Sacramento Region Housing Forecast

What’s next for the high flying Sacramento real estate market?

To find out, last week I attended the North State Building Industry Association (BIA) Sacramento Region Housing Forecast in downtown Sacramento to see what four experts had to say.

Elliott Eisenberg is a housing policy economist with the National Association of Home Builders. Michael Lyon is President of one of Sacramento’s largest privately held residential real estate firms. Greg Paquin heads the Gregory Group, and Harry Elliott III is President of Elliott Homes, a national home builder based in Folsom CA. I figured that from their altitude, there might be a clearer view of what’s on the horizon.

Eisenberg. Poking holes in the notion that housing construction fails to pay for the increased demand for services, Eisenberg’s presentation showed that the 12,309 homes built in the last 12 months will create 76,000 temporary construction jobs and 13,000 permanent jobs and will inject nearly $2 billion net of costs into the local economy during the next 10 years.

Lyon. Countering what he feels is an unfairly gloomy portrayal of local real estate by the media, Lyon admits certain realities. His charts show a 5-10% decline in values this year (18% in the over $750k range) with another 10% decline projected for 2007 before the market firms up. For the market to turn, we’ll need to see more job growth and a rising median income. The greatest activity will continue to be in the $200k to $400k price range. But current conditions also make for remarkable buying opportunities for home owners.

Pacquin’schart underscores the divergence of prices and median incomes that began in 1999 and widened further in 2004. You can also see the drop off in sales early this year with falling prices showing up dramatically in 3rd quarter year over year result. From 2002 to 2004, “attached” home sales grew from only 1% to nearly 25% of area sales, and the number of new projects jumped from 2 to 64! Prices for these condo and townhomes filled in the $300k gap left by rocketing prices in single family homes. Pacquin sees solid job growth and stable or declining interest rates in the future.

That left Elliott to address new home construction. He blasted the public home builders for flooding the market even after the market showed clears signs of slowing. His advice to builders? Clear out standing inventory, slow down production, don’t “give away” premium lots, and redesign smaller and less expensive homes.

The difference this time. Unlike previous downturns, Sacramento employment is high, economic growth is steady, and the economy is well diversified. Short of a major recession, these experts seem to agree that we’ll have a soft landing. How bumpy it feels on descent may depend on where you’re sitting in the plane.

Share This