Real Estate News

Are Sacramento home prices reaching 'bubble' bursting levels?

Sacramento home prices hit 12-year highs last month, according to new data, fueling a discussion of whether the region is experiencing a bubble that could burst.

The median sales price in Sacramento County hit $360,000 in May, the highest price in any month since 2006, just before real estate prices took a major tumble amid deep recession. That's up slightly from the April median of $357,000, according to a report published by CoreLogic, a real estate data analysis company.

Median sales prices in El Dorado County and Placer also hit highs, at $518,000 and $490,000 respectively.

But the number of homes sold in the Sacramento region is up only 1.4 percent from this time last year, CoreLogic reports. And the number of existing homes on the market is stagnant. That suggests the local market is far from feverish.

Broker Randall Hom of Diversified Properties said he believes prices are inflated, and says he is seeing some "euphoria similar to 2005" before the market fell. He said he does not expect a similarly epic tumble, but the long uninterrupted period of price increases and recent rising interest rates may be "a precursor to a correction."

Appraiser and real estate analyst Ryan Lundquist says he, too, sees red flags, but he is not betting on a bust. Lending requirements, for one, are much stricter now.

"There is less room for prices to increase unless the job market and wage growth really start to move," he wrote in his Sacramento Appraisal Blog. "So it seems logical for the market to slow down. Yet there are many dynamics that make prices move, and nobody has a crystal ball to say exactly what prices will do in the future."

Compared to the Bay Area, Sacramento remains inexpensive. The median sales price in May in Bay Area counties was a record-high $875,000, up more than $100,000 from one year ago.

In San Francisco, the May median sales price was a record $1,380,000.

In the popular Laurel Village area of San Francisco, that amount will buy a 1,200-square-foot, two-bedroom, two-bath condominium, according to the Redfin real estate brokerage firm. In Sacramento, that amount will buy a Spanish Revival in Land Park, with 3,245 square feet, 4 bedrooms and 3.5 baths.

Sacramento-area real estate agents and home builders here say they are seeing an emerging migration of home buyers from the Bay Area to the Sacramento area this year, similar to movements in the early 1990s and early 2000s, when Bay Area prices became overheated.

Some builders predict one-third or more of home shoppers in the Sacramento region this summer will be from the Bay Area, which should fuel some increased prices.

Analyst Dean Wehrli of John Burns Real Estate Consulting said his company has projected continued price increases this year, with new home prices projected up 4.7 percent and resale prices up 8.2 percent. Wehrli said he suspects prices could increase even more, partly due to the push from the Bay Area.

Notable Sacramento sales data in May:

  • In Truckee, near Tahoe, where 19 homes sold in May, the median price hit $1.3 million, matching San Francisco's.
  • The lowest median price, among areas with substantial sales, was in the 95815 ZIP code in north Sacramento. There, 30 homes sold with a $210,000 median price.
  • In areas with at least 10 sales, the top price increases over last year happened in Sloughhouse near the Cosumnes River, and in Meadow Vista in the upper foothills. Sloughhouse prices were up 38 percent to $642,000. In Meadow Vista, the median price was $559,000, up 35 percent.

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