What It Takes for Home Prices to Rise in Sacramento

Everybody is sick and tired of today's economy in Sacramento. We all want it to change, to get better. Some people are so depressed that they immediately grab the tiniest bit of news that says the housing market is improving and they begin a parade. Waving that appreciation flag. It's as if it's repeated out loud often enough it will happen. But saying our housing market is on an upward tick needs a solid basis for that belief, and I just don't see it.

Jobs are still in the toilet. I know a ton of people out of work, don't you? When you see unemployment numbers fall, it's often because some job seekers have flat out given up looking for work and thrown in the towel.

When you look at the Sacramento real estate market, you see dwindling inventory. Pending sales are up, demand is very high. It's been that way since March. We have more buyers than we have homes available to buy. The median price in Sacramento is now $170,000, compared to $164,000 a year ago. Does this mean prices have gone up?

It means that half of the homes that sold last month sold for more than $170,000 and half sold for less. It doesn't necessarily mean that prices have gone up. It's just a benchmark.

It will probably take investors paying cash to drive up prices in Sacramento. And even if that happened, it might be difficult to sustain long term unless we can turnaround jobs. Why do I say investors? Because appraisals are still coming in low. Take your FHA buyer, for example, and there are many FHA buyers in Sacramento. An FHA appraiser will use the last comparable sales within the last 3 months. Just because a home seller received multiple offers and that winning offer was over market does not mean the appraiser will appraise the home at that price. He or she will appraise the home based on the comparable sales, not on what an FHA buyer is willing to pay.

Our market is monitored by appraisals. An FHA appraisal is assigned a case number. If the buyer cancels and another FHA buyer makes an offer, that buyer will receive that appraisal. Appraisers are conservative nowadays. If a home won't sell above the last sales price, how can those prices go up? They can go up if a buyer pays cash and there is no appraisal. But cash buyers often do not want to pay above market value. They might not demand a steep discount anymore, but I'm not finding that investors want to pay over market value.

In the old days, like pre-2005, an appraiser would almost bend over backwards to meet the contract price, even if there were no comps to support it. That's not how appraisals are completed today. They are not based on air and fluff. They are based on solid numbers. But cash is an exception. If a cash buyer will pay over market, prices will eventually rise.

I predict our market will stay fairly flat until that happens. Of course, about the time that prices begin to rise, interest rates might also go up as well, and that movement could very well dampen prices again. You can't really time the real estate market.

Graph: Trendgraphix