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Sacramento’s 2022 Real Estate Market

Sacramento’s real estate market was a wild, record-breaking ride in 2021. What do experts expect for home buyers in 2022?

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Sacramento’s real estate market broke records in 2021. The wild ride can’t possibly continue, can it?

The short answer, experts say, is yes. At least through 2022.

It’s been a difficult few years for those trying to buy a home in the four-county Sacramento region. Internal forces (a lack of inventory, especially) have combined with outside forces (persistently low mortgage rates and Bay Area telecommuters flooding the region) to make this one of the most competitive markets in the nation. It’s a lot to navigate.

“The people who have been sitting on the sideline, waiting for the market to correct itself – we just haven’t seen it,” said Sacramento region Realtor Kelly Pleasant. “Waiting for that miracle for the market to correct itself, we just haven’t seen it. And I don’t see it happening in 2022.”

The Sacramento Bee asked local, statewide and national real estate experts for their thoughts on what’s in store this year.

Should you jump off the sideline and buy that home you’ve been dreaming about? How much will prices go up this year? What needs to happen for the market to level off?

Let’s start with a quick recap of how we got here in the first place.

Record price increases in Sacramento

Sacramento real estate appraiser and analyst Ryan Lundquist said the region’s typical real estate values increased roughly 20% last year. Numbers released by Zillow, a national real estate firm, show roughly the same spike. In pure dollars, the $90,000 spike in the region’s median home price is a record, Lundquist said.

There are signs – subtle signs, perhaps – that the huge increases are slowing. Just don’t expect the curve to flatten anytime soon.

Jeff Tucker, an economist at Zillow, said his company’s models show the typical home value in the Sacramento region will go up roughly 15% this year. By comparison, those same models show increases of around 10% in the San Francisco and San Jose regions.

“I don’t see much of a reason for a major slowdown in the near term,” Tucker said.

Erin Stumpf, president of the Sacramento Association of Realtors, said the trajectory of price increases we’ve seen is likely not sustainable.

“Otherwise,” she said, “it will be wildly unaffordable for a lot of the home buying population.”

Will lower mortgage rates help?

Stumpf said this is a key marker to watch. If mortgage rates go up this year – as many expect – it could help slow the price increases.

Many homebuyers locked in mortgage rates below 3% recently. Rates have crept up a bit, but are still very low. Stumpf has a number in mind that could serve as a tipping point for many.

“If rates go up and approach 4%, psychologically to buyers that makes a lot of difference,” she said. “That payment becomes higher and that will put some pressure on keeping prices more steady.”

The last time rates went above 4% in 2018, the “market got dark for a bit,” Lundquist said. He agrees with Stumpf and calls mortgage rates an “X factor to watch.”

“We’re really sensitive to rate changes,” he said. “Theoretically, (higher rates) should help soften the market slightly.”

There’s a trade off for buyers, however. Higher rates might flatten prices and demand. But for the median-priced home in the region of $550,000, a percentage point increase from where rates currently sit would add more than $300 to a monthly payment.

Can Sacramento build more homes to meet the demand?

Not in one year, experts say. The city of Sacramento needs to build more than 45,000 housing units by 2029 to meet its need, according to a state analysis.

The Sacramento region has enough homes on the market to last less than three weeks. A healthier market has an inventory that would last a few months.

“I’m not sure I foresee a big old glut of inventory coming on the market, at least in the short term,” Stumpf said.

Jordan Levine, the vice president and chief economist for the California Association of Realtors, sees another year of large price increases, driven in no small part by the state’s limited availability of homes.

“We have all this demand with a limited inventory, a chronic (lack of a) supply of housing,” he said. “And that’s creating upward pressure.”

Should you buy a home in 2022?

The perfect time to buy in a market like Sacramento?

“Yesterday,” Pleasant said.

“2011 (at the bottom of the market),” added Stumpf.

They and others stress a personal approach to home buying: do it when it makes sense for you.

“Everyone wants to do it, but very few can successfully time the market,” Stumpf said. “The decision should be dictated by your personal circumstance and if your personal circumstance dictates you should buy a home, then get on it. The perfect moment is a fantasy.”

Many experts reject the concern that the region’s market is in a bubble. When the bottom fell out of the real estate market in 2008, the crisis was fueled by lenders issuing mortgages to buyers who borrowed beyond their means. “Most of my clients now are not overextending themselves,” Stumpf said.

So will we ever see a reversal, or at least a cool down?

“Markets don’t go up forever,” Lundquist said. “For anyone who says the market will go forever, that sounds more like fiction to me. But if 2020 taught us anything, it’s that nobody can predict the future.”

This story was originally published January 14, 2022 at 5:00 AM.