Striking Gold in Sacramento
Why We’re Long on the Sacramento Real Estate Market (And You Should Be, Too)
On January 24, 1848, James W. Marshall found gold in Coloma, California, about 35 miles east of Sacramento. Thus began the California Gold Rush.
Today, people most often associate the Gold Rush with San Francisco, Levi’s Jeans and the 49ers. In doing so, they overlook the fact that it was the Central Valley, not the Bay Area, that gave birth to the period which ultimately led to California’s statehood.
In a way, this parallels today’s real estate landscape, as investors flock to the Bay Area in hopes of elbowing their way into a hopelessly congested market. Most fail to realize the treasures waiting to be had a little further inland.
Last month, Realtor.com listed Sacramento on their 20 Hottest Real Estate Markets in the U.S.
As a Davis native, I may be a bit biased, but I have to agree.
Choosing where to launch was an arduous process for us at Chalet. When looking at a real estate market, you have to take into account statistics, insights from property owners, and countless other factors. So what makes Sacramento perfect?
First off, we should consider what constitutes a good real estate market. Measuring how hot or cold a market requires not only tons of data, but also the intuition and experience to determine whether or not each data point is relevant. If you’ve ever invested in a stock, you know that analysis falls into two major categories: technical analysis, which involves statistics and quantitative factors, and fundamental analysis, which involves more qualitative “common sense” factors. Housing markets operate the same way.
Technical Analysis
Perhaps the largest indicator of a strong real estate market is bustling population growth. Sacramento excels here, with the Sacramento/Roseville/ Arden-Arcade metropolitan area ranking 27th out of 917 metros in 5 year growth at 5.6%. This makes sense intuitively — the more people that move into a city, the more homes it will need.
Of course, population growth means nothing if those people can’t afford to buy homes. This means that we also need to look at how well off that population is doing economically. To measure this, we can look at a number of factors: employment, which is nearly 3% higher than last year and trending upward; mean hourly wage, which is a whopping 10% higher than the national average; and job growth, which outpaced California as a whole by an entire percentage point last year.
Still not convinced? Let’s dive a bit further into the housing market specifically. Using the same Bureau of Labor and Statistics report from above, we see that consumers in the region spend about 34.4% of their income on housing, which is noticeably higher than the 33.0% national average*. In English, Sacramento consumers spend more of their money on houses than consumers in other regions. This bodes well for the real estate market as a whole. Don’t just take my word for it — Ryan Lundquist of Sacramento Appraisal Blog offers a comprehensive data report, including 80+ graphs, on current trends in the Sacramento real estate market.
Fundamental Analysis
Yet even Ryan points out that data doesn’t tell the whole story. As the saying goes, “There are lies, damned lies, and statistics.” While this quote is a bit extreme, we certainly have to look at macro factors as well as get a general feel for the region. One tendency we’ve noticed is that Bay Area and Silicon Valley tech startups, as they get priced out of their own regions, are forming an exodus to Sacramento.
I’ve seen this transformation on a personal level as well. Many of my friends at UC Davis, upon graduation, chose to work for a big firm or a local startup in Sacramento instead of moving to the Bay. Not until recently did I realize that this was a common trend among millennials.
This trend manifests in even more subtle ways as well. As Lundquist notes:
“I can’t tell you how many posts I’ve seen lately saying, ‘Hey, my friend needs to rent a house. Anyone have something?’ Seeing an increasing number of posts like this on Facebook or Nextdoor.com is definitely a symptom of rising rents and scarce inventory.”
Scarce housing inventory reflects high demand for houses and, by extension, high value for those houses. We see this taken to the extreme in cities like San Francisco, where the median house price is over $1.1 million. Yet the Sacramento market, though driven by high demand, still presents buying opportunities for typical middle class families and budding investors alike.
Moreover, anyone who lives in Sacramento can visibly see the region thriving. Not only is the Golden 1 Center set to open in October, but CIM Group wants to rejuvenate the Capitol Mall with its hugely ambitious construction proposal. All the region needs now is for DeMarcus Cousins to lead the Kings to an NBA Championship.
What do you think? Is buying property in Sacramento a sure way to strike gold, or will a Sacramento house be a bigger bust than Jimmer Fredette? As always, Chalet would love to hear your input, so tweet at us, like our Facebook page, or give us a ❤ below!
*The BLS doesn’t provide this number as a percentage, so I calculated by dividing housing expenditures by total expenditures, or 18,128/54,992, which comes out to roughly 32.96%.
