Real Estate News

Sacramento new-home sales rising, but affordability concerns linger

Scott Lewis, 25, bought a detached, 900-square-foot condominium at The Mill at Broadway. The Mill sits near a freeway and industrial companies, but it is walking distance to downtown Sacramento jobs and the new sports and entertainment arena, which is attracting new first-time buyers like Lewis.
Scott Lewis, 25, bought a detached, 900-square-foot condominium at The Mill at Broadway. The Mill sits near a freeway and industrial companies, but it is walking distance to downtown Sacramento jobs and the new sports and entertainment arena, which is attracting new first-time buyers like Lewis.

Scott Lewis was shopping for an apartment a few months ago when it hit him: Rents were so high, he could own a home for the same monthly payment.

“I honestly felt that buying a house was out of reach, but then I ran the numbers,” said Lewis, who is 25 and just launching a career in financial planning. “I can afford this.”

He just bought a detached, 900-square-foot condominium for $343,000 at The Mill at Broadway, an urban-style community at an old lumber mill site south of downtown Sacramento. His parents and grandparents helped make the down payment.

Lewis is among a growing number of people entering the new-home market. Nearly a decade after the Sacramento region suffered its historic housing collapse, when tens of thousands of owners lost their new homes, builders and real estate watchers say 2016 could be the year home construction and sales come back alive, fueled in part by millennials, like Lewis, unscarred by the mid-2000s meltdown.

Michael Strech, president of the North State Building Industry Association, said homes were being built last month in 123 subdivisions in the region, the most in seven years. “We’re talking about a pretty significant trend here.” Those include some denser, more urban housing types, like The Mill at Broadway, that didn’t previously exist in significant numbers in Sacramento.

“In 2008, all the building was the same, single-family homes, three bedrooms, two baths, in the suburbs,” he said. “Now, projects all look different. That’s noteworthy. This is an interesting moment.”

Sales of new homes in the Sacramento region hit 447 in February – the highest monthly number in eight years, according to the North State Building Industry Association. That’s a large jump from the market bottom in December 2010, when only 59 new homes sold, though far from the early 2000s peak when more than 1,000 homes sometimes sold in a single month.

Prices for new homes tend to be higher than those paid for resale. Nine houses sold for an average of $1 million this year at The Cannery in Davis, a former tomato cannery being billed as a “farm to fork” community, where top-end homes are 3,702 square feet with up to six bedrooms, five baths, three-car garages, and solar power systems that generate as much energy as the house needs. Kevin Carson of The New Home Co. said buyers at The Cannery are doctors, attorneys and other professionals from Sacramento who like Davis’ schools and lifestyle.

The uptick, however, is tenuous and comes with concerns that new-home prices are out of reach for many would-be buyers. Many builders remain cautious, as well, unwilling to build homes unless they have buyers already at the door with checks in hand.


A recent survey by The Gregory Group, a Folsom-based housing industry consultancy, found the average new-home sales price in the six-county region last fall was $478,000, only 5 percent lower than it was during the height of the housing bubble in 2006. Similarly, an analysis by Metro Study, a housing research group, put the median price for a new home in Sacramento County last year at $434,000, also only a bit below new-home prices in the county at the 2006 peak.

“Affordability is a growing concern” long-term for the regional economy, said economist Jeffrey Michael of the University of the Pacific. “It’s very difficult for builders to produce new homes for under $300,000,” given land costs and development impact fees, he said. Builders also cite higher labor and other construction costs. Michael said the problem extends to apartment rental rates as well.

The median price for existing or resale houses, often considered a different buying and selling market than new homes, is lower. It was $288,000 last year, considerably below the 2006 market peak of $369,000, according to data from the Sacramento Association of Realtors.

The building industry’s ongoing caution can be seen in Sacramento’s Natomas area, a former boom town where builders were forced to abandon thousands of lots for years because of a flood-risk moratorium imposed by the federal government. When that ban lifted last June, city officials decided they would allow 1,000 home construction permits in the first year, in hopes of avoiding a land rush.

The city’s limit turned out to be unnecessary. Nine months later, builders have requested only 188 permits.

David Ragland, whose GBD Communities owns 600 unbuilt Natomas lots, said he believes the demand exists in Natomas for homes in the $300,000 to $400,000 range, but it is taking awhile for builders to update plans from the mid-2000s, creating more open floor plans and energy and water-efficient designs.

Going forward, the new-home market depends on continuing demand from a new generation of buyers. But it’s not clear to what degree millennials are buying into the time-held American dream of homeownership.

Jordan Venema, 33, is among the young professionals in Sacramento who likely will not be buying a home anytime soon, partly because he is priced out of the market, but also because he said he and friends do not aspire to be homeowners the way his parents’ generation did.

Venema, a writer and model, expects to make a little more than $40,000 this year, but he still has $20,000 in student debt after getting a liberal arts master’s degree. To him, success means improving his paycheck, paying down his debt, getting a larger apartment and a better car.

“Owning a home is not even on my radar,” he said. “Homeownership comes with its own mess. It is a lot of (responsibility) I don’t want to deal with.”

That reality has forced builders to become more strategic, Strech said, conducting focus groups with people Lewis’ and Venema’s ages, as well as baby boomers and others, asking what they want in a house. They found more potential buyers want or can only afford homes that are smaller, on smaller lots, easier to maintain, with lower energy and water costs. They say they want those homes to be part of a community with things to do outside the house.

For some buyers, that means looking to infill projects built on empty lots in existing urban areas, a type of housing that was seldom built during the go-go early 2000s, when developers focused on large subdivisions in the suburbs.

Infill development is one of the hottest new-home sectors right now – with new houses in historic neighborhoods commanding a premium. With the demand high, infill builders at The Mill at Broadway and The Creamery in Alkali Flat are pushing the city to speed up the permit process so they can build more houses quickly, said Sacramento Community Development Director Ryan DeVore.

“I’m encouraged by the options,” DeVore said. “There seems to be something for everyone right now.”

At The Creamery, located next to downtown Sacramento, BlackPine Communities has set prices for stylish, tri-level homes at $499,000 to $569,000, and reports it already has a long list of interested potential buyers for 122 homes.

Building industry data show 25 of the first 29 available units at The Mill at Broadway were sold in a five-month period as of February, some for under $300,000, a price that represents the lower end of new-home prices in the region. Built by a partnership that includes locally owned Bardis Homes, The Mill could eventually have 900 residences, a park, community garden, bike trail and public marketplace.

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The Mill sits near a freeway, industrial companies and low-income housing projects. But it is walking distance to downtown Sacramento jobs and the new sports and entertainment arena. Those attributes have attracted buyers like Lewis, who moved into his condo last week.

He said he looked at small-lot houses in Roseville and Rancho Cordova, but, having commuted 45 minutes to downtown from Elk Grove, he decided on The Mill because the commute is 15 minutes, and the yard work is handled by the homeowners’ association.

“I have time to do what I want to do,” he said.

Lewis said he is aware that the most recent generation of homebuyers suffered in the real estate meltdown that started in 2007. But he is undeterred. “I thought about it, but it didn’t hold me back from taking on debt,” he said. “It feels like it is a big stepping stone as far as life goes.”

Tony Bizjak: 916-321-1059, @TonyBizjak