Sacramento: 2019 State of the City Address
Another year has passed, and it's time to take a look at what's in store for the city where there where more one-way U-Haul trips to than any other city in America.
That's right folks, it's none other than the "City of Trees"... wait, I mean "America's Farm-to-Fork Capital"... erh, uhm... "The Bay Area Buyer Bastion"...???
Let's just call it home sweet home Sacramento.
Last Year's Numbers (2018)
Let's start by taking a look at how the Sacramento real estate market fared in 2018.
To do this, I'm going to call in some assistance from my fellow Sacramento colleague @Ryan Lundquist (if you're interested in Sacramento real estate and haven't read his blog http://sacramentoappraisalblog.com/ you're a fool!)
So while December 2018 sales volume was down, the market is still healthy and chugging along due to the huge influx of new blood coming from the Bay Area (more on that in a minute).
The thing to understand about Sacramento is that we're still trending with increasing home values.
We're a little more secure in that than the rest of our country due to the close proximity to a much pricier market. San Francisco is a place where elder millennials are having babies and finally realizing renting a room for $1,500 and having 3 roommates when you're pregnant isn't as fun as it was when they were 22 and fresh out of college working at Twitter.
The big question is "Will buyers hit the brakes in 2019?"
Well, it's hard to say so now... remember that we are only 3 weeks into the new year, and currently dealing with a market full of leftovers that didn't sell in the fall season of last year (probably because they were overpriced).
The next batch of new listings is mostly going to come from sellers who are waiting till Spring -- if they're smart -- to list their home. As that's when homes get the closest to the asking price:
BTW... my mom will be selling her 3/2 in Stockton, CA this April if anyone would like to get a shot at it before it hits the market :-)
So we'll need to wait a couple months before we can really take the temperature of the market and compare it to last year's hottest season.
"I Left My Heart and High Rent in San Francisco... and Bought a Home in Sacramento."
Do yourself a favor...
Google things like "Why are people leaving San Francisco?" or "Why are people moving to Sacramento?" and you'll find dozens upon dozens of articles linking the two cities.
https://www.nytimes.com/2018/12/20/realestate/which-cities-are-people-leaving-and-where-are-they-going.html
Here's my short list of reasons why so you understand the migration pattern:
1) You need to make $333,270 to afford a home in San Francisco. Only 15% of households meet the income requirements need to purchase a home at the median price of $1.6 million. Meanwhile Sacramento's median home price is in the mid-high $300k's.
2) "The rent is too damn high!" -- While Sacramento has seen a rental growth rate explosion of near double-digits the last few years (from all the people moving there), it still pales in comparison to the high rents seen in the Bay Area.
3) $12 Toast -- The cost of living in San Francisco can be as much as 60% higher than the American average. Not only is the rent high, but you'll be paying out your nose for everything else as well.
4) The Traffic is Terrible -- San Francisco ranks #3 in the US for most congested traffic. That's because everyone is commuting in an attempt to find more affordable housing.
5) Sacramento is Only a Few Hours Away -- This is a big one. Lots of people from outside CA ask why don't we move to Illinois or somewhere more affordable. Why? Because people don't want to break up their families. So even if you move to Sacramento, it's only a few hours back home by car on the holidays to see your Grandma who bought her San Jose home back when it was $50,000.
6) Sacramento's Culinary Scene is on the Rise -- Bay Area folks are bringing their tastes and appetites with them. More than 40 restaurants have opened since July 2018. Those places will undoubtedly make the move so much easier for the pickiest foodie-types.
7) More Centralized Location -- For someone who wants the best of what California has to offer, Sacramento is about 2 hours away from everything. Beach? 2 hours. Skiing? 2 hours? Wine? 2 hours to Napa, 45 mins to Lodi. Day trips are much easier to manage from Sacramento than from the Bay Area. A lot less traffic too.
8) Great for Tele-Commuting -- Are you an engineer making a ridiculous high salary in the Bay Area and can work from home, but still can't afford to buy? Well then why don't you move to Sacramento and live like a king for the same cost to live in the worst neighborhoods in the Bay? For $600k you can live in one of Sacramento's most prestigious neighborhoods, so why pay twice that to experience it in the Bay Area?
9) High Speed Rail Coming Soo... erh, One Day -- I know... it'll be at least a decade, maybe two. But if they ever realize a high-speed rail between Sacramento and San Francisco that gets you there in an hour and let's you work on the way, the Sacramento housing market will EXPLODE with highly paid commuters from the Bay Area.
10) Big City Feel, Without the Big City Price -- I've said this for years... if you're from a metro area with 7 million people, you're not going to move to a cow-town like Merced or Atwater to save money on housing. You need a "big-city" feel, and Sacramento is the best way to get that while still staying close to home. If you're going to stay in California and not go to LA, Sacramento is probably where you're going to go, as we get 22% of all movers out of the Bay Area.
If You're Selling in Sacramento
Yes, the market is still going up, but it's not super crazy like it used to be. Don't overprice your home. Buyers are more informed about home values than ever and price is the #1 thing that sells homes. And hire an agent who doesn't take pictures on their cell phone.
Days on the market are like acid to your asking price, so don't hold out for some dream Bay Area Buyer who's going to pay you all-cash and 40% more than your home is worth. Not going to happen. Ever. Seriously. Please listen to your agent.
And if you're in a higher price range with fewer buyers and longer days on market, you really need to price your home to be the next to sell in the neighborhood. If you don't, as soon as the campaign season hits this fall, anyone with money and stocks is going to hit the brakes because no one knows who the next president is going to be with how rates and the economy may become unstable with that uncertainty.
If You're Buying in Sacramento
Know that it is a competitive market, and so you're not going to get the home for a 25% discount. Not going to happen. Ever. Seriously. Please listen to your agent. If you get $10k off the asking price, consider that a major win.
It doesn't matter that you read about some guy in Kalamazoo, Michigan got some property for 70% of the appraised value. Not going to happen here. Ever. Seriously. Please listen to your agent. You're wasting your time. Please. Seriously. There is too much demand. #1 place people are moving to in Northern California. Remember that. You're not going to steal the home. No one is.
If You're Investing in Sacramento
Do it for the long-haul. 2008 was a looooooong time ago. And the next recession isn't going to be nearly as bad, so don't think homes are suddenly start being half price and banks are going to be dying to get them off their books. No going to happen. Ever. Seriously. At least I hope we're smart enough to learn from last time. Please listen to your agent.
Sacramento looks like it will continue to see increased migration from the Bay Area through 2020, so home values may continue to raise, albeit much more slowly than the HUGE gains they have made in the past. Rent growth has been amazing, so most rental or income property on the market has rents that are way below market and you can immediately increase value by raising them upon buying.
And understand that if you're a beginning Bay Area investor who wants to buy something more affordable than you can locally, but would still like to remain in the state, then Sacramento is probably your best bet. It's a two hour drive in case anything goes wrong and you can probably rent it to your current neighbor when they get sick of the Bay Area and decide to move there :-)
Summary:
All in all, no one has a crystal ball, but Sacramento is still ripe with opportunity whether you're moving there or investing. Buy right, and buy in the right area, and you can't go wrong. Even if there is a recession, it won't be like last time and Sacramento will continue to grow which will see it flourish in the future.
