Summer slowdown? The signs Sacramento’s real estate market might be starting to plateau

Median home sale prices in the Sacramento region hit record highs yet again in May, continuing what is now a year-long price surge in the capital region.

The Sacramento, Placer, El Dorado and Yolo counties areas median sales price was $560,000 in May, an increase of $20,000 in the last month and up a dramatic $125,000 in just the last year.

However, there are some early signs the market’s hot pace may be slowing.

Houses are staying on the market a day longer than they had been and slightly fewer homes are getting multiple offers, according to a May review in the Sacramento Appraisal Blog.

That said, the market is still very hot and out of balance, with many more buyers than sellers.

“It’s more like housing was driving 135 mph and now it’s driving 127 mph,” analyst Ryan Lundquist said. “The market is still 100% on steroids.”

Mortgage interest rates remain historically low, a key factor in pushing prices up and pushing people to buy.

Sacramento may simply be hitting its annual late spring buying season plateau, Lundquist said.

But, given that the price increases in the last year are ultimately unsustainable, according to real estate analysts, Sacramento and the rest of the country may be seeing early signs that would-be buyers are “worn out” and unable or unwilling to compete for a house, Zillow economist Jeff Tucker said this week.

Bay Area migration slowing?

It also may suggest that there are fewer people interested in buying in Sacramento as the COVID-19 pandemic wanes, and as people contemplate heading back to the office to work rather than telework from home.

The area’s hot real estate market has been bolstered in recent years by refugees from the Bay Area’s high prices, a surge that increased in 2020 when more people were able to move to Sacramento and maintain Bay Area jobs via teleworking.

The new home sales market in Sacramento also has eased up, again a potential sign that the influx of Bay Area buyers may be slowing.

There were fewer homes sold in the region in May than in April. But the 570 new homes in May represented the second highest May number since the end of the Great Recession in 2011.

“Despite the modest drop-off in sales last month, the demand for new homes in our region remains incredibly strong,” said Michael Strech, head of the North State Building Industry.

Almost of all of that construction occurred in Sacramento County, where construction is going full tilt, particularly in Folsom, and in Placer, led by Roseville and other south Placer cities.

Placer has highest home sale prices

The Sacramento region has been described repeatedly as one of the hotter markets in the country, in part because of people moving here from the Bay Area.

But a data review shows that overall, housing price increases in Sacramento slightly lag the dramatic price increases in the state in the last year. Sacramento County residential real estate prices jumped 22.5% from last April, while statewide the increase was 34%.

Placer County has the highest May median sales price at $660,000, according to Lundquist’s review, followed by El Dorado at $651,000.

The median sales price of homes sold in Sacramento County in May was $499,000.

California, national real estate forecast

The state and national real estate markets are experiencing runs similar to Sacramento’s.

Tucker, an economist with Zillow, a national real estate services company, said buyers have had “the pedal to the metal” in recent months, but appear to be backing off slightly now.

“I think part of it is buyers are worn out,” he said. “There does seem to be a bit of a pull back. It could help bring a little more balance to the market.”

Tucker said Zillow is forecasting prices to continue to rise over the next few months, but “the pace of appreciation has got to slow down. It is simply unsustainable.”

Oscar Wei, an economist with the California Association of Realtors, said prices may “soften” heading into summer.

But, “I don’t think there are going to be dramatic changes,” he said. “We still have a tight supply” of houses for sale.

This story was originally published June 11, 2021 at 5:00 AM.