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Sacramento’s housing market will be one of nation’s hottest in 2017, Realtors’ site predicts

Look inside McKinley Village

The new urban village under construction along the Business 80 freeway in East Sacramento opened to the public in September.
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The new urban village under construction along the Business 80 freeway in East Sacramento opened to the public in September.

It’s still more subdued than it was a decade ago during the housing bubble, but Sacramento’s housing market is about to become one of the hottest in the country, according to a prominent online real estate site.

Realtor.com predicted Wednesday that greater Sacramento will be the nation’s fourth-hottest housing market next year, as measured by price appreciation and growth in sales volume. Sacramento trailed only Phoenix, Los Angeles and Boston in Realtor.com’s rankings of the 100 largest metro areas.

Sacramento’s strengths are relative. Much of the country is expected to slow down somewhat in 2017 as mortgage rates increase and other factors kick in. That leaves Sacramento looking better than most, said Javier Vivas, an economist at Realtor.com.

“We’re not saying it’s going to be a booming market,” Vivas said. But he said the Sacramento area will enter the upper echelons thanks to solid job creation and “pure, sheer population growth.” Much of the population growth will be spillover from the Bay Area, he said.

Sacramento home prices will grow 7.2 percent in 2017, according to Realtor.com’s forecast. The volume of home sales in the four-country region is expected to increase a more modest 4.9 percent. Taken together, that puts Sacramento at No. 4 overall.

And what about the white-hot Bay Area, whose prices help fuel population growth and housing demand in Sacramento? Realtor.com said Bay Area housing prices are expected to continuing climbing sharply, by more than 8 percent. Yet growth in home sales volume will be minuscule, just above 1 percent, leaving the Bay Area barely in the top 40 in Realtor.com’s overall rankings of housing market activity for 2017.

Realtor.com’s Sacramento forecast represents something of a jolt for a community that has spent the past 10 years recovering from the bursting of the housing bubble.

“That’s encouraging; I like the sound of that,” said Kevin Carson of the New Home Co., a partner in the highly visible McKinley Village housing project near East Sacramento. “We’ve been on the sidelines for so long compared to other markets.”

Carson said he thinks the forecast is plausible, based on what he’s seeing on the ground. He was amazed that six homes sold last week at McKinley Village despite rainy weather and the Thanksgiving holiday lull.

“That normally doesn’t happen,” he said.

Andrew LePage of CoreLogic, the Irvine-based market researcher, said Sacramento appears to be “one of the hotter markets,” but it’s difficult to say exactly where it ranks.

Others were skeptical of Realtor.com’s rankings.

“God bless ’em, but I think that’s aggressive,” said Pat Shea, president of Lyon Real Estate, when told of the forecast. He said he thinks sales volume will be flat and prices will grow by something closer to 5 percent.

Shea said the Sacramento region still suffers from an inventory shortage and a relative scarcity of high-paying jobs of the type found in the Bay Area.

Ryan Lundquist, an independent real estate appraiser, said overall demand is strong in Sacramento but buyers remain price-sensitive and won’t overpay.

“Buyers are very picky about paying the right price,” he said. “If it’s not priced correctly, it’s going to sit instead of sell.” He said price appreciation has cooled off since 2012 and 2013, when the market stirred to life in the aftermath of the recession.

Clearly, Sacramento is still digging out of the enormous hole created when the housing market collapsed. While job growth has driven unemployment in the region to 5.2 percent, the housing market isn’t completely healed.

CoreLogic said Sacramento County’s median home price of $310,000 was still 17 percent below the pre-recession peak. Placer County’s median price of $429,000 was 15 percent below the peak. When price inflation is factored in, LePage said the disparity between current prices and the peak is even greater.

Prices are growing more slowly, too, compared with a decade ago. Realtor.com’s forecast of a price increase of 7.2 percent next year would be well short of the 20 percent annual gains recorded during the bubble era, when low interest rates and loose lending standards fed a surge in activity that proved unsustainable.

One of the big factors in Sacramento remains the strength of the Bay Area market. In a hot market, many buyers in Sacramento are Bay Area refugees seeking cheaper housing and a quieter lifestyle. Median prices in the Bay Area have jumped 6 percent since last year, to $675,000, according to CoreLogic.

Although sales activity in the Bay Area has tailed off somewhat, real estate executives such as Carson believe those residents are still looking to Sacramento as an alternative.

“They’re still creating jobs in the Bay,” Carson said. “I do think people are getting out.”

All told, Realtor.com said it expects the U.S. housing market to cool off slightly in 2017 compared with the past two years. Prices nationwide are expected to climb 3.9 percent, while sales volumes should grow 1.9 percent. The forecast said rising mortgage rates – about four-tenths of 1 percent since Election Day – are likely to dampen sales activity.

The MAY Building at 11th and K streets in downtown Sacramento opens this week with 21 upscale apartments. Rents will range from about $1,850 to the high $2,000s.

Dale Kasler: 916-321-1066, @dakasler

In good company

Sacramento will be the nation’s fourth-hottest housing market in 2017, according to Realtor.com

1. Phoenix-Mesa-Scottsdale, Ariz.

2. Los Angeles-Long Beach-Anaheim

3. Boston-Cambridge-Newton, Mass./N.H.

4. Sacramento-Roseville-Arden-Arcade

5. Riverside-San Bernardino-Ontario

6. Jacksonville, Fla.

7. Orlando-Kissimmee-Sanford, Fla.

8. Raleigh, N.C.

9. Tucson, Ariz.

10. Portland-Vancouver-Hillsboro, Ore./Wash.

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