Millennials and Bay Area Transplants = Hot Sacramento Housing Market

There’s no denying the Sacramento housing market is hot! The question is…will it cool down or stall sometime in the next couple years? I say…NOT A CHANCE, and we have more than just Millenials and Bay Area Transplants to thank for that…

Macroeconomic Factors

Lending Standards

  • Banks were burned bad in 2008, and with good reason. Their loose lending practices, unscrupulous loan products, and very little borrower validation was a recipe for disaster. So what’s different this time around? After 2008, credit standards went from being spectacularly loose to extremely tight. Most all borrowers over the last 9 years have gone through extreme full documentation validation measures in order to get a mortgage loan. This has ensured the highest amount of qualified buyers to hit the mortgage market over the last decade.

Loan Programs

  • Variable rate, interest only, negative amortization loans were prevalent during the early 2000’s housing boom. These loan programs only address short term needs to keep the monthly payment affordable; however, when readjusted interest rates increased, after promo periods expired, the country had millions of homeowners facing skyrocketing monthly mortgage payments. This of course led to mass amounts of foreclosures, sending the housing market into a tail spin.
  • Since 2008 about 90% of all residential home loans originated have been Fixed Interest Rate loans.

Basic Supply and Demand

  • After such a long period of new development being next to non-existent, we have reached major inventory shortfalls for a rapidly growing group of new household formations (this includes Millennials, Gen X’s unable to buy during great recession, growing immigrant population, and so forth).
  • Increased building requirements and costs in California have kept new building from exploding to offset the increased demand. This can be attributed to drastic increases in permitting costs from 2006 to today, and increased building costs required to comply with very strict energy efficiency standards (Title 24 and California’s obsession to become a future net zero society).

 

Sacramento’s Microeconomic Factors

Sacramento Appreciation

  • The Roseville/Sacramento area was just selected by Realtor.com to become the #4 hottest metro area in the nation in 2017. We’re expected to see an annual sales growth of 4.9% and appreciation of 7.2% next year. Because of the lower inventory that’s stimulating this raise in home values.

Bay Area Buyers

  • Bay Area residents will continue to flock to Sacramento. With a continued year-over-year increase to the amount of our workforce telecommuting, you can only expect to see stronger demand over the next few years as Bay Area buyers seek a better quality of life created from more affordable housing, Sacramento’s continuous sunshine (no one likes the Bay Area fog), and eclectic diversity. Even though Sacramento’s private sector economy will continue to grow, a good portion of the Bay Area transplants will still be employed by Bay Area companies.

Strong Rental Growth

  • Bad news for renters, but great news for investors. Sacramento is projected to be the #1 rental growth market in the nation with 10% growth this year, and 8.5% growth next year. A large part of the reason for this is the massive migration of Bay Area transplants who are looking for more affordable living. And a big part of the migration is the younger generation of working professionals who are quickly realizing their money goes twice as far in Sacramento as it does in the Bay Area.We’re projected to have 18,000 – 20,000 people moving to Sacramento this year from the Bay Area alone. With a strong rental growth market, expect to see an increase in outside investment dollars contributing to further reduction in housing supply.

More Versatile & Resilient Economy

  • Shedding its stigma as solely a public sector economy. Sacramento has started to promote itself as “Silicon Valley East”, and the city is attracting tech companies to hasten job growth for the future. Over $10 million dollars has been set aside to help tech companies flourish in the next few years, and we’ll likely see this growth continue under the new mayor Darrel Steinberg.
  • See the proposition plan from the Greater Sacramento Economic Council, and you can’t help but imagine big things are in store for Sacramento!

 

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Written by:

Jesse Hinaman

Mortgage Specialist NMLS # 1411475, Essex Mortgage

jhinaman@essexmortgage.com | 916-934-3457

About the author: Jesse Hinaman

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