Truth: Bay Area folks are getting lots of attention and they should since there are over 20,000 new Bay Area residents migrating to Sacramento each year according to the Greater Sacramento Economic Council and Mercury News. That’s jaw-dropping to hear, but let’s pause and consider a few things.
A) Bay Area cash is not gutting Sacramento. Only 15% of all sales were cash in the region last year. Cash used to be about 30% during the “Blackstone” days.
B) Nearly 20% of sales in the region last year were FHA, which tells us first-time buyers are winning in this market – not just loaded Bay Area residents.
C) There are 20,000 new residents every year from the Bay Area, but there are only about 28,000 single family detached home sales in Sacramento per year. This tells us not everyone who moves here is actually buying. Of course if Bay Area buyers are picking up the slack of locals not buying, then that’s another story. If anyone has data to suggest that is the case, do share. For now though let’s admit not everyone who moves here is getting a mortgage.
D) I might be more bullish on thinking the Bay Area is dominating the purchase market, but having more than twenty thousands residents migrate to live in Sacramento is definitely putting pressure on rents. According to Yardis Matrix, rents are up 8.5% this year, and on average rents increased by $1,287 last year in Sacramento. In other words, renters are paying an average of $107 more each month for rent. Yikes.
4) NOT FAKE NEWS: Rising rents are heating up the 2-4 unit market.
TRUTH: An investor told me the other day, “Sacramento’s hot rental market is now the worst kept secret in the nation”. Such a headline quote (thanks Eliot). He is 100% correct because news of rising rents has seemed to permeate the marketplace lately. For years after the housing collapse prices seemed more subdued, but lately it’s been eye-opening to see how much demand there is for the 2-4 unit market. Yet many units hitting the market actually have below-market rents because the rents have not been raised in many years. This is why most of the time it seems like I cannot fully trust rental data in MLS because it reflects older rental contracts from years ago rather than the market today.
What the? There are also some lofty sales that leave us asking, “What the? It sold for how much?” I thought this recently when seeing a triplex sell for 1.8M in Midtown and a 4-plex at $850,000 in Curtis Park. A “lone-ranger” outlier sale might reflect the “hot” market in some senses, though remember a high sale could also be a trophy property, have a subdividable lot, or maybe a buyer overpaid in light of needing to do a 1031-exchange.
I hope this was helpful or interesting.
NOTE: This is Part I of my big monthly market update. Part II will come next week. If you need a few graphs now for marketing, send me an email.
Questions: What do you think of the “fake” real estate news above? How much of an impact are Bay Area buyers really making? What are you seeing in the rental market? Did I miss something?
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