Sacramento County housing indicators

Sacramento County, encompassing California’s capital 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, as the job losses linger, Sacramento County will see sales volume and prices struggle to maintain momentum. 2020’s low interest rates and intense homebuyer competition have thus far propped up home prices. But expect home prices to meet resistance in 2021 with the expiration of the foreclosure moratorium, reaching to recovery mode around 2023-2024. The timing of the coming recovery will largely depend on government intervention, such as job creation or further stimulus.

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

Updated March 3, 2021. Original copy posted October, 2015.

Home sales volume flat

Chart update 03/03/21

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, annual home sales totaled 1.5% below 2019.

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 In California’s expensive and desirable coastal cities, new construction has been held back significantly by outdated zoning laws and not-in-my-backyard (NIMBY) advocates.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 are expected to slow further in 2021, primarily due to the continued impacts of historic job losses. The uncertainty stemming from the recessionary jobs market will keep many would-be sellers on the sidelines in 2021, 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 03/03/21

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 dramatically from quarter-to-quarter in 2017. As of Q4 2020, the homeownership rate is just above 63% in Sacramento. For comparison, the statewide average was a much lower 55.6%.

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 in 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 2023 and following.

Turnover flat to down

Chart update 09/08/20

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 slowly rising

Chart update 03/03/21

After years of flat performance, construction in Sacramento County began to make solid gains in 2020. 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. This dormant situation saw an injection of new growth in 2020, as investors set their eyes on Sacramento as a city primed for residential growth.

However, even the current level of construction is below what Sacramento needs to keep up with demand from homebuyers and renters alike. In fact, the peak year of 2003 saw nearly three times more SFR construction starts than the 3,900 SFR starts experienced in 2019. Further, multi-family construction is finally looking up, with 2020 surpassing the peak year for construction last achieved during the Millennium Boom.

Construction is likely to continue to outpace the rest of the state 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 and with Sacramento’s relatively low cost of living compared to other Central and Northern California metros, it has become an attractive city for many first-time homebuyers and renters looking to save and still maintain a high standard of living.

Record job losses

Chart update 03/03/21

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 December 2020, the number of jobs held is just above the 2007 peak and 6.2% below a year earlier. This is slightly less than the job loss experienced statewide, which is 8.0% below a year earlier as of December 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 2024.

Real estate jobs lacking

Chart update 03/03/21

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 2021 as transaction volume hesitates, 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 2023-2024, filling wallets and in turn fueling household formations.

Income on the rise

Chart update 03/03/20

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.