Sacramento Makes Hottest Market List

It's not just the temperatures that are sizzling around here this summer... Sacramento is one of the hottest real estate markets in the U.S.

Home sales are heating up just about everywhere in the country - demand is at pre-recession levels - mostly because buyers realize interest rates are going to rise and because buyers want to get in on the appreciation party as affordability becomes a real life issue for anyone that has to make payments.

Here are the 20 hottest residential sales markets in the U.S.

 

(source: Realtor.com)

The Sacramento metro area currently ranks as the 11th hottest market in the U.S, based on days on market and current inventory.

Sacramento moved up to 11th place from 12th place over the last three weeks.

A close look at the table reveals that thirteen of the top 20 markets, including Sacramento, continue to heat up.

Also note that six out of 20 of the hottest markets in the country are within a three-hour drive of Sacramento.

Does that give you a clue where prices are going? 

Will Home Prices in Sacramento Keep Rising?

Single family home prices in Sacramento have been going up since about mid-2012. Prices over the last 12 months have followed the same path, although fluctuating somewhat in the rate of increase.

Figure 1 shows an increase in average Sacramento home prices of about 8-10% over the last year. Prices are increasing beyond pre-recession levels and they continue to go up. The average home appreciation in the U.S.over the same period was about 5%.

Figure 1.

One of the factors that has pushed prices higher in Sacramento is that buyers continue to be willing to pay retail prices in order to find nice homes. Figure 2 shows that over the last year, sale prices are about 98% of listing prices, which suggests that buyers don't expect much of a discount from sellers. If this was a buyer's market, we would expect to see buyers demanding (and receiving)  a five to eight percent discount. A hot seller's market would see multiple offers and above-list price offers.

Figure 2.

Figure 3 highlights another condition creating rising prices in the Sacramento area. The number of months it would take - given the current sales activity - that it would take to sell all the homes for sale in Sacramento is under two months, and that time period has actually reduced from last year. Residential real estate markets are usually considered to be price-stable when inventories are in the 5 to 6 month range.

Homes are selling quickly in the Sacramento market. Even though prices have been rising for twelve quarters, the willingness of buyers to pay list price, lack of inventory and the resulting low number of days that homes remain on the market will continue to drive prices up in the Sacramento residential real estate market.

Pitfalls of Owning Income Real Estate

I'm going to spend the rest of this year standing on my soapbox, singing the praises of investing in real estate as the best way for the average family to achieve the wealth part of the American Dream.

That said, I will stipulate up front that investing in real estate as a way to achieve financial independence is not a sure-fire proposition. In twelve years as a licensed broker, I've watched people make bad decisions and walk right off the end of the pier. Here's my short list of the risks of holding rental properties as a long-term investments.

1. Lower than Expected Rate of Appreciation - In 2005 many people became 'investors" by mortgaging their own homes and using the loan proceeds to buy other houses, with the idea of holding the houses for a couple of years and selling for a big profit. Many of these folks lost their shirts - but they weren't really investors and they weren't really investing; they were naive speculators who were playing against the basic rules of real estate investment strategy - the real return is the monthly cash flow from rents during the period of the investment. Intelligent investors were sitting tight or selling in 2005, not buying. The appreciation we seek is the annual increase in rents!
2. Increased Payments on Variable Rate Interest Loans - Investors in 1-4 units don't really need variable rate financing... fixed mortgages at competitive interest rates are available from just about any lender. Investors in apartment buildings use variable rate and short-term financing all the time. The trick is not to settle for a bad loan. If you can't comfortably achieve your investment goal while paying the highest possible rate on your loan, why are you using this financing?
3. Lower than Expected Rent - This usually happens as a result of the investor not doing enough homework about rent prices in the area and rent roll history of the investment. 
4. Damage to Property - Don't have any illusions... when you own investment real estate, you own a business. Businesses have to manage risk and minimize losses. This means choosing high-quality tenants, enforcing the rules, and maintaining adequate insurance. The great news about real estate investing is that there are lots of ways to invest indirectly, and avoid the hassle of running a business.
5. Tenants Who Don't Pay - See above. This is rarely a problem if you will take the time to properly screen tenants. The banker's axiom "a well-made loan is half collected..." applies here too. Many investors simply use the services of professionally-licensed property managers. Fees usually range from 6-10% of rents collected and are negotiable.
6. Eviction Costs- Avoid eviction costs by avoiding evictions (see pitfall #5). I've been a landlord since 1995, and I've never been forced to sue for eviction.
7. Maintenance Problems - If it seems too good to be true, it usually is.... buildings that first appear to be bargains on paper often turn out to be in need of repair and deferred maintenance. Avoid these problems by understanding what you are buying before you close the deal. You must do your due diligence and pay to have the property inspected by professionals - building, roof, pool - or else risk an unpleasant surprise once the place is your responsibility.
8. Vacancy - Would you buy a business that had no customers? Don't buy vacant properties. Landlords expect about 95% of units to be leased at any time - lower vacancy means rents are probably too low, and higher vacancy rates indicates that the landlord is asking too much rent. The simple fact is that vacancies are part of the landlord business - savvy investors know vacancy rates and factor them into their investment calculations.

The key thing to remember is that the factors on the list are all things you can control. Direct ownership of residential income property is a business. If you choose properties to meet a well reasoned investment plan and manage your business properly, you can create a substantial income and net worth. 

It's Spring this Winter

Here is my recommendation for this year's New Years Resolution: make and start executing a strategic plan to achieve your financial goals over the next ten years.  And do it now.

Why Now? 

Because we're at the starting gate of the new business cycle. It's winter on the calendar, but it's financial spring right now, and it will be followed by financial summer, then autumn and winter. Guaranteed. Financial spring - now - is the time to start sowing economic seeds to nurture, grow and harvest in this next business season. Whether you want to start a new career or create a business, build wealth for financial independence or plan for retirement, you couldn't ask for a better time - financial spring- to get started designing the future you want. 

Is it really financial spring? 

Well, we look around us and this is what we see:

• long-term interest rates are at historic lows 
• real estate values have bottomed and regained value at a sustainable pace
• employment is rising and unemployment levels are falling to manageable averages
• GDP is rising to growth levels
• Inflation is low

What to do now

Make a Career or Business Plan: 

If you're planning on starting a new career or opening a business, the winds are at your back. Job opportunities are really starting to grow, and if you're starting a business, piles of capital are out there looking for a good investment. Get a detailed plan together and include the exact dollar amounts you expect your plan to create. Even if you're happy at your job (congrats!), write a plan down now detailing where you expect to be a year from now and what you need to do to hit your goal.

Financial Plan:

This is where you park all of the cash you create from your B plan. It's your personal budget and long-term investment plan. Wealth comes from growing cash after you create it. Contrary to popular belief, most rich people are not money-burning jet setters that inherited their money or won the lottery. Most wealthy people are the "millionaire next door", spending their days running small, but profitable, businesses and watching their money carefully. 

Estate Plan:

This is not just a subject for rich old people!  And even if the subject sounds mind-numbing, you have to do it. Estate planning is the part of your investing strategy that protects what you work so hard to build. The way you plan - or don't plan- your estate can affect your family fortunes not just in death, but you while you are still living. Do you own a trust? Is your home owned by the trust? If you need long-term care, will the trust provide the funds if you are incapacitated? If you don't have a trust, do you have a Will? As an SRES, I talk to people every week that are experiencing huge hassles because of poor estate planning. You shouldn't do estate planning yourself. You need expert legal advise from a competent attorney that specializes in elder law and estate planning.

That should get you started...

Don't the let opportunity of this business cycle pass you by. We each get only so many springs! Make your future happen by design. Write down your goals and plans to achieve those goals NOW

 It doesn't feel like spring outside today, but it is certainly early spring in this next business season. And the spring - now - is the time to start sowing seeds that we can nurture, grow and harvest in this next business season. 

Search West Sacramento 95691 Homes For Sale

Call ENTERPRISE HOMES at 916-893-1566 or click here www.SacramentoHomeSearch.net to reach a SACRAMENTO BUYER'S SPECIALIST

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Enterprise Real Estate, Inc. is a Sacramento area real estate brokerage with real estate agents that help people buy and sell Sacramento single family homes, condos, and lots for sale. The Enterprise Real Estate website lists Sacramento, Placer, and El Dorado homes for sale. Key service areas are Elk Grove real estate, including Laguna West, Stone Lake, and Sheldon; Sacramento real estate, including East Sacramento, Midtown, River Park, Campus Commons, Pocket, Greenhaven, Land Park, South Land Park, Curtis Park, Woodside and Arden Hills; Enterprise Real Estate agents also sell homes in Rancho Cordova, Gold River, Mather, Orangevale, Citrus Heights, Folsom, North Natomas, South Natomas, Arcade, Carmichael, Fair Oaks, the Fabulous Forties, and Tahoe Park.

CA BRE# 01932381

It's Location Location in Sacramento

 We've been tracking the inventory of Sacramento county homes for sale closely and the data is telling us that it may start taking longer to sell your home in the coming months.
When we compare the number of homes for sale with the number of houses actually selling now, we can get a good idea of how many months it currently takes to sell a home.
That number is increasing.

Location Matters

Sacramento county is not just one area when it comes to the local residential real estate market. Some areas of the county are red hot and sellers are turning their homes into cash in 30-60 days. This is the case in west Elk Grove, for instance, where prices are moderate, homes are newer, and the schools are good. Other areas of the county, though, are starting to build inventory. Carmichael, Arden, and the Pocket neighborhoods are all seeing three to five months of inventory for sale.

What's Happening?

Inventory is increasing as prices rise and sellers decide to go to market. Many people are finally out of negative equity. But the number of buyers is still limited. This means more competition for buyers and longer times on the market for all but the top homes in area. Houses in good condition that are marketed properly and priced correctly will sell. All others will sit. In fact that is happening now - almost fifty percent of the homes placed on the market don't sell.

Our View Going Forward in 2014

• The Supply & Demand curve works! Watch housing inventory. Demand has to be guessed at, but supply can be easily tracked
• Prices in Sacramento are still 40% undervalued from 2007 levels. Prices will continue to rise.
• Rising prices will cause more inventory to come on the market - price increases will slow down in 2014 and 2015
• Long selling periods will not stop price increases, as California continues the disconnect between price and affordability

Call me anytime at (916) 248-1572 to discuss your real estate needs. Privacy assured.

Our Data
We get all the data we use (and the cool graphs) from TrendGraphix - through our membership in MetroList - and we trust their numbers.
The analysis is our own.