Sacramento-area real estate values hit a historic high. What will prices do this spring?

The Sacramento region’s high-flying real estate market hit a landmark median sales price last month – $500,000 – and is showing no signs of calming down as the spring buying season arrives. It’s prompting concern among real estate experts who say the market is way out of balance.

Several year-long trends favoring sellers over buyers look to be continuing:

• Few houses are up for sale. That number did increase in February and early March, but not nearly enough.
• Those that go on the market sell fast with multiple bids.
• And, as of February, sales prices were typically 5% to 10% above asking prices.

“It’s been utterly insane out there,” said Sacramento market analyst Ryan Lundquist, who compiled February sales trends. The market feels more like an auction in the past half year, he said, where buyers put in their bids against a half-dozen or sometimes 10 or more others.

Although the current median sales prices in Sacramento are at all-time highs in pure dollars, according to Lundquist’s review, they are still not quite as high, inflation-adjusted, as the top median prices in the overheated summer of 2005 just before the Great Recession and the real estate market crash.

Here’s a breakdown of prices in Sacramento-area counties:

• In the Sacramento four-county region, the February $500,000 median price tag is still lower than the inflation-adjusted peak in August 2005 of about $564,000. (The non-adjusted median back then was $419,000.)
  
  
• In Sacramento County, the February median was $460,500. (That is below the $375,000 peak in 2005, which would equate to about $503,000 in today’s dollars.)
• Placer County hit a median of $598,000 in February. (The 2005 high median of $505,000 would equate after inflation to a $680,000 price today.)
• El Dorado County’s median fluctuates more monthly than other counties because of fewer sales and larger fluctuations in home sizes. The February median was $550,000, also below the 2005 peak.

The influence of mortgage rates

One positive note for buyers is that mortgage rates, currently at about 3%, are roughly half what they were back in 2005, making monthly house payments much lower than then.

But those historically low mortgage rates have been on the rise since early January. If that continues, real estate analysts say, it could put even more pressure on buyers to land a house now, prompting more bidding and higher prices this spring.

Folsom-area mortgage broker Brent Wilson, of Finance of America, says it’s impossible to predict what will happen this year with mortgage rates, but said, “one thing is for sure: There is more room for rates to go up than there is for them to go down.”

That – and the economy’s emergence or partial emergence this year from the COVID-19 pandemic – have made the market more unpredictable than usual.

“It’s hard to know for sure what is happening,” said Oscar Wei, an economist with the California Association of Realtors. “You probably will see people still try to go into the market before interest rates rise further.”

It appears Sacramento home prices have continued to rise in early March, and real estate economists say they expect that to continue at least through spring.

Economist Wei said he would not be surprised to see sales prices rise 10% during the upcoming buying season.

However, he acknowledged that the price increase could stall in the next year. One factor could be that that COVID-19 mortgage forbearance protections will eventually be lifted, which probably will force some homeowners into distress sales at lower prices.

“It could lower the market price a little bit,” Wei said. “You might see some (price) adjustment (overall) in the market, 2%, 3% 5% because of distress sales in 2022.”

What will home sellers do?

Sacramento hardly stands alone as a place where it is hard to find a house to buy. That trend is national.

A new study, though, found that in 2020, Sacramento tied for 10th among large metropolitan areas with the least amount of homes for sale per 10,000 homes, according to an online software company for property inspections, Inspection Support Network (ISN).

The ISN review found that a handful of other California markets were even tighter than Sacramento: San Jose-Santa Clara, El Centro, Vallejo, San Francisco-Oakland-Berkeley, Modesto, Santa Cruz-Watsonville, Fresno and Stockton.

The critical question in the coming months is whether willing would-be sellers who have been sitting on the sidelines since last year will re-enter the market in anywhere near normal numbers.

At the moment, analysts say, some are choosing not to sell because they don’t want to join the crowd of shoppers looking for a house. (About 54% of people who typically put their houses on the market in California do so in order to buy another house, according to state realtor association data.)

Meanwhile, rising prices are taking a toll on Black and Latino families, in particular, according to a new review by the California Association of Realtors.

“Less than one in five Black California households could afford to purchase the $659,380 statewide median-priced home in 2020, compared to two in five white California households who could afford to purchase the same median-priced home,” CAR reported.

Latino households faced a similar affordability gap.

According to CAR, a minimum annual income of $122,800 was needed in January to make monthly payments of $3,070, including principal, interest, and taxes on a 30-year fixed-rate mortgage at a 3.30% interest rate for a California median-priced home.

This story was originally published March 17, 2021 at 5:00 AM.