The Sacramento Real Estate Market: What You Should Know

Sacramento has lured a lot of people throughout the years. Boasting a healthy economic, educational and cultural environment — in addition to its undeniable charm — it’s no wonder that people are choosing it as their new home.

So, for those who, like many others, are considering a move to a prosperous and relatively affordable city like Sac, here’s what might be helpful to know about the local real estate market:

Growing Number of People Moving In

With a population of a little more than 500,000 residents, Sacramento is California’s state capital and the seat of Sacramento County. It’s also the sixth-largest urban center in the state. This up-and-coming city has been attracting quite a lot of attention over time, becoming a desirable destination for those looking to relocate.

Sacramento has also shown a steady population increase throughout the years, recording 1.12% annual boosts for a 14% overall rise since 2010. Even so, the pandemic further accelerated these existing migration trends, causing even more people to move to this thriving city. The main reason? A more affordable cost of living in Sacramento compared to the prohibitively expensive Bay Area.

With work-from-home and hybrid environments in place, living near the office stopped being a prerequisite for many. As a result, more and more people started fleeing the likes of San Francisco and San Jose, looking to get more bang for their buck. In fact, moves from San Francisco County to Sacramento County jumped by a shocking 70% in 2020, according to a recent report by CBRE.

And, despite the fact that California’s population declined for the first time in history — losing more than 182,000 residents in 2020 — the Sacramento region actually saw a population increase, netting 12,750 newcomers. What’s more, Sac became one of the fastest-growing cities in California.

But it should come as no surprise that people are choosing to live here. Specifically:

• For those who work remotely, Sacramento is a two-hour drive from San Francisco or San Jose, which is not that long for the occasional office visit.
• The city offers multiple educational opportunities and boasts a highly skilled resident pool, with more than 63% of locals holding college, bachelor and/or graduate degrees.
• For those looking to switch jobs, there are excellent career prospects in Sacramento. A little more than 80% of the employed population is comprised of white-collar employees, with most residents working in private companies (60%), followed by those employed in the city’s governmental institutions (24% of the workforce).
• Average household incomes are around $83,000 per year, and median household earnings sit at $62,000 — less than what’s being paid in San Francisco or San Jose, but also relative to a lower cost of living.
• Last, but not least, home prices and rents are much more accessible in Sacramento compared to the uber-pricey Bay Area.

Fierce Competition, Reasonable Home Prices

There are almost 196,700 housing units in Sacramento, 94% of which are occupied. Renters and owners are divided almost evenly here, with around 90,000 housing units (48%) being occupied by homeowners and about 96,000 (52%) by renters.

Sacramento has become one of the most in-demand places for buyers seeking bigger homes at better prices. But it’s not that the city isn’t expensive. It’s just that it’s more affordable compared to its ultra-costly neighbors — and the increased number of Bay Area residents who chose to live here proves just that.

As you might expect, San Franciscans and San Joseans moving to the city have been spurring demand for homes in Sacramento. However, with a limited housing inventory, it was only natural that real estate prices would rise. And, because newcomers from the Bay Area earn more than Sacramento folks, they’re fueling steeper price increases.

Moreover, a growing number of investors have started taking advantage of this high demand for housing in Sacramento by flooding the market and competing with homebuyers themselves — according to Sacbee.com, in the last three months alone, 19% of residential real estate in the area was bought by investors. Compared to a year ago, that’s a 46% boost.

This overall imbalance between demand and supply — coupled with low mortgage rates, as well as inflation — has led to fierce competition in Sacramento.

Yet, despite this recent trend, it seems that Sac has been a seller’s market for quite a while. In fact, it’s actually one of California’s hottest real estate markets. According to NeighborhoodScout.com, Sacramento has experienced some of the highest home price appreciations in the country during the last 10 years — 183%, to be exact (an annual average of 11%). Because of this, the city is in the top 10% of American communities when it comes to real estate appreciation. And, while other housing markets experienced downturns due to the pandemic, the Sacramento market continued strong, boasting a 21% increase in the last 12 months — higher than 80% of the communities in California and 94% of the communities in the U.S.

Meanwhile, as reported by the Sacramento Association of Realtors, median and average prices for single family homes in Sacramento County were $522,000 and $572,000, respectively, in January 2022, both showing a 17% year-over-year (Y-o-Y) jump. The average price per square foot sat at $400, while the median number of days on the market was only eight and the average number of days on the market was 21. Of homes sold during this time, 69% were acquired using conventional loans, 12% with cash, 11% using FHA loans, 5% using VA loans and 3% with other types of financing. Active inventory also increased by 9% from the month before and 10% from a year ago.

On the other hand, condos in Sacramento County were on the more affordable side, boasting median and average prices of $269,000 (a 20% Y-o-Y boost) and $282,000 (an 11% Y-o-Y boost), respectively. Condos remained on the market for an average of 28 days, and 67% of them were bought using conventional loans, 19% with cash, 11% using FHA loans, 2% with VA loans and 1% using other financing options. Remarkably, condo inventories here decreased by a whopping 41% relative to a year ago.

Zooming in, real estate differs from area to area. To get a glimpse of the local communities, here’s an overview of Sacramento County zip codes, with home prices sourced via the Sacramento Association of Realtors as of January 2022. Additional demographic stats were included:

The main takeaways from the table are:

• 95864 (comprising Arden Oaks, Arden Park Vista and American River Rd.) is one of Sacramento’s wealthier areas, boasting median incomes of more than $100,000 per year, but also showcasing home prices as high as $910,000 (even though real estate values decreased by 26% compared to a year ago). Residents in this zip code have a median age of 46.4.
• 95831 (Greenhaven, Pocket and Riverside) is also home to people older than 40, while the median age in 95832 (Meadowview and Freeport) is 29.7 — the youngest community in the county.
• Other more affluent areas where residents earn more than $100,000 annually are 95819 (East Sacramento) and 95835 (North Natomas).
• 95816 (Midtown/East Sacramento) and 95811 (Midtown/Downtown) come in with home prices of a little more than $800,000. Located in the city’s core, 95811 also has the smallest number of residents — around 6,300.
• The most populated zip code in Sacramento — 95823 (comprising South Sacramento, Parkway and Valley Hi) — is home to almost 80,000 people, and next up is 95828 (Florin) at approximately 59,000 inhabitants.
• The most affordable zip codes in terms of real estate are 95824 (South City Farms, Fruitridge Manor and Avondale) and 95815 (Woodlake, Noralto and South Hagginwood), with prices in the $350,000 to $351,000 range.
• 95821 (North Arden and Arcade) and 95817 (Elmhurst Medical Center and North/Central Oak Park) recorded home price hikes of more than 30% compared to the year prior, while 95818 (Land Park and Curtis Park) saw a whopping 41% increase.
• In addition to 95864, three other zip codes also recorded price drops: 95831 by 6%, 95819 by 10% and 95832 by a staggering 88%.

All in all, housing costs in Sacramento saw a 6% boost compared to a year ago and reached approximately $1,300 per month. However, they didn’t go as high as the $2,100 and $2,300 in San Fran and San Jose, respectively.

Rising Rental Market

The price-to-rent ratio is a useful tool for determining whether a specific market is fairly valued and whether it’s better to rent or buy in it. The ratio is calculated by dividing the median home price by the median annual rent. If the number is less than 15, buying a home is the right way to go; anything between 16 and 20 leans toward renting; and 20 and above indicates that renting is the best financial decision to be made.

Per SmartAsset, Sacramento has a price-to-rent ratio of 23.15, which means that renting here is currently more affordable than buying a home. Accordingly, the Sacramento region has recorded an increase in renters, which comes as no surprise — given the continuous rise in home prices throughout the years, more and more people have joined the renter pool. Furthermore, Sacramento is also a state capital and a university center, luring in an increased number of students who need rentals.

Similar to home prices, rents are also rising in Sacramento as low inventory levels struggle to keep up with higher demand levels. Notably, rent hikes in Sacramento are amongst the highest in the country. FortuneBuilders reported that rental prices in Sacramento have grown by 11.7% in the last year alone, and Freddie Mac expects them to rise an additional 6% this year.

As of February 2022, the average rent in Sacramento sat at $1,792 per month, slightly above the national average of $1,628, according to RENTCafe. Even so, compared to the Bay Area, rents here are pretty affordable — Sacramento boasts half the monthly rent of uber-expensive San Francisco ($3,230), while San Jose charges $2,754 per month. Conversely, with an average size of a little more than 800 square feet, most Sacramento apartments for rent (46%) are priced in the $1,501 to $2,000 range; 27% are between $1,001 and $1,500; and 26% are more than $2,000 per month.

Specifically, the most affordable neighborhoods in Sacramento — boasting monthly rents of around $1,200 — are:

• Airport
• Brentwood
• Carleton
• Freeport Manor
• Golf Course Terrace
• Hollywood Park
• Little Pocket
• Mangan Park
• Meadowview
• Woodbine

On the other end of the spectrum, the priciest areas (with monthly rents of more than $3,000) are:

• Colonial Heights
• Colonial Village
• Lawrence Park
• North City Farms
• South Oak Park
• Tahoe Park South
• Tallac Village
• West Tahoe Park

Booming Residential Construction

Most housing units in Sacramento were built between 1980 and 1989 (16%); 2000 and 2009 (16%); and 1970 and 1979 (15%). The city also includes multiple residential buildings that are quite old, with 11% of units hailing from 1939 and earlier.

In terms of new construction, only 2% of existing Sacramento homes have been built since 2010. Nevertheless, a new development boom is underway, as construction has increased rapidly, especially in recent years — according to Cumming Corporation, residential construction in Sacramento maintained a steady flow between 2016 and 2020, with annual market volumes of $4.5 million to $5.4 million. However, the pandemic brought forth a whopping 38% Y-o-Y increase in 2021, reaching an estimated market volume of $7.5 million.

At the same time, Sacramento’s unemployment rate remained below the national level, falling from 8.7% in 2020 to 6.6% in 2021. Not only was this due to the multiple steady government jobs in the area (in addition to occupations that could easily be done from home), but also because of the construction industry, which remained active in anticipation of the booming real estate market. To that end, a growing number of construction workers were employed in the area, with trade workers increasing from 70,172 in 2020 to 76,854 in 2021 alone.

All in all, Sacramento saw a construction spending index of 2.18 in 2021 — well above California’s 1.6 and the U.S.’s 1.35.

In particular, single family homes are the most popular type of real estate in Sacramento, currently taking up a little more than 60% of the market, according to NeighborhoodScout.com. Meanwhile, apartments complexes and high-rise apartments account for around 24% of the housing stock; duplexes, smaller apartment buildings and homes converted into flats are at 8%; and row houses/attached homes account for 7%. What’s more, Sacramento residents don’t like living in close quarters — three- and four-bedroom dwellings are the norm here.

In any case, it seems as though single-family living will continue to run the market. According to residential building data issued by First American Title, a total of 4,205 building permits were issued in Sacramento Country in 2021 for single family homes — 617 more than a year ago (3,588) — indicating a 17% increase. Alternatively, multi-family permits decreased from 2,868 to 2,266 for a 21% decline.

It’s no wonder that people are flooding Sacramento searching for bigger and more affordable homes. And, now that the pandemic seems to be coming to an end, more construction is on the horizon in an effort to meet the increased demand for housing.

Image: Norcal_kt / Shutterstock.com
Article By: Cristina Oprean