Sacramento: Where’s the Dirt?

The Sacramento region finally appears to be emerging from the homebuilding doldrums.  Over the last several months, homebuilders seem to have a new found confidence as new home absorption levels have begun to tick up to levels not seen for several years.

Pricing on the other hand, is still lagging with maybe a small bump in appreciation.  All of this said, ready-to-build lots are becoming scarce within the Sacramento submarket, and at this rate, some areas could possibly end 2013 with a lot supply of zero.

The key drivers to getting builders back to Sacramento will be continued increased scarcity of deals in the San Francisco Bay Area, in addition to sustained new homes sales that we have seen in the area over the last several months.

The Wall Street Journal recently reported that the recent rise in homebuilding could be thwarted by an unlikely factor, a shortage of land in desirable locations.  Homebuilders are realizing they cannot focus strictly on the Bay Area locales just due to the fact that high land prices and land scarcity will forbid them from ramping up deliveries and allowing them to grow organically.  If they want to be able to produce new home delivery volume, they will have to start looking in the Sacramento region as well as some parts of the Central Valley.  If and when they move eastward, we will start to see homebuilders look at “paper” lot or entitlement deals, where in the past they were only focused on finished lots.  Time will tell.

Source: Ryan Long, Senior Marketing Consultant, (916) 784-3329 ext. 16

The Good, Bad & the Ugly in Sacramento

Sacramento Arena Deal is DOA…  After a whirlwind of meetings between the NBA, the Maloof family and the City of Sacramento, the prospect of building a new arena for the Sacramento Kings is officially dead.  In countless meetings held in locations all over the country, the Maloofs agreed on the terms initially laid out by all sides to build a new arena, structure financing plans and establish a timeline for build out.  However, a number of empty promises from the Maloofs finally came to light as the owners did the Texas Two Step with the NBA and the City, revealing that the deal is not feasible, (even bringing in the family’s own economist to illustrate).

Now Sacramento and the NBA both have egg on their face, and the public and the fans have more questions and doubts that the Kings will ever be viable in Sacramento.

Along with the proposed new arena was the potential for a new wave of jobs – construction and permanent – as well as a start to the redevelopment of the Sacramento Rail Yards.  A new arena would have meant new retail shops and restaurants as well as an onslaught of new homes.

All of the redevelopment ideas will have to be put on hold while the City and Maloofs try to sort out their mess.  In the meantime, the people of Sacramento are angry – some prominent business leaders are even calling for the ouster of the Maloofs and want new ownership to lead the Kings to prosperity… we will see what happens.

Now onto some good news…  Sacramento foreclosures of existing homes are beginning to slow.  In fact, the number of default notices filed in the first quarter of 2012 is the lowest since early 2007.  This should be welcome news for both home buyers and homebuilders alike.

Sacramento Foreclosures

In the last several years, new homebuilders in the greater Sacramento area have been building and selling new homes with pricing that is in line with REO inventory, and in some cases even selling below it.  As the REO product has been dumped onto the market, home pricing and new homebuilder margins have been steadily decreasing.  The Northern California Team has even seen some builders impair lots that were bought just 18 months ago.

With the change of wind direction in just in the last couple of months, builders have started to sniff around again looking for deals and build pipelines for 2013 and beyond.  Furthermore, absorption rates have started to tick up as demand for new homes builds upward.

It looks like Sacramento is finally coming out of the ashes and is ready to start the slow grind toward home price appreciation.

Source: Ryan Long, Senior Marketing Consultant, (916) 784-3329 ext. 16