Sacramento/Elk Grove Housing Crash

16 Replies

Just wanted to get a sense of what people are seeing in Sacramento and the immediate surround areas. What does everyone think will happen over the next 6-12 months? I am anticipating a softening market but I’d like to see if I’m being too negative. 


The reason I see around 5-10% drop by March 2021:

1. Increase in foreclosures after forbearance and unemployment money ends. 

2. Lack of business reopening due to extended COVID lockdowns.

3. Crime/poverty increases.

4. Decrease in rent prices in the Bay Area encouraging people to stay and causing slower growth in surrounding areas.
 

1. With drastic appreciation over the past decade, most people are sitting on a lot of equity and could do a regular sale and not go through foreclosure. 

2. People are still buying right now despite closures. I had an listing go pending last week after 22+ showings and 5 offers.

@Mike Esposito   I don't disagree with your logic at all, but if it's right, we're not there yet.  I've called on a couple of properties in the Modesto area and there's hasn't been a slowdown on purchasing yet.  I still feel like it's not a bad time to be on the sidelines though.  If you're correct, you'll be able to save some money on purchases, for sure.  If not, it doesn't seem like prices will double in the meantime or anything crazy price wise.  To me, it just feels like the potential downside is lower than the potential upside is higher in the short term. 

Please note that anyone reading this should probably consider my opinion of a potential bear market an exceptionally bullish indicator, however.  haha.

We shall see...

@Derek Jones definitely not there yet and absolutely on the increased equity point. I’m not expert but I’m still in the camp that the market will become more buyer friendly in coming months. I’d be more willing to bet it’s a combination of more home sales due to lost jobs and foreclosure. I guess we will find out soon enough. 

@Chris John My thought process is to wait and see what happens in the coming months. I’d rather save some money on a purchase, thinking that prices will not skyrocket in the next 6 months even if I’m wrong.

I have placed a few offers this month but people have still been willing to pay top dollar, I am not.  

I personally don't think house prices will come down any in Sacramento area at all , because of people moving out of bayarea will increase this year and next year as more and more people are considering leaving congested areas and have options to work from home now.   

Increase in foreclosures after forbearance and unemployment money ends.  

But this time banks don't want to foreclose and will work with homeowner to make payment arrangement and there is no unemployment in this area in reality. 

2. Lack of business reopening due to extended COVID lockdowns.

But alot of new businesses are opening up as more and more people want to get in business becuase they are getting used to working in there own hours and don't want to go back to 9-5 jobs. 

3. Crime/poverty increases.

i don't see that ,  offcourse property prices are falling in Oakland and san francisoc because nobody wants to live there going forward, but they are increasing everywhere else. 

4. Decrease in rent prices in the Bay Area encouraging people to stay and causing slower growth in surrounding areas.

I think this pandemic has changed alot of people's mind and will be changing mindsets where more and more people would want to own there own home because of the way future jobs will work and people want to get away from daily hustle bustle of congested areas. 

@Sonny Dhillon how could you say no one wants to live in San Francisco or Oakland? That is completely untrue. There’s a reason why San Francisco is the most expensive city in the United States. San Fran has it’s issues but it’s demand is not going to change long term.

What are these new business opening up you speak of? Working from home will never be widely accepted long term, productivity will drastically decrease. Some people will opt out of major cities short term but I don’t see that becoming a massive trend unless COVID lockdowns continue indefinitely. 

I think San Francisco/Oakland has a lot of tech related jobs. With covid allowing employees to work remotely and still get paid the same I think a lot of investors are probably thinking "I don't really want to find a new tenant during this COVID. Let's just sell it." Probably a reason for so many homes coming on the market. 

High paying employees that work in tech can now live in any part of the country and still get paid very similar than living in the Bay Area. I read an article the other day that Mountain View saw a DECREASE of 18% in rents since COVID started. It makes sense, rather than paying $4,000 a month for a 2 bedroom in Mountain View, why not move and save $2,000 a month. 

I can't speak on the Sacramento market because I don't follow it very closely but in Modesto area, rents are at an all time high. A 4 plex in Modesto in 2016 was probably selling for roughly 300k, in the past 6 months investment properties have skyrocketed. I see 4 plexs selling for 500k easy. 

I think there is a lot of 1st time investors that got into the market in the last 3 years and with rents so high the numbers make sense but I feel that once rents decrease they won't be cash flowing nearly as much and could potentially losing money every month. 

I think that the market will go down in 2021. I feel that once banks start foreclosing on homes and evictions are allowed to happen there will be a lot of homes both for rent and for sale. If interest rates increase, which I feel inevitable has to happen in the next 12-14 months, there will a natural decrease in sales prices. Once there are more homes on the market and rents decrease home values will go down. By how much, who knows! If I knew I might ask for a consulting fee LOL

 No one really knows where the market is going. Your guess and rationale is just as good as anyone else’s. I do hear a lot of people saying that the market is in a big bubble and you should just wait for the prices to drop. The last time I was looking to buy a house people kept telling me wait till next year wait till next year. Well I waited those years and watch the house go from 275 and eventually bought in at 600,000 . So much for all those people that kept telling me wait till next year wait till next year. Listening to those people cost me $650,000 because I had bought two of those houses.

. So much for all those people that kept telling me wait till next year wait till next year. Listening to those people cost me $650,000 because I had bought two of those houses.

 Today each of those houses is worth just under $1 million. So really you can try to time the market and maybe you will do well or maybe you will fall farther behind. If you find a decent deal maybe it’s better just to grab it rather than try and save a few bucks could you think it might go down later 

@Kyle Kinsley

Newb here so quite possible I’m missing something, but I’m curious why you think interest rates will increase soon.

It seems the economy is hurting a great deal even though the stock market is rising due to quantitative easing (my opinion). It would seem to be economic suicide by Powell to raise rates until Covid-19 is behind us and the recovery is well underway.

Incidentally, that same QE may lead to the beneficiaries of it investing in rental priorities thereby driving prices higher.

Thanks in advance.

Originally posted by @Jon Catterson :

@Kyle Kinsley

Newb here so quite possible I’m missing something, but I’m curious why you think interest rates will increase soon.

It seems the economy is hurting a great deal even though the stock market is rising due to quantitative easing (my opinion). It would seem to be economic suicide by Powell to raise rates until Covid-19 is behind us and the recovery is well underway.

Incidentally, that same QE may lead to the beneficiaries of it investing in rental priorities thereby driving prices higher.

Thanks in advance.

I just feel that we are setting new historic lows every month it seems like. It just doesn't seem sustainable. Then again, I have been thinking they will increase for the last 2 years but they seem to keep going down. If I stick with that opinion, eventually I will be right hahaha

I wasn't around but I heard back in the 80's interest rates for homes were like 18%. Now I don't know if something systematically changed to have them drop lower but that would be ridiculous today. 

Right now, Interest rates are around 2.75-3.5% for good credit. I would say even if they go to a still good rate of 5% people's buying power goes way down. For example, on a 30 year loan sales price 305k with 5% down and a 3% interest rate a mortgage payment would be (roughly) $1,892 per month. The same details with a 5% interest rate your monthly payment would be $2,226. That's a huge difference in people's buying power. 

 

Two words - three percent. The rate is predicted to hover around the 3% for 2020, & as long lenders flex their muscle a bit, we'll be o.k. Median prices from May to June, Placer County was 0%, El Dorado was a minus BUT Sacramento I think was 4% - not enough to read but it does give you the hint that folks wanna buy $300k to late $400s or even early $500s. Great points u guys make about forbearance etc BUT remember, none of the brightest economists saw 2008 coming even though everyone knew about stated income loans etc. So I say get some grey goose vodka, chime on the BBQ and let the markets play out. Cheers.   

300-450k market is INSANELY hot in Sacramento, I personally dont work with many clients over 550k mark but I am hearings its competitive there as well.  

@Mike Esposito

I’ll tell you after the election. If rates hover in the 3% range as I expect them to there will not be much softening. As mentioned in a prior post, most homeowners have significant equity and will sell into a market with extremely low inventory. If the market dips, it will take longer than 12 months. The flow of transplants from the Bay Area is increasing due to Clovid, Bay Area rents have some impact but a lot of people are just over it and want to be in a less population dense area.

Are people allowed to borrow against the income they receive from the government? 

I'm wondering if there is a certain percentage of the house buying population right now who are leveraging the government aid they are receiving due to covid? 

Working remotely will be more popular going forward - even after we have worked through the current virus situation (its now been more proven to work and is more accepted)

People will not be so physically tied to the Bay Area to be able to work for bay area companies - like tech and others

Reducing expenses will be on the top of peoples minds everywhere.

Moving to lower cost of living (and higher quality of life) while still staying in the state will be even more of a plus than it has been in the future.

As people sell in this area, others will be there to buy.

Not a crystal ball, just my opinion based on having rental properties in the area for a while.