The State of Sacramento Real Estate Right Now

If you listen very carefully to the wind in Sacramento this morning, you can hear Ollie’s voice over the freeway hum: “This is another fine kettle of fish you’ve gotten us into, Stanley.” Because that’s precisely the sentiment I feel when I look at the condition of the 4th quarter of our Sacramento real estate market.

It’s not that any one person makes the real estate market in Sacramento what it is, but we do need to work within it when you’re a Sacramento real estate agent. I just don’t know whom exactly to blame for it, so I’ll pick the Feds because that’s an easy target and I didn’t get enough sleep last night. I’m still on Florida time, haven’t quite recovered from the Dry Tortugas.

Now, in case you’re thinking that I’m going to tell you some terrible news or say it is not a good time to buy or sell, that is not about to happen. I just report what I see and then figure out how to work within that framework to best position my clients.

First, let me say the market is typically seasonal in Sacramento. Just because we have more days with sunshine than without doesn’t mean real estate sells like gangbusters all year long. We experience ebbs and flows. In the graph above, though, inventory has been steadily falling, along with the pending and closed sales. But it doesn’t mean prices are following suit.

Second, the market has been relatively flat with regard to home prices. You can see in this next graph that our square-foot home prices have remained very stable since last summer. This could very well indicate that our big push for rising prices has leveled. As my 2014 real estate forecast predicted last year, I suspect we won’t see a lot of appreciation this year. But prices won’t fall.

I could show you the same graph for average home sales prices and median sales prices, and that graph would reflect the same behavior. Our median sales price in Sacramento County has jumped from $186,000 in October 2012 to $250,000 in December 2013. However, that $250,000 median price has remained stable since July.

Buyers don’t seem to know which end is up. I have seen offers range from ridiculous to borderline nuts. On top of this, many home buyers appear marginal, and then we’ve got the new federal regulations kicking in this month that say a buyer must be able to prove she can afford to buy a home. Who woulda thought this was a necessity? But they had to make a law, so you know it wasn’t.

In the last graph, you can see our absorption rate for Sacramento County. This is the number of homes that closed escrow as compared to the number of homes for sale. We had a slight uptick in December, but when compared to high points from last year, we are pretty low at the moment at 52.7%. This means about half of the homes that are for sale right now closed escrow last month. Compare this to December 2012 / January 2013 when that absorption rate was almost 125%.

Our inventory (number of homes for sale) is less than two months. This means it would take two months to sell every home we have for sale. It’s still a very strong seller’s market in Sacramento. The problem is we have fewer buyers and the buyers we do have are often marginal, with little in reserves. If home buyers have no reserves, it means sellers might need to start kicking in closing costs to help a buyer in Sacramento to purchase a home. If the buyer can find a home to buy because we have so little for sale.

Images: Trendgraphix