Why the Sacramento real estate market could rebound in 2024. ‘There’s going to be hope’

There wasn’t much to celebrate in the Sacramento region real estate market in 2023.

Months of mortgage rate increases put the prospect of homeownership out of reach for many.

Buyers had to contend with plummeting inventory and prices that, despite low supply, crept upward. Homeowners who might have considered selling instead opted to remain in their homes, locked into favorable mortgage rates that made the prospect of buying a new home with a higher rate unpalatable.

Could 2024 bring a rebound, or at least some relief?

There are signs that the local, statewide and national real estate markets might begin to normalize in time for the spring buying season.

Rates have already dipped below 7% after spiking around 8% a few months ago. That’s nowhere near the 3% many home buyers were landing during the height of the pandemic, but every percentage point decline saves hundreds of dollars each month in payments. Industry experts are nearly unanimous in predicting rates will continue to drop, with some of the most optimistic experts saying rates will fall to 6% – or lower – by this time next year.

“This year will be the year when you start to see rates go down,” said Sacramento real estate agent Tim Collom. “There’s going to be hope and I think the market is going to be really good.”

Market experts stress that Sacramento real estate is still a good bet. The region remains affordable compared to California’s coastal regions; the median sale price in Sacramento County in November was less than half what it was in the Bay Area. Migration to Sacramento from the coast and other expensive markets remains strong.

“It’s still in a much better position than other large metro areas,” said Pat Shea, the president and CEO of Lyon Real Estate.

Shea also noted that the region’s economy is “more diversified than it was during previous market regressions,” meaning cuts to the government workforce may not have as debilitating an impact as they did during the Great Recession.

Challenges in 2023

The market ended 2023 with a thump and there’s really nowhere to go but up.

Roughly 15,000 fewer home listings hit the Sacramento real estate market in 2023 than in typical pre-pandemic years, according to data from market analyst and appraiser Ryan Lundquist.

“This ended up creating a situation where low supply and low demand met to create a competitive market,” Lundquist said. “The stunning part of 2023 was how competitive it was to buy a home in the midst of seeing so few buyers.”

Home sales in every county in the Sacramento region dropped in November compared to the previous year, according to data from the California Association of Realtors. Prices also dipped in November.

The tough environment was largely a result of a months-long policy by the Federal Reserve to raise its base rates, which in turn played a role in mortgage rates going up. After a long winning streak of record price increases, bidding wars and intense demand, the market seemingly came to a halt in 2023.

“We were always anticipating this correction that never really happened until this year,” Collom said.

Despite that, CAR’s economists appear to be taking an optimistic view of 2024.

In its market forecast for next year, CAR predicted that statewide sales would increase by roughly 23% in 2024. The agency also predicted that prices would go up about 6%. CAR is forecasting that the typical 30-year mortgage will hover around 6%; as of last week, the typical rate was hovering below 6.7%.

CAR chief economist Jordan Levine even predicted that rates “could reach the mid-5% range by the end of next year,” the result of expected pauses in the Federal Reserve’s recent run of increasing its base rate.

Lower rates, however, won’t directly result in more homeowners having an opportunity to get into the market. CAR predicts that just 17% of California households will be able to comfortably afford the median-priced home next year, an abysmal rate that’s roughly half what it was just three years ago.

As of the third quarter of 2023, 23% of Sacramento households and 27% of Placer County households could afford to purchase the median-priced home, according to CAR.

What to expect for 2024

“Our lingering issue will be affordability,” Shea said.

Heightened mortgage rates have created a “golden handcuff” to homeowners who bought a home or refinanced during the pandemic. It’s hard to stomach trading a 3% rate for a 6.5% rate, given that the difference in a monthly payment could be $1,000 or more.

“If you get below 6%, you’re going to see a lot more activity,” Shea said. “You’re going to get peoples’ attention. They’ll come to the realization that those 2.5, 3% rates, that was a once in a lifetime thing and it’s not coming back.”

Many sellers and buyers will start this year still on the sideline, mostly due to the lack of affordability, experts said. Lundquist said he expects for sales numbers to remain below normal in the region.

“We are starting the year with the market feeling very stuck,” he said.

Collom predicted that the market will improve by spring. He said he doubts the Federal Reserve will raise it rates significantly, given that President Biden faces a re-election bid in 2024.

“At the end of the day, it’s going to be a strong year for Sacramento,” he said. “I think we’ll see the market do fairly well.”