Sacramento got some bad news recently thanks to bankrate.com (and frequent Sac Rag reader/commenter adamant.) Our fair city ranked #2 (woohoo!) on their “10 bubble busters — values expected to decline” (no woohoo!) list.
Sacramento, Calif. We’re not quite sure what Sacramento ever did to anyone, but it showed up on just about everyone’s list of has-been markets. Winzer’s Local Home Value Ratings rates the market as 59 percent overvalued and Burns Housing Cycle Barometer also lists it as overpriced.
“Sacramento, we think, has topped out,” says Gollis of The Concord Group. “There is just so much (housing construction) in the pipeline. It’s a steady-as-she goes market and has always had consistent growth, but we think the land market has gotten ahead of itself.”
While I see their point I do wonder if the City of Sacramento is being thrown out with the bath water here.
Where is this abundance of housing construction within city limits? Sure, Roseville, Natomas, and Elk Grove are all showing one tract line after the other, but from my experience Sacramento has limited land available for new housing. Which, stop me if I am wrong here, would mean continued increase in existing home values or at least demand for existing homes.
This is a hot topic here at the Sac Rag so feel free to jump in and set me straight.
The Sac Rag 
But not to be all regional planning…
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I agree with Runnergirl. They’re clearly talking about the metropolitan area, (and Natomas is actually inside the city limits).
The way I see it, there is limitless land for housing growth in the outlying cities of Sacramento. This isn’t a good thing for traffic, pollution or quality of life. (See: Folsom, which is about to carpet bomb that wonderful plot of land south of Highway 50 with 12,000 identical tract homes.) The outlying cities are going to keep pushing further and further out until people stop buying there.
The decline in Sacramento housing prices has already started. We’re still in the single percentage digits in reduced housing value, and this could accelerate or stay stagnant (I don’t know). But enormous runups like those in Sacramento housing prices always come with corrections. Price corrections can take the form of short-term declines or long term stagnation, but a correction will happen one way or another.
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Not to be all regional planning, but many times in national articles on issues like these, “Sacramento” refers to either the Census Metropolitan Statistical Area (which is, I believe, a four-county region), or the six-county planning region used by our local Metropolitan Planning Organization. Counties which this article may include are Sacramento, Sutter, Yolo, Yuba, Placer, and El Dorado — it doesn’t specifically spell out the City of Sacramento limits. There are, however, many infill projects within the City limits: all those high-rise condos downtown, lofts downtown, The Islands at Riverlake in the Pocket, to name a few.
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Thanks for the clarification on the definition of “Sacramento.” So, do you agree with the prediction or not? Not quite sure from your comments. Carl agrees, I think.
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At least it was shorter than the previous dissertation on the transit planning/funding process.
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isn’t this mostly something that will affect the higher and lower ends of the market? and also, isn’t it good overall that the market is evening out? don’t touch the bubble, the bubble is bad.
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Regarding Carl’s comment on the expansion of Folsom’s sphere of influence, you can read the details of what is being proposed for that area south of US 50 here:
http://www.folsom.ca.us/index.asp?page=450
And, if you’re the type to voice your opinion about such issues, please do so in an official capacity (in addition to the sac rag) by going here:
http://www.folsom.ca.us/visioning
The planning process is only as good as input received from the public. It does little good to gripe about things to friends (and online) if you’re not going to tell your elected officials and city planners, too. I realize that not many people want to get involved, but it’s so easy to be informed — that’s my PSA for the day.
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for example:
http://www.bizjournals.com/sacramento/stories/2006/03/13/daily35.html?from_rss=1
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From the Ironic department: On my way to a meeting in Modesto, I noticed the front page article from the Modesto Bee this morning. Modesto (wishes it was Sacramento) is pushing for faster development of outlying land. They obviously didn’t get the memo.
http://www.modbee.com/local/story/11938212p-12704286c.html
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“…Sacramento has limited land available for new housing. Which, stop me if I am wrong here, would mean continued increase in existing home values or at least demand for existing homes.”
“They don’t make land anymore” is a familiar argument. Japan didn’t exactly have an over-abundance of land in the early 1990s, but that didn’t stop the market from tanking there:
http://www.nytimes.com/2005/12/25/business/yourmoney/25japan.html
NY Times, December 25, 2005
“JAPAN suffered one of the biggest property market collapses in modern history. At the market’s peak in 1991, all the land in Japan, a country the size of California, was worth about $18 trillion, or almost four times the value of all property in the United States at the time.
Then came the crashes in both stocks and property, after the Japanese central bank moved too aggressively to raise interest rates. Both markets spiraled downward as investors sold stocks to cover losses in the land market, and vice versa, plunging prices into a 14-year trough, from which they are only now starting to recover.
Now the land in Japan is worth less than half its 1991 peak, while property in the United States has more than tripled in value, to about $17 trillion.
Homeowners were among the biggest victims of the Japanese real estate bubble. In Japan’s six largest cities, residential prices dropped 64 percent from 1991 to last year. By most estimates, millions of homebuyers took substantial losses on the largest purchase of their lives.”
By the way, coincidently, Sacramento is now considered 64% overvalued:
http://sacramentolanding.blogspot.com/2006/03/has-sacramento-housing-market-gotten.html
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Lander, HTML is not accepted in the comments area. I had to make some adjustments to your comment.
Your comment was also labeled SPAM as it was a bit link heavy. In addition, you are already included in “Our Links on del.icio.us” so there is no need to promote yourself further.
Regarding your comment, are you saying that Sacramento is, in fact, headed for a “hard” landing afterall?
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Thanks for fixing my mess.
I start from the assumption that the Sacramento housing market is “landing,” meaning we no longer can expect double digit price appreciation. (It’s now about 9%, down from 24% in August.) How “hard†or “soft†the landing will be only time will tell. But I am skeptical that 122% appreciation over five years will not have any consequences.
The point of the Japan story is that even where land is scarce, there is the possibility of price declines. You may be better off if you live in a well-established neighborhood within easy commuting distance of downtown, but that will not insulate you completely in a downturn.
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Yeah, Lander, your points make total sense. Thanks for visiting!
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