Well, well, well... whaddaya know... my sweet little hometown of Stockton, California has some big things planned for 2018:
Much in the same way that I boasted about Sacramento last year when it was the #4 spot, in this post I shall make my case for why you (yes, YOU Mr. Bay Area Investor), should consider making an investment in Stockton this year.
TO ALL THE NAY-SAYERS:
My oh my, would I be amiss if I didn't first erase your overwhelming doubt and skepticism to allow you to hear clearly what I am about to say. Last year, I heard sooooooo many people poo-poo on the idea of investing in Sacramento for all sorts of reasons. But the end-all-be-all argument most used was that we were at the peak of the market and buying now was a stupid decision, blah, blah, blah, etc., etc.
Yes, the best time to buy was 2010-2012, and the best time to plant a tree was 20 years ago. The second best time is now.
For a personal anecdote to illustrate that we've still got plenty of room to grow, in October of last year I purchased a home in Sacramento for $260k, and right now my next door neighbor who is a model-match and the near-perfect comp is set to close on selling his house for $320k :-D
That's a whopping 23.07693% yearly appreciation my dear friend. If only more of those nay-sayers had listened.
Stockton will be a much tougher sell for most of you than Sacramento, for all the reasons I listed here in my guide on how/where to invest in Stockton (still highly relevant):
A large part of the reason most investors turn their nose up on Stockton is because of all the bad headlines. That's all most people know Stockton for. Here are some of the greatest hits from the past decade:
- Stockton Breaks Homicide Record in "Bizarre" Shooting Spree
- Stockton, CA is Now Officially America's Most Miserable City
- 600 Police Gunshots Fired During Stockton Bank Robbery Declared "Excessive"
- Stockton is the Largest City in the Nation's History to File for Bankruptcy
- Former Stockton Mayor Arrested for Embezzlement and Playing Strip Poker with Minors
No wonder most of you think Stockton plays out like a video calculating Arnold Schwarzenegger's Movie Kill Count. (As a side note, I much more prefer Arnold's 160 Greatest One-Liners, definitely worth the watch.)
A NEW BEGINNING
But recently, Stockton has seemingly turned a new leaf, and suddenly found itself making headlines for all the right reasons:
- Stockton-Lodi Ranks No. 4 on top market list for 2018
- Council Takes Key Step On Plan For Downtown
- Stockton Is Launching The First US Experiment In Basic Income
- 47 Arrested In Massive Gang Sweep To Clean Up The Streets
- Home Prices Nearly Doubled In This Surprising California City
- Stockton's Hot Housing Market May Spill Over Into Downtown
And the list goes on and on... but pay particular attention to that last one...
If you read in my article above about investing in Stockton I wrote nearly a year ago, I predicted that Stockton would really need to focus on its downtown area to attract Bay Area millennials who are trying to flee the expensive *** housing market there where only 25% of homes are priced under $500,000.
And it seems Mayor Michael Tubbs must've stumbled onto my post and read it (or at least I like to think so) because big moves are happening with Stockton's Open Window Project.
From the first page of the report (pay special attention to sections I emphasized):
"The ‘Open Window Project’ (OWP) Master Development Plan (MDP) for Downtown Stockton proposes to create the framework, urban design standards and guidelines for the urban regeneration of the heart of the City transforming it into a vibrant, mixed use, mixed-income, pedestrian friendly neighborhood.
The MDP envisions transforming 11.884 net acres on 51 individual parcels over 15 city blocks into a dense urban environment with as many as 1,400 new dwellings together with retail stores, live/work lofts, and work spaces. A range of housing types are envisioned including low and mid-rise stacked flats, townhouses, lofts and microunits offering a variety of choices to cater to different lifestyles and household sizes
The MDP proposes to take advantage of the proximity to transit to reduce the need for car ownership and to create opportunities for a walkable neighborhood. Design guidelines are intended to create permeable blocks and to encourage the creation of a network of privately owned pedestrian alleys, mid-block lanes and courtyards. Streets are to be designed to promote traffic calming and bicycle use together with the design of shared space for activities such as a farmers’ market. The MDP also proposes to create a sustainable urban environment that is responsive to climate change, storm-water management and can encourage programs such as urban farming, green roofs and bioswales."
Let me run some of those phrases through my nifty Millennial Translator 5000 and tell you what they mean...
"Dense Urban Environment" = Come get the big city feel without the big city price, because we know you're broke
"Pedestrian Friendly Neighborhood" = Why own a car when you can just Uber or be extra cool and ride a bike?
"Farmer's Markets" = Farmer's Markets?!? DEFINITELY! I'll bike on over as soon as I finish combing my ironic hipster mustache.
Whoever is in charge of this development is VERY smart, and knows they will attract millennials by the truckload migrating from the Bay Area seeking out more affordable pastures. Kudos to the new Stockton leadership. Big things ahead.
MY BOLD PREDICTION FOR 2018
Last year, Sacramento held the #4 spot predicted by Realtor.com, and Stockton/Lodi has now jumped up from #28 predicting 4.55% sales growth and 6.43% appreciation.
The reason for Sacramento's growth last year was that it was a much cheaper alternative to the Bay Area, and it had a new bustling downtown/midtown scene.
Hmmm... why does that sound so familiar? What other Central Valley City could be brewing the same recipe for massive growth?
I'm telling you, as soon as Bay Area millennials catch wind that they can come to Downtown Stockton and do all the hipster **** they loved to do back in the Bay Area like go to the local farmer's market and check out the new gastropub, and then find out that 89.71% of homes are priced under $500k compared to the Bay Area where only 25% are, they will be moving here in droves.
JUST LIKE THEY DID TO SACRAMENTO LAST YEAR!
Here's the thing folks... you're watching history repeat itself, and it just happens to be happening so rapidly that you can actually do something about it this time and capitalize. Very rare opportunity indeed.
And sure, some will come in here and poo-poo all over this idea once again, talking about how Stockton is a tertiary market, we're at the top of the market, the bubble is about to burst, and so on and so on...
But remember, they said the same thing about Sacramento, too...
If it were me, I would take the gamble on Downtown Stockton, develop some millennial bait with some cool lofts or something and maybe a few high tech features in the home, and ride this development wave out and watch the property values skyrocket.
Or you could always just buy that turn-key property you've never seen in some far away state and hope you don't get screwed over by the developer like a reader of my weekly newsletter just did... but that wouldn't be very wise now would it?
The choice is yours... but the educated choice would be to look at what just happened in Sacramento last year and use it as a blueprint for what's about to happen in Stockton. Hopefully you'll listen.
For I'd hate to be the one to say "I told you so..." ;-)
I really thought I was reading a headline from 2007. I am glad it's good out there but it was just as good right before the bubble burst. What's different now?
Sacramento is in top 10 nationally for total returns (cash flow + equity) since 2000. Investors might want to know at least that part. Stockton idk but I imagine there is some rub off. Stockton had largest increase in Calif but it is usually lagging CA market I think. Sometimes areas are last to go up and first to go down. Long term still should be fine.
I knew the bubble skepticism was coming, but perhaps rightly so...
Here are the main things about the California Marketplace that are making it quite different than the housing market in the early-mid 2000's:
1) Lending Regulations: No more strippers and McDonald's employees owning 3 houses because they didn't have to verify their income. Long gone are the days of the NINJA Loan and underwriting is as strict as ever. So the demand isn't artificial, it's legit.
2) Low Inventory: After the recession building stopped. And to this day we still haven't caught up with the demand. Plus with Trump deporting a large portion of illegal construction workers in the Southwest States bordering Mexico construction companies don't have the manpower either. Anybody who bought during the recession got the deal of a lifetime and to trade up now would mean a much higher price and higher interest rate, so boomers are electing to die in their house rather than sell. This isn't like 2004 were we were building 15,000+ houses per year, we're often at 40-60% of that lately.
3) Millennials Coming Of Age: The biggest portion of Millennials isn't turning 30 until 2020, so the demand is going to continue to grow. Gen X'ers were already in their mid 30's by 2004, so there is a big difference in the continued demand that will be coming as Millennials finally meet the perfect match on Tinder and decide to settle down, have kids and buy their first home.
The housing boom in the early-mid 2000's was driven by speculation and lax regulation. The housing boom we're experiencing now is driven solely by supply and demand. That's the key difference.
Stockton is now the cheaper alternative to Sacramento. Those that can't afford the average home in Sacramento are now forced to choose Stockton instead if they wish to flee the Bay Area. Plus those who lived in Sacramento and now can't afford due to increased rents and home values and being forced to make the move down to Stockton and make the commute back up to Sac as well. Sacramento was #4 last year, experienced a ton of growth, and some of those that waited too long to make the move are now forced to settle for a cheaper alternative in Stockton. That's a big part of the reason I believe Stockton will be #4 this year. It's becoming the only feasible option left for most.
Wes how do you feel about north of Sacramento, I know a lot of people moving out of sac into yuba county where rent is cheaper, and its only 25 min to sac, I think the Plumas lake area is going to be a sought after market, how do you feel?
I think it certainly has potential, just not to the degree that the metro areas like Sacramento and Stockton will have. People will always choose to live close to work if possible, and will only seek outskirt areas like Plumas Lake, Yuba City, etc. if that's their only option.
But in general, people will be moving inward from the coast line to the Central Valley and beyond, and people who can't afford to major bumps in rent and housing prices in the metro areas will move to the outskirt areas and commute, causing secondary bumps in markets like Plumas Lake and Yuba City.
It's a little harder to predict the outcome for smaller markets like that because it's not even on the radar of any major research efforts to give you some solid stats.
But, I think if you've found the right deal it can definitely work and is a safe bet. People may be leaving California, but not nearly enough to make a dent in the high housing demand.
Thank you @Wes Blackwell . Roughly what proportion of these homes are owner occupied? I know its a difficult stat, but I have a feeling that the outlying areas of the bay area (and Sac included) are simply benefiting from Bay Area investors who cannot find an entry and then a deal in the bay area and are speculating on Sac and now on the likes of Stockton or Lodi as up and coming areas. Sorry for being a skeptic and please consider me to be just asking tough questions. I enjoyed reading your first and very detailed response.
The 2015 American Community Survey estimates 48.5% owner occupancy for Stockton, up from 45.1% in 2014. It's probably even higher now, but only by 2-3%.
Stockton was the foreclosure capital of the nation back during the Great Recession, with short sale after short sale after short sale. It was pretty much all investors back then, and now a lot are slowly starting to cash out and that's why you're seeing the growth in homeownership.
I think that number will continue to grow as we see more and more millennial migration heading inland away from the coast. Sure, you've got some investors still, but a lot will be homeowners looking to plant roots. If you only qualify for a $250k home loan, the number of places you can live is running out. Stockton / Lodi tops the list though, especially for folks from the Bay.
I''m invested in Plumas Lake and prices are going up. Several factors make it a solid place to invest for the right price:
-Attractive price point for builders,buyers and renters.
-Solid School system
-Only 25 miles from Sac/Air Port and Lincoln/Rocklin/Roseville.
-Yuba City and Marysville are trying to grow and upgrade infrastructure.
-Close to Air Force Base
-New Gas station and businesses being built. Commecial lots ready. Possible Casino being built 5 miles away
Question is how fast will it grow? Prepare to invest for the long haul in PL. Good luck!
Hi Wes, what you think of other neighboring cities such as Manteca and Lathrop?
Yes, these smaller markets can work. Looks like you've found a little niche there. Great work! I hope you make some awesome returns.
Manteca and Lathrop are essentially suburbs of Stockton. People who can afford to choose them will. Stockton is going to boom because it's simply the last bastion of housing affordability in Northern California. Period.
Let's say you're a millennial in your late twenties living in your parent's basement in the Bay Area... and your girlfriend gets pregnant. Think that basement is gonna fly with baby momma? NOPE!
So, you want to get a home so you can provide a safe haven for your family... but only 25% of homes in the Bay Area are priced less than $500k and they're in the ghetto... and you only qualify for $250k anyways.
Sooooooooo... where do you move to? Answer: Stockton.
Sacramento's median home price is $350k so you're not getting much there... but Stockton's median home price is $270k, so you can afford nearly half the homes for sale there.
You can't go Northwest to Napa and the rest of the wine country, you'll pay the same as Bay Area if not more. Can't go up to Yuba City... too damn far and it's a little podunk town anyways. Too much of a change from the big city you're used to.
Modesto? Affordable, but not enough jobs. No way you'd ever be able to transfer. Fresno? Too damn hot and too damn far. So Stockton it is. In this scenario you can't afford Lathrop / Tracy / Manteca, but many can and will.
But if not Stockton, then Las Vegas... as that will be the #1 metro market in the nation, while Stockton will be #4. It's all driven by housing affordability and millennial migration.
@Wes Blackwell wow great info! My husband and I are in Tracy and actually looking at Stockton as a local possibility so this info is very helpful. Tracy is growing steadily and they just broke ground on the Tracy Hills which is a 5,411 acre development. It will be interesting to see what that does to the value of our homes here.
I might jump on the Stockton bandwagon once I go through my exhaustive market research.
A rising tide lifts all boats, and areas like Tracy and Manteca will surely go up in value too from all the migration in from the Bay Area. It's just that it's going to be a different kind of buyer coming out to Tracy than it is coming to Stockton, mainly in the area of finances.
I wrote a follow-up article to this one you can read below:
It explains it in great detail. But essentially, those that can afford Tracy will chose Tracy, and those that can't (a majority) will be choosing Stockton, as it's the most affordable option in Northern California.
Yeah, market research can be tough! When you open the doors up nationwide there's A LOT to choose from and you often have no frame of reference for the area and what it's like.
Perhaps Realtor.com's 2018 National Housing Forecast can help you narrow down your search:
If you're a less experienced investor, I generally recommend staying close to home... somewhere within a 2 hour drive or a 2 hour flight. Makes it way easier to visit the property if necessary and you don't have to take time off to make the 6 hour flight to the east coast.
For California investors, I generally recommend either Sacramento or Stockton, Las Vegas / Henderson Nevada, or the Phoenix Metro area. Best of luck!
@Wes Blackwell . Have read your great posts on Sacramento and Stockton....your other post, "Stockton: The Last Bastion of Housing Affordability in California" seems to have a focus on single family homes....For Bay area investors looking for multi-res in California (say 4-15 units), and assuming millennials are moving to Stockton because they want to own and not rent, would you recommend Sacramento over Stockton?
Also, can you share any opinion you may have on the investability of multi-res in Chico?
Some will move to own, and some will move to rent. As you saw from the other post, some of the very posters in that thread moved out of San Francisco to other areas and are renting. Same thing will happen for Stockton.
Stockton even led the nation in rent growth for a few months last year:
So you're good to go on multifamily.
If I were looking at Chico, I would probably consider trying to make something work for Chico State Students. Buy something close to campus and approach the local fraternities and sororities and try to rent it out to them. You could also possibly make it work with one of the sports teams.
Butte County (Chico) grew in population last year at about the same rate as the state. So it's nothing special for growth. But Placer, Stanislaus, Merced, San Joaquin (Stockton) and Riverside counties were the fastest growing the state, each topping 1.28 percent.
Although the numbers may tell you that Chico isn’t growing significantly, anyone who lives here will tell you otherwise. There is a big building boom right now....including a massive 270 acre “walkable” residential/commercial project lead by Sierra Nevada Brewing Company (search “meriam park chico”). The bacon wrapped Jalepenos and cupcake shops are coming......
@Wes Blackwell . Thanks for your further thoughts. I think I might stick to hunting in Sacramento for now.
BTW, this article...
https://www.zillow.com/research/hottest-housing-ma.. suggests that housing price growth in San Jose, CA will be greater than Stockton and Sacramento in 2018, driven by the continued hot job (tech) markets. However, the hot job and tight housing situation in Silicon Valley is sure to further the migration trends to Sacramento and Stockton.
I actually wrote about that article in my latest multifamily newsletter:
Zillow Claims San Jose Will Be The Hottest Housing Market in 2018
"Maybe you thought it couldn’t get any worse — that housing prices would finally cool off in 2018 after years of record-breaking appreciation.
Think again. A new report from Zillow projects that the San Jose metropolitan area will be the hottest housing market in the nation in 2018, with home values rising dramatically: another 8.9 percent on a year-over-year basis. The San Francisco metropolitan area, which includes the East Bay, will be the fifth hottest market with a 3.8 percent increase in home values, according to Zillow’s new report.
“Over the past five years, San Jose home values have appreciated 78 percent,” the report said, putting the area’s housing crisis into perspective. Its analysis “highlights just how strong the San Jose market really is. While San Francisco home values have recently started to cool, San Jose is off to the races.”
If you're anything like me, you think this news is absolutely absurd.
But hey, it is what it is, and techie folks wanna keep paying these outrageous prices so be it (*thinking to myself I should've moved to the Bay Area to sell real estate*)
Although, do notice the figures Zillow is predicting are a far-cry from the figures predicted in Realtor.com's 2018 National Housing Forecast... and Zillow certainly isn't known for its accuracy.
But what's really important is that prices are going up... not down. Whether it's 1% or 10% it's not getting any more affordable. And that REALLY helps to emphasize the point I made in my recent BP article. See below.
So I'll take Realtor.com projections over Zillow projections any day. Zillow doesn't even have access to all the data, so how the heck can they make an accurate projection? They can't.
But like we both said... it's still going up. The percent doesn't matter. All that matters is that it's not getting more affordable. So it's definitely going to drive traffic elsewhere.
@Wes Blackwell . Yes, I always take forecasts with a grain of salt but am interested in reading about the drivers behind the specific forecast.
You have a multifamily newsletter? How can i get on the distribution list?
I bought a home in Sac for $260,000 also and it seems to be really doing well!
@Paige Feddersohn . Can you share when you bought (year/month) and in what neighborhood of Sacramento? Thanks in advance.
Originally posted by @David S. :
@Paige Feddersohn. Can you share when you bought (year/month) and in what neighborhood of Sacramento? Thanks in advance.
I purchased in May/June 2016 in the Pocket area. 2/2 1056 sq ft. It is a halfplex.
This is really helpful. I've been watching the Stockton market for the past year and I would have agree with you @Wes Blackwell . Are you just selling homes out of Stockton or do you have some rentals your acquiring Wes?
PM me if you have some listings that might be of interest.
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