Twenty-nine cents on the dollar.
That's what homebuyers now pay for a typical house in the Sacramento region compared to buyers in San Francisco. And if history is any guide, that mounting price gap could have a big impact on Sacramento's housing market and economy in the not-too-distant future.
The last time the spread between Bay Area median prices and Sacramento median prices grew so big was a decade ago, just before tens of thousands of Bay Area transplants arrived in Sacramento, turning a healthy housing market into a bona fide boom.
Since then, that wave of transplants has slowed to a drip, with barely more residents relocating from the Bay Area to Sacramento than heading in the other direction.
Several local real estate experts and economists said they don't expect to see another approaching fleet of U-Haul trucks quite yet, with the possible exception of a few being driven by carefree retirees.
"It's a different market now," said Suzanne O'Keefe, a Sacramento State economics professor. "Everyone is more cautious. The housing market isn't going to rebound quickly because people move from the Bay Area."
O'Keefe and others note that the local job market is stalled; cheap housing is available elsewhere; and many Bay Area residents already cashed out home equity during the boom. Just as key: Bay Area home prices are less expensive than they have been in years. A San Francisco condo worth $1 million in 2005 would sell today for about $840,000.
But even if Bay Area transplants aren't about to swoop into Sacramento tomorrow on white horses, many expect their numbers to increase, helping to put a floor on falling home prices. To bolster their case, these optimists point to past trends.
The San Francisco and Sacramento housing markets are closely entwined. Growing price differences between the two areas preceded and fed the last two housing booms.
The calculus is simple: Bay Area residents see their modest homes sell for immodest prices, and decide to cash out and buy quasi-mansions in Sacramento.
Right now, the median home price in the Sacramento region is about $185,000, according to data from Wells Fargo and the National Association of Home Builders. In San Francisco-Marin-San Mateo, it's $630,000. In the San Jose area, it's $454,000.
David Bicknell, the local franchisee for Intero Real Estate Services, is putting money behind his premonitions of a coming influx. His company recently opened offices in Folsom and El Dorado County and plans more expansion.
"More and more people are able to move to the Sacramento area," Bicknell said.
Influx of equity-rich retirees seen
Bicknell is encouraged by the local tech sector, which he believes is rebounding.
Intel Corp., one of the local region's largest private employers, recently hired 368 new workers at its Folsom campus, reversing more than a decade of downsizing.
The new hires increased Intel's local workforce by about 6 percent to 6,515 workers. Many are recent college graduates who have relocated to the region, the company said.
Tech company Bloo Solar of El Dorado Hills plans to hire another 40 or so workers over the next several years as it expands its solar manufacturing plant.
"We see this as a continuing trend," Bicknell said. "The homes are nice, the schools are good, and the cost of living is so much lower."
Retiring Bay Area baby boomers are just as important to Bicknell's strategy.
The last generation of retirees largely drove the big influx from the Bay Area to Sacramento 10 years ago. The town of Lincoln quadrupled in size during that boom, partly because of senior citizens arriving from places like Santa Clara County.
Assuming they have a pocket full of cashed-out equity, retirees might not worry as much as others about Sacramento's difficult economy.
"There's a lot of potential out there for the active adult market," said Dean Wehrli, a senior manager at John Burns Real Estate Consulting. "That part of the market is increasing, and it's going to be like that for 20 years."
Granite Bay Realtor Eve Fenstermaker said she has noticed more interest from prospective Bay Area buyers since last spring. She gave the example of a client who lives in the exclusive Blackhawk area of Contra Costa County. Two years ago, the woman balked at moving because of declining prices in her neighborhood – and corresponding lost equity. With prices recovering, she is considering Sacramento.
"If you can sell your house in the Bay Area for $900,000 and can buy a comparable house here for $725,000, why wouldn't you do it?" Fenstermaker said.
Douglas Booher, a 34-year-old Southwest Airlines pilot based in Oakland, recently looked at several homes in Folsom and El Dorado Hills. He likes the schools and the proximity to Lake Tahoe.
"If we can live in Sacramento in a nice home – maybe not our dream home, but a nice home – then we will have more money left to play with," said Booher, who rents in Clayton and spends much of his time on the road. "It's worth the two-hour drive once a week."
Falling prices frighten many buyers
Several economists, though, cautioned that new residents like Booher will likely remain anomalies in the near term.
Many Bay Area homebuyers are scared by Sacramento's falling home prices, seeing the market as risky. Before the last two booms, the real estate markets in both the Bay Area and Sacramento region were relatively stable. Today, the Bay Area is recovering faster than Sacramento.
Despite that recovery, home prices in San Francisco are still at 2004 levels. (They are at 2000 levels in Sacramento.) So a lot of Bay Area residents aren't feeling priced out of the market, unlike during much of the housing boom.
Other Bay Area residents bit the poison apple and refinanced during the boom, leaving them underwater on their mortgages and unable to pull out equity for homes here.
"Even if you have plenty of equity left, you might want to wait a bit" until the market stabilizes, said Jeff Michael, an economist at the University of the Pacific.
For those without much cash, a move to Sacramento can be tough, largely because of the tight job market.
Unemployment in the Sacramento region has hovered at 12 percent for more than a year, roughly three percentage points higher than the rate in the San Francisco-Marin-San Mateo area.
Affordable housing doesn't mean much to working families if it doesn't come with employment.
Some, like Booher, might choose to live here on the cheap and commute to San Francisco. But home prices are also low in places closer to the bay, like Vacaville and Fairfield. Why commute from Sacramento when a shorter drive is available?
"Some of that underbrush has to clear first" before extreme commuters start coming here, said Wehrli.
Those obstacles are immediate, but likely transitory, said economist Stephen Levy. The Bay Area and Sacramento have danced to this tune before, and they'll probably one day dance to it again.
During the last boom, Levy noted, people felt priced out of the Bay Area and moved here. Likewise, many Sacramento residents felt priced out here and moved to even-cheaper places like Texas.
The last several years, then, have marked a massive, dramatic, painful correction, said Levy, director of the Center for Continuing Study of the California Economy in Palo Alto.
When the dust settles, if people from the Bay Area – or anywhere – think housing costs have gotten too high in their community, there's a good chance they will look to places like Sacramento.
And that's a selling point for the region, he said.
"This makes the Sacramento region more competitive," Levy said. "If I was a leader in Sacramento, I'd be talking to businesses about how their workers can afford to live here."
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