Home values in Sacramento have hit a stable patch, leveling out at prices that make sense given area incomes, rents and other basic economic factors, several experts said last week.
Jed Kolko, chief economist for real estate website Trulia, looked at 100 metropolitan areas recently to determine if they were overpriced or underpriced in the first few months of this year. He concluded Sacramento houses are undervalued by 4 percent. Given the margin for error, that assessment means prices are just about right, he said.
“It’s very close,” Kolko said.
Other inland cities, including Fresno and Bakersfield, are also undervalued, while coastal cities such as Los Angeles and San Francisco are overvalued, Kolko said in Trulia’s latest “Bubble Watch” report. The report takes into account economic “fundamentals,” including incomes, rents and long-term home price trends.
“The reason we do this is to see if prices are getting out of line with economic fundamentals and raising risk,” Kolko said.
Sacramento homes, for instance, were overvalued by 78 percent at the height of the housing bubble at the end of 2005, Trulia said. Rampant speculation and loose lending standards helped push prices beyond reason.
Economists and real estate experts said the fact that the median home price in Sacramento has leveled out in past months, despite low supply and steady demand, means it probably won't be going up as dramatically as it did in the past two years.
The run-up in home prices by 20 percent to 30 percent since early 2012 was largely a correction of values that had fallen too low, they said. During the crash, prices sank so much that investors bought homes by the thousands to turn into rentals. More recently, traditional homeowners have waded back into the market and helped boost prices.
Today, “those prices are starting to push the limits of what people are willing or able to pay for housing,” said economist Jeffrey Michael, head of the Business Forecasting Center at the University of the Pacific in Stockton. “I expect home value appreciation to be a lot lower than we’ve seen last year and the year before.”
At Lyon Real Estate, president Pat Shea said the region’s median home price has been relatively steady for eight months now, fluctuating between $280,000 and $290,000.
“That would be one of the indicators to me that says we have stability,” Shea said. “We’re still wrestling with just a couple of months of inventory, but you’re seeing the median stabilize right where it was in 2004 before the burst of monopoly money and falsely inflated sales (created a bubble). We’re right where we were 10 years ago.”
Homes that are priced well may still receive multiple offers, but buyers are cautious and generally won’t bid much over a house’s asking price, he said.
“People are not willing to overpay now that the market has corrected itself,” he said.
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