What is the Sacramento market like?

Question

I live in San Diego. I've been looking for markets in CA that are more affordable and still in fairly high demand. How's the Sacramento market? I'd love to hear from folks who are familiar with the area and/or who invest in the area. How about the areas in near distance like Stockton, Modesto, Mountain areas?

Tell me all the things!

Gordon Cuffe · Answer

@Jordan Budke The supply of homes for sale declined in dec 2023 compared to dec 2022. The number of homes sold also declined. As mortgage rates spiked at the end of the year , the number of homes sold declined also. Things are picking up again as the rates declined 3/4% and the holidays are over. The supply is short so It is tough to find a good deal. I know most of the wholesalers locally and I still keep getting outbid by investors on good fix n flip properties. You can find good deals up in Auburn to Grass valley but the tough thing now is getting affordable home insurance. I am attaching the graph of homes sales the last 13 months in the 4 county area around Sacramento. I wrote a blog post a couple of days ago about the sales in Sacramento county.

Nick Maugeri · Answer

Costar says this on Sac:

Located just 90 miles east of San Francisco, Sacramento offers easy access to the Bay Area and state and national parks, making it a prime location to settle down. The market continues to draw interest from renters outside the market, particularly from the Bay Area, where rents remain significantly higher.

Both net migration and apartment demand returned in 2023 after decelerating in 2023. However, the delivery of a wave of new inventory has caused the vacancy rate to increase by 80 basis points over the past year to 7.3%, very close to the national figure of 7.6%. A total of 2,700 new units came to the market during that time, while net absorption came to 1,300 units. The market has averaged around 250 units of quarterly net absorption over the past decade, with recent activity falling just short of this total. Despite the positive figure, high inflation over the past few years, increasing interest rates, weakening national economy, and years of record rent growth have made residents very price sensitive.

Supply-side pressure and slowing demand have led to limited rent growth, which has been flat, changing by only 0.2% over the past year. At the same time, concession rates are increasing, reaching the highest point in years and increasing the delta between asking and effective rents. Rents in Sacramento rest at $1,780/month, more expensive than the national average of $1,670/month, but remains the most affordable large market in California by far.

The rising vacancy rate and flat rent growth has led to the fewest units under construction since 2016. The rate of groundbreakings has been slowing as developers look to delay new projects until rent growth returns. New projects have produced for strong demand within the 4 & 5 Star inventory reaching 1,400 units of net absorption over the past year. This has helped compensate for negative activity at the 1 & 2 Star price point.

Sales volume over the past year has slowed drastically, reaching only $309 million from 78 transactions. This is far below the average from the past five years of $1.2 billion. While lenders are willing to write loans, they are more particular as market conditions weakened. The lack of transactions is increasingly linked to a lack of buyers in the market, unwilling to transact at current price points. Would-be investors are operating under the assumption that pricing will fall in the coming year and are choosing to remain on the sideline rather than risk purchasing at today's pricing. Additionally, CoStar predicts cap rates could rise another 60 basis points before the end of 2024, making a quick turnaround unlikely.

Modesto is growing, with Costco finishing this year nearby and traveling nurses making the most money by working here. A shortage of inventory is fueling appreciation. Below are some insights nearby:

Here is some information on Riverbank expansion and Costco development slated to complete at the middle of this year: https://www.theriverbanknews.com/news/prep-work-costco-now-underway-riverbank/

Here is information on Modesto's North Corridor expansion in the same area: https://northcountycorridorphase1.com/ and video here: https://youtu.be/IjyXegECcyc

Ceres has just put in a new strip at the Gateway Center and they are building out a hotel. The strip includes a super Walmart, In-N-Out, Starbucks, and others: https://www.cerescourier.com/news/local/ceres-gateway-centers-biggest-project-a-hotel-under-construction/

Noah Laker · Answer

Hey Jordan, I'm a broker and property manager here in Sacramento (mostly STR, some LTR). We also have a satellite office in San Diego.

Sacramento is where I choose to invest my personal capital for the reasons above (thanks @Jawei Kuo!)

We're a fundamentally sturdy municipality and the population is continuing to grow, but prices relative to other major California cities are still affordable.

Scott Scoville · Answer

Hey Jordan, I'll second Noah. I personally invest all of my own capital in Sacramento because I believe in the long term viability of this market, along with working as an agent helping investors from all over the state who have decided to invest in the 916. There are multiple strategies that work in this market, however, it just depends on your goals. Let me know if you'd like to chat more about this.

Jawei Kuo · Answer

Hey Jordan! Love to see you're looking into Sacramento for investing in real estate.

Multiple planned infill and redevelopment projects aimed at revitalizing and expanding the business and residential sector here in Sacramento, as well as a steady stream of people coming into the city from more expensive areas are all prominent contributions to the growth of Sacramento. On top of that, the close proximity to the University of California Davis as well as California State University Sacramento are contributing factors as well, with UC Davis hosting 35,000 students and CSU Sacramento hosting 30,000.

Furthermore, a strong presence in the healthcare industry in conjunction with a multitude of businesses has boosted the presence of STR's and MTR's here in Sacramento. Catering to traveling professionals within the business and healthcare sectors, the market here for STR's is relatively stable, as compared to a more vacation driven area.

My colleague @Noah Laker with Hardin Realty specializes in STR's, managing over 100+ in various locations including locally here in Sacramento. Located in the Sacramento and having several investment properties, a couple of which are STR's, I'm sure he'd be able to provide you a lot more insight into what it's like to invest in Sacramento.

Best of luck in your research for markets, please feel free to reach out should you have any more questions regarding this area!

Chris Mason · Answer

One thing about Sac: it has a normal "seasonal" market. So it slows down in the winter. That seems obvious, but I've had more than one investor from the Bay Area or SoCal have a heart attack when they saw that values had dipped in December or Feb (as opposed to "real estate always goes up, it's just a matter of by how much!" that a "big city Californian" might think of as "normal").

Again, sounds like an obvious statement, but not necessarily so obvious to someone from San Diego, based on the track record of heart attacks mentioned previously. :)

Assuming you can time it: Winter or early spring is the ideal "buy season."

And fall is "cash out refi" season. The summer comps will be captured by the appraisal, but the fall/winter sales haven't closed yet (appraisers give very little weight to "in escrow" comps, they like "closed" comps), so it's a good time to have a property appraised for a cash out refi, which of course leads right into having a down payment for the winter buy season.

What is the Sacramento market like?

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