to know your market. It's not easy managing property in Sac unless you are in an A-B situation. The C-D units are a challenge. The market might rise and fall as it always does so slow and steady wins the race, just have a product that people will need and give good service to your residents. You also have mandated inspections by the City and County that you must do annually in Sac. The RHA is a great resource there.

Originally posted by @Tim Kunz :

@Chris Mason @Carrianne Mucho I agree the student loan debt in the country is a huge issue and must come to a head at some point.  

I don't know if they qualify as predatory lending as much as they point to the lack of common sense by the lenders and the government, who has guaranteed a majority of these loans.  When I think predatory I think duping the borrowers through shady tactics, other than the false idea that a degree automatically leads to a great job with great pay, which the lenders don't promise these loans are straight forward (at least mine was).  Now with the realization that these loans may never be paid off and "forgiven" in a lot of cases I don't know how the financials play out, maybe the interest from those who have paid covers the loss from those who default.

I think this will definitely affect the potential for young homebuyers to enter the market, due to both high debt and credit issues from defaults.  I don't think we've seen the full effect of it either.

In lending, for each file we have to show proof of the borrower's ability to repay.  Many of these student loans have temporarily reduced payments specifically due to the borrower's INABILITY to repay them long after the borrower has graduated.  The reduced payment plans I have seen are just fractions of the amortized payment and sometimes less than the accrued interest.  Predatory lending is recommending a loan that the borrower cannot afford...I assume that is where Chris' label originated. How are these better than the interest only loans made in the early 2000's?  At least those had a tangible asset (house) attached and required at minimum that the accrued interest be paid.  

When government guarantees loans they know cannot be paid, who ends up paying for them? (rhetorical)

I don't have any hard feelings toward those who've taken out these loans; education in and of itself is a wonderful thing.  It's just frustrating to see a double standard and how some unknowing people have been set up for failure.  You are correct that it is affecting people's ability to qualify for home ownership.  And I agree that we have not begun to see the repercussions.  

There is going to be a webinar from a Sacramento based attorney in November about real estate law and he will touch on Senate Bill 1069 and it's implications. I posted about it in the marketplace yesterday. 

If you're interested attending the webinar email me your email address and I will send you a link. It's $50 to join I believe.

@Nicholas Wootten , I believe everyone else has already chimed in with some thoughts on which markets are going well. Like @Joe Bertolino and others have mentioned it's hard to say because there isn't a ton of inventory on rentals in Curtis Park and especially Land Park areas. Oak Park has definitely seen some solid gains but it again just depends on the block and which grade of property you are looking to invest in. I've seen a solid increase in Midtown, but that's pretty tough find a good deal because of rising prices.

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