Well, it’s that time of year, when all of the experts, naysayers and blowhards come out with their predictions for the housing market.
I fall into one or more of those categories, so I thought I’d toss in my two-cents.
I take all of my experience, my observations, market trends, news reports, rumors and scuttlebutt, throw them all in the hopper, and give it my best guess.
Here now, my predictions for the Sacramento area:
Housing prices will rise about 5%. This can vary by community, and although the demand is still there, even increasing, affordability is becoming an issue for the entry-level buyer, and the down-sizer and rental property investors are wondering if it makes sense to pay 2005 prices. Public sentiment has as much to do with it as anything, and the public seems to be resisting the higher prices. One thing that could change that is the fact that the conforming loan limits have been raised, making it easier to get loans at higher prices, but that doesn’t mean buyers are willing to pay them. Still if you combine drivers of housing demand with the shortage or rentals, which can cost as much as a mortgage, the demand will be there. I think buyers at the entry level are just going to be more cautious and selective, or choosing other communities.
Higher-end homes will start to move. Wait. Didn’t I just say that the public is resisting higher prices? Yes, in most markets, the high-end homes are slow to move. While the average home buyer may be facing affordability issues or just refusing to increase their spending, the high-end buyers are going to jump off the fence. With an improving economy and proposed tax cuts, there will be renewed confidence among those with deeper pockets. Look for them to go for their dream homes in parts of Folsom and El Dorado Hills. A cap on mortgage interest deductions could affect that in the other direction, so there’s that.
Despite the demand, new home construction will still be slow. Why? Once again, affordability comes into play. With builders paying an average of $84k in development fees per unit, plus the cost of land, materials and labor, it’s hard to build an affordable home in the more desirable communities, and to make a profit doing so. New units will be built, but at a slower pace, and for more money.
Upgrades and remodels will cost more (if you can find someone to do the work). We already know we have a shortage in the trades, but there is increased demand for services. Builders will be paying top dollar, and offering more steady work. Rather than roaming around bidding on jobs, carpenters, plumbers, electricians and other pros will be taking jobs at larger projects, where the work is steady and they have one job site to go to. Two destructive hurricanes and dozens of wild fires have created a demand for materials and labor that is going to be hard to meet. Making it even harder is the fact that many of these positions from skilled down to manual labor, could be filled by undocumented workers, but many have left the country, and fewer are coming in.
Sacramento gets hotter. I’m not talking about the weather. With the median price in San Francisco about $1.1million, the Sacramento housing market is, in comparison, full of bargains. We’ve seen a slowing in SF’s $2million plus market. Look for long-time Bay Area residents to cash out and head east. While many of the 200,000 people who flee the Bay Area each year head to places like Seattle, Portland and Denver, others, who still want to maintain ties to the Bay Area are choosing the Sacramento region. Organizations such as local chambers of commerce and the Greater Sacramento Economic Council are finding success in their efforts to showcase the region to business owners and CEOs. There’s room to grow, a business friendly environment, and housing is so much cheaper for their employees than the Bay Area is. One recent transplant sold his small, old, 1000 sq ft 3 bed 2 bath home in South San Francisco for $985k, and bought a 3200 sq foot, brand new single-story home in Folsom for $865k, and he transferred to his company’s Rancho Cordova office. Look for more stories like that.
Less popular markets won’t be. As places like Folsom, El Dorado Hills, Elk Grove and almost any of Sacramento’s ‘Park’ neighborhoods see prices soar, first-timers and down-sizers will look elsewhere. North Highlands, South Sacramento, Wilton, and Citrus Heights are now becoming more attractive. Stockton has now become the hottest ticket in the Valley.
Folsom will boom. With new development slowly coming together in the area south of Highway 50, a reputation for great schools, safe streets, and an increasing list of ‘quality of life’ amenities, demand for Folsom housing will only continue. Take a look at homes for sale in Folsom today. Compared to elsewhere in the region, prices are high, but relative to the Bay Area, and with the aforementioned quality of life, Folsom is poised for another strong year.
There you have it. What do you think? Share this with anyone you know who might have or need an opinion on this. And, if you or someone you know is planning on making a move, and would like more info, drop me a line.
Steve Heard is a Realtor, and owner of MyFolsom.com
He can be reached at 916 718 9577 or email steve@myfolsm.com
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