Sacramento County, encompassing California’s capitol and cities like Elk Grove, Citrus Heights and Folsom, is home to the California Department of Real Estate (DRE). This region never fully emerged from the elongated economic recovery from the 2008 recession. Home sales volume and construction have stalled, while homeownership recently peaked.

Sacramento was one of the last counties in California to reach an initial pre-recession jobs recovery, necessary to fuel wallets and in turn household formations. Its lagging recovery can be attributed partially to Sacramento’s dependence on state and local government jobs, which were slow to return.

However, this recovery was quickly followed by the 2020 recession, resulting in significant job losses and a complete erasure of the past five years of job gains. Looking ahead, Sacramento County will see sales volume continue down, bottoming in 2022. Slowing sales means home prices will also cool, though today’s low interest rates have thus far countered slowing sales to keep prices propped up despite the bleak economic picture. Expect home prices to decline by the end of 2020, bottoming in 2022.

Get to know Sacramento’s local housing fundamentals in the charts that follow.

Updated September 8, 2020. Original copy posted October, 2015.

Home sales volume flat

Chart update 09/08/20

2019 2018 2017
Sacramento County home sales volume 24,100 24,200 25,200

After years of consistent growth, home sales volume in Sacramento County remained essentially flat in 2018-2019, with 24,100 homes selling in 2019. In 2020, home sales are on track to end the year 11% below 2019, as of July 2020.

Sacramento’s decline in sales volume has not been as steep as many other parts of the state. One reason why home sales volume has fared better here is the consistent addition to the for-sale inventory, in the form of residential construction. In California’s expensive and desirable coastal cities, new construction has been held back significantly by outdated zoning laws and not-in-my-backyard (NIMBY) advocates. Not so in Sacramento, where construction is welcome and allows sales volume to keep pace with homebuyer demand.

Even so, home sales volume will slow in 2020, primarily due to the significant economic slowdown stemming from the response to the novel coronavirus (COVID-19). The uncertainty stemming from record job losses will keep many participants on the sidelines in 2020, and most will not return until the market has worked through the coming distressed sales and jobs begin to return consistently, expected to begin in Sacramento around 2023.

Homeownership peaks

Chart update 09/08/20

Q2 2020 Q1 2020 Q2 2020
Sacramento County homeownership 64.8% 59.0% 64.8%

The homeownership rate in Sacramento County varies greatly each quarter, though the general trend was flat-to-down for over a decade — until homeownership began to jump around dramatically from quarter-to-quarter in 2017. As of Q2 2020, the homeownership rate is pushing 65% in Sacramento. For comparison, the statewide average was a much lower 56%.

The area’s homeownership rate ‘s previous peak was 67% in 2005. Following the conclusion of the housing bubble, many homeowners lost their homes to foreclosure. This is pictured in the swift decline in Sacramento County’s homeownership rate experienced in 2010, bottoming at 57% in 2011, making Q4 2018’s homeownership rate the lowest for the region in over a decade. Many buyer-occupants have returned to the market since then.

Today’s high homeownership rate is unstable, unable to be supported by market fundamentals. Expect Sacramento’s homeownership rate to decline throughout 2021 and 2022, as negative economic conditions discourage homebuyers. Owner-occupants won’t return in solid numbers until Sacramento’s jobs market has a chance to fully recover from the coming recession, likely in the post-recession years of 2022-2023.

Turnover flat to down


Chart update 09/08/20

2018 2017 2016
Sacramento County homeowner turnover rate 8.5% 9.0% 8.2%

Sacramento County renter turnover rate

21.4% 22.7%
19.2%

A real estate agent’s living is contingent on residential turnover. Without it, property doesn’t sell, tenants stay put and mortgage originations go nowhere.

The good news is owner-occupant turnover has recently increased to 9.0%, according to the most recent U.S. Census Bureau (Census) data. Owner-occupant turnover (the percentage of homeowners who moved within the last 12 months) bottomed in 2007 just as the Millennium Boom began to explode. Homeowners found the courage to move a bit more in 2008-2009 (due partially to the government stimulus that encouraged homebuying), only to fall back by mid-2010 when the stimulus ended. Since then, turnover by owner-occupants has remained steady at around 8% each year, at 8.5% in 2018.

On the other hand, the general trend for renter turnover is down. Renter turnover peaked in 2009 at a massive 40%. For perspective, that means two out of five renters moved in 2009 — a significant sum for California. A lot of this turnover was due to former homeowners selling (often by short sale or foreclosure) to buyers who were tenants or to investors who rented to relocating tenants. Renter turnover has fallen each year since, rebounding slightly in 2017 and falling back to 21.4% in 2018.

Like the homeownership rate, expect homeowner turnover to decrease in 2020. Turnover may spike in 2021 with the lifting of the eviction and foreclosure moratorium, before falling back in 2022. Then, with the support of a healthy jobs market in the years following the next recession, turnover will gradually improve.

Construction has stalled

Chart update 09/08/20

2019 2018 2017
Sacramento County single family residential (SFR) starts 3,900 3,600 3,200

Sacramento County multi-family starts

1,600 900
1,300

Construction in Sacramento County is struggling. In the past couple of years, there have been several months where builders started zero new multi-family or single family residential (SFR) construction projects. Just how dormant has the situation become — and when will things look up?

The good news is SFR construction has very gradually increased in recent years, having bottomed in 2011 and rising slowly thereafter. However, this stability isn’t yet the level Sacramento needs since construction has stalled well below the levels experienced during the Millennium Boom. In fact, the peak year of 2003 saw nearly three times more SFR construction starts than the 3,900 SFR starts experienced in 2019.

On the other hand, the situation is worse for multi-family construction. Multi-family starts peaked in 2004 with just over 2,800 units built that year. 2019’s performance of 1,600 multi-family units started is a vast improvement over the 900 units started in 2018. This is still insufficient to keep up with demand.

Construction is likely to reach a full recovery in the years following the 2020 recession. State legislative efforts to increase the low- and mid-tier housing stock have focused on encouraging more multi-family construction. Therefore, expect multi-family starts to increase at a quicker pace in the years ahead.

Record job losses

Chart update 09/08/20

Jul 2020 Jul 2019 Annual change
Sacramento County jobs 925,500 1,016,400 -8.9%

Sacramento was one of the last counties in California to reach a pre-2008 recession jobs recovery. Its lagging recovery can be attributed partially to Sacramento’s dependence on state and local government jobs, which are slow to return.

Sacramento’s population has grown about 1% each year since the 2008 recession. With working-aged individuals making up some 60% of this added population, Sacramento needed an additional 84,000 jobs for adequate employment following 2015’s initial recovery for total employment to match population levels. At the past pace of job additions, this finally occurred in 2019, a decade after the conclusion of the recession.

This recovery was just in time for triple whammy of financial crash, pandemic and recession that arrived in 2020. As of July 2020, the number of jobs held is just below the 2007 peak and 8.9% below a year earlier. This is slightly less than the job loss experienced statewide, which is 9.5% below a year earlier as of July 2020. Expect a W-shaped recession in the coming months, with jobs rising and falling, not to begin a true recovery in this inland region until around 2023.

Real estate jobs lacking

Chart update 09/08/20

Jul 2020 Jul 2019 Annual change

Construction

65,200 70,900
-8.0%

Real Estate Rentals & Leasing

17,900 17,600
+1.7%

The recovery in jobs for those in the real estate and construction industries has been slow. Keep in mind that while the chart above shows a steady rise in both real estate and construction jobs, the actual number of construction jobs is displayed at seven times that of real estate jobs on the chart (the chart is displayed in this manner to make the change in real estate jobs perceptible). Thus, while Sacramento real estate professionals are 600 jobs above the pre-recession peak, construction jobs have much more to regain, at 9,000 below the pre-recession peak.

Some real estate jobs will be cast off in 2020-2021 as transaction volume dwindles, still others will look to supplement their reduced incomes. However, expect construction jobs to be regained more swiftly as more housing is needed to meet demand, currently unsatisfied by historically low inventory. Jobs of all types will begin a more consistent recovery around 2022-2023, filling wallets and in turn fueling household formations.

Income on the rise

Chart update 03/03/20

2018 2017 Annual change
Sacramento County per capita income $52,500 $50,400 +4.2%
California per capita income $67,000 $63,900 +4.9%

Sacramento County surpassed its 2008 (pre-recession) peak of $39,671 in per capita income just three years after the recession in 2011. In contrast, most of the state didn’t catch up with pre-recession income until 2012.

However, Sacramento County’s average income remains well below the state average as of 2018, an adjustment typical to the region. Government employee compensation is less than state averages but more long-term in duration than the private employment turnover throughout the state.

Income finally surpassed the pre-recession pace of around 3% a year in 2015, but remains below the state’s average income pace at 4.2% in 2018. This is just above the target rate for consumer inflation. Thus, incomes were able to match the ever-increasing price of goods and services in 2018, granting residents a boost in their standard of living.

For housing, incomes are keeping pace with the annual rise in the historic mean price trendline: the home price anchor and point at which prices invariably return. But annual home price movement during a business cycle is another matter. Property prices often rise or fall dramatically from year to year without regard to the annual rate of consumer inflation and wage increases before returning to the mean price trendline. In any given year, home pricing is controlled by factors such as:

  • mortgage rates;
  • jobs;
  • personal savings;
  • housing starts; and
  • individual confidence in the future.

The income increases in 2018-2019 will add support to a burgeoning housing market, expected to rise to a cyclical peak around 2022-2023.