Statewide, the Bay Area region job market remains relatively strong, and the tight labor market in the Bay coupled with drastically increasing costs might make the Sacramento area that much more attractive to home buyers as well as employers seeking more affordable alternatives. Metrostudy’s 1Q14 survey of the Sacramento housing market shows that annual housing starts are up 8% from 1Q13, while closings are up 19%. However, quarterly new home starts are down 29% from 1Q13, and quarterly closings are down 15%.

It has been 3 years since the Sacramento market has had a decrease in annual starts,” says Greg Gross, regional director of Metrostudy’s Northern California market.  “Annual starts have been outpacing closings since 2Q12, which is indicative of increased demand. This increased start pace over the past year helped stabilize equilibrium. What we are seeing this quarter is that builders are now reacting to more seasonality and softening demand. Rather than be caught with excessive inventory, starts have pulled back.”

Meanwhile, prices are rising.  Our average “offer to build” base price for new Single Family detached homes is up 8% regionwide over a year ago to $424K as builders see both higher demand and increased construction costs. Base prices are up less than half a percent compared to 4Q13, again suggesting a cooling off period.

“Start activity has shifted over last year into the price ranges above $400K as builders adjust pricing to offset increased construction costs,” said Gross. “This quarter we are seeing starts fall substantially in the range below $300K. Lot costs are increasing as lot supply dwindles. Affordability remains a concern as home prices are increasing at a much faster pace than incomes.”

Finished inventory of housing has been steadily increasing over the past year. With 478 Finished Vacant homes, the market now has 1.9 months of supply.  This is the highest level of finished homes since 2012, and a 58% increase over 1Q13. We expect to see more incentives and price adjustments as builders do not want to carry Finished Inventory.  The Sacramento market was under-supplied during the end of 2012 and beginning of 2013, but the rapid increase in standing inventory is something we will monitor closely in 2014.

Finished lot inventory has actually increased 8%over the past year and now stands at 13,753 and Months of Supply has increased to 57. While seemingly high, about 4,000 of these lots are in the outlying Sutter and Yuba Counties as well as within the Natomas area. This increase of lot development will make finished lots available in high demand areas. There were just over 1,480 new lots completed during 1Q14.  Understanding sub-market dynamics is crucial in the Sacramento Region.  Metrostudy is tracking about 262,000 future lots with fewer than 9,600 lots being developed now; a very small number considering the size and potential demand of Sacramento California.

“We expect to end 2014 with 3,000 new home starts for the year,” says Gross. “Sacramento and the Stockton regions will likely benefit from the expanding Bay Area economy, as homebuyers seek more affordable homes outside of the Bay area.”

For information contact: Greg Gross at 916.231.9370


About Metrostudy

Metrostudy, a Hanley Wood company, is the leading provider of primary and secondary market information to the housing and related industries nationwide.  Established in 1975 in Houston, Metrostudy provides research, data, analytics and consulting services that help builders, developers, lenders, suppliers, retailers, utilities and others make investment and business decisions every day.