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Sacramento Housing Market Among The Most Susceptible to a Recession Downturn
By Aly J. Yale MONEY RESEARCH COLLECTIVE
During the pandemic, Sacramento became a popular place to settle for coastal dwellers who left the Bay Area and flocked inland. But such moves have now declined, and the capital’s once red-hot housing market is cooling — and could cool further should the economy fall into a recession, according to a new Redfin report.
While many experts say we won’t see a housing market crash in the U.S., the report suggests that certain hotspots that saw an explosion in prices are vulnerable to price declines in a recession. It’s due to various factors, including home price volatility, higher rates for mortgages, housing supply elasticity, domestic migration, and more.
Local housing markets come off the boil
Three California cities made the list of those across the country whose housing markets are most vulnerable in the event of a recession: Riverside, Sacramento and Bakersfield.
In part, that’s because of the housing market climate. “Back in January and February, things were still roaring in housing markets across the country,” says Schery Bokhari, a senior economist at Redfin and one of the report’s co-authors. “But then interest rates went up in March and April, and some of the markets started cooling really rapidly. Sacramento was one of those markets.”
It’s true: Home sales in Sacramento were down considerably in July, and the average home actually sold for 2% below the list price. (This time last year, homes were going for 3% above list.)
Bidding wars have also dropped quite a bit. Only 47% of Sacramento home sales saw a bidding war last month versus 66% a year ago.
“All the metrics have changed,” says Ryan Lundquist, a Sacramento real estate appraiser and market analyst. “Technically, at the moment, they’re sort of at normal levels. I think the one thing that’s not normal — that really speaks to demand waning — is we had about 30% fewer sales happen compared to the same time last year. So, 30% of the market didn’t participate in July. That’s a big deal.”
Does it mean a downturn or dip in housing prices is on the horizon, though? And if so, what does that mean for your home? Here’s what you need to know.
What a “downturn” might look like
While Sacramento might have a higher risk of a downturn than other cities, that doesn’t necessarily mean it’s going to happen — or that the slowdown is likely to be extreme.
“The Sacramento housing market is experiencing a cooldown, but it’s a far cry from the 2007 to 2008 crash,” says Anna Stender, director of agent growth at Best Sac Homes Group. “The housing market is a lot healthier today. There are stricter lending regulations, and homeowners are sitting on record levels of equity.”
She’s right: According to ATTOM Data Solutions, about 57% of Sacramento homeowners are “equity-rich” — meaning their mortgage balances are less than half their home’s value. That home equity provides a hefty cushion should home values start to decline, and it would likely prevent any large wave of foreclosures from occurring — even in a recession.
Still, that doesn’t mean the market isn’t changing. While prices haven’t outright declined yet, their growth has slowed. According to the Sacramento Association of Realtors, the median sale price increased just 7.7% from June 2021 to June 2022. That’s divergent from the double-digit price growth seen last year.
Inventory is up, too. Active listings jumped 22% from May to June and are now up 73% compared to last year when there was severely low inventory. Though it’s not a buyer’s market just yet, sellers are forced to be “more reasonable” and come to the table ready to negotiate, says Waheed Akhtar, a Sacramento real estate agent with RE/MAX Dream Homes.
“Sellers are softening up,” Akhtar says. “They’re offering options to buyers. They’re not only lowering the prices a little bit; they’re offering to pay down the buyer’s rates and offering money back to the buyer.“
As mortgage rates are rising and the market is changing, those considering selling their homes may want to do so sooner rather than later to avoid missing out on extra money.
