With recession fears mounting, should home buyers and sellers in California’s capital region hurry up and make deals now, or hunker down and wait out the tempest?
The short answer: Neither of those extreme reactions appear appropriate. After seven years of rising prices, the Sacramento and California residential housing markets are susceptible to changes of direction. But no one can predict when a recession might hit, or how bad or how long it may be.
The consensus is that the next recession will not be the punch in the gut the Great Recession of 2007 was, when home prices plummeted and tens of thousands of Sacramento-area residents lost their homes to foreclosure.
“It’s hard to think the housing market is going to be swayed much if it’s a quick recession,” writes Ryan Lundquist, a Sacramento real estate analyst. “But if buyers and sellers end up struggling financially and losing jobs, we can expect a greater effect on home prices.”
At the moment, the Sacramento housing market is calm. New data from CoreLogic, a national real estate data consultancy, indicate buyers and sellers are cautious, but unafraid to make deals.
The total number of house sales in July was up slightly from last year and was similar to average years over the past two decades, after several months of slightly lower sales volume.
In Sacramento County, the median price for a home sale inched up to $377,000, from $371,000 the previous month. That is still below the high-water mark of $387,000 in August of 2005, just before one of the greatest real estate busts in state history. That price, with inflation factored in, would equal a $506,000 home sale today, according to the federal Bureau of Labor statistics.
Kim Pacini-Hauch, who sells high-end homes, including a recent Sacramento County record-setting $5 million estate, said sales of million-dollar-plus homes have been solid in recent few weeks. The newest entry on the market is the $2.45 million Arden-Arcade estate owned by Tower Records founder Russ Solomon, who died last year.
“We’re busy. The market is strong and there are buyers out there,” she said. “Yes, they are picky. We have a large geographic area to buy from. But it feels robust right now.”
Many California and Sacramento residents nevertheless remain spooked by the Great Recession of 2007 that lingered in Sacramento into 2011. The risk in a recession is that housing prices will drop if people are unwilling or unable to buy.
Brent Wilson, a mortgage strategist in Folsom with Finance of America Mortgage, said that question comes up occasionally among clients. His take: People should be willing to buy a house as long as they aren’t over-reaching on their mortgage, they feel their job is secure and plan to hold onto the house for awhile in case the value dips.
“If they have a longer-term horizon, there is less inherent risk because there is more time to ride out a storm,” Wilson said.
Statewide, the real estate picture looks similar – if slightly less optimistic.
The latest statewide real estate overview by the state Legislative Office shows warning signs: “Sales remain relatively weak, but not as weak as is typically seen before economic downturns.”
Residential building permits are down 17 percent from last year, a signal that the building industry is becoming more cautious, partly because of the Trump administration’s trade fight with China, and partly because labor and materials costs were already high.
Overall, statewide, house sales have been up nearly 5 percent this year, thanks mainly to historically low interest rates.
“While it’s encouraging that home sales crept higher in July, the market will continue to be challenged by an overarching affordability issue, especially in high cost areas such as the Bay Area, which requires a minimum annual income well into the six figures to purchase a home,” said economist Leslie Appleton-Young of the California Association of Realtors.
CoreLogic data show the Bay Area real estate market in particular has faltered this summer. Median sales prices declined in July for the third month in a row, and the Bay Area saw 12 straight months of declines in the number of homes bought and sold.
Despite that, the median price of a Bay Area home remained above $900,000 in July, far higher than the Central Valley home median of $345,000, suggesting that Sacramento and the Valley will remain an attractive place to buy among people priced out of the Bay Area market.
So what does that mean for someone on the fence about selling or buying a house? Mark Hamrick, a nationally-known economist for Bankrate.com, says that buying or selling a home should be based on a person or family’s individual needs at the moment.
“We have a saying: ‘People don’t get married when wedding dresses go on sale,’“ he said. “People need to be prudent with their finances. That includes don’t overextending oneself in buying a home, but also not to panic.”