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Why Sacramento Apartment Buildings Are Springing Up All Over Town
Because I drive all over the city to list homes for sale, I notice Sacramento apartment buildings being built throughout my travels. I can tell you the number of new apartment buildings seems to be increasing. For example, when building stopped in Elk Grove after the 2008 market crash, everybody just assumed that builders eventually would continue someday. What owners did not count on was the type of new construction. Goodbye single family, hello apartment buildings.
How would you like to have bought a home on, say, Donson Court in Elk Grove, that presented you with a lovely view of fields and nature? Then 10 years later, whammo, apartment buildings in your face, overshadowing your yard.
When I sold one home over there on Donson, the Caterpillars were just breaking ground. I quickly sold it before any buildings were constructed. Everybody thought it would be new homes but it wasn’t. They put up apartment buildings. That was a big deterrent when I got another listing on Donson.
Ha, then that buyer canceled when he discovered Sacramento apartment buildings were behind his property. Very close, closer than a house. But he soon realized there was no other home to buy, so he decided to rescind his cancellation and close escrow. And, of course, we made him pay more for that untimely maneuver. It must be horrible to live there for so many years, always thinking new homes would go in behind you and then discover monstrous apartment buildings.
The thing is if they are building new Sacramento apartment buildings instead of new homes, it is probably more cost efficient and profitable to build apartment buildings. According to Colliers International, the average rent in Sacramento is $1,723 for 874 square feet. Conversely, $275,000 would buy a home twice that size for about the same PITI, if a buyer chose to live in lower-income neighborhoods, which is why many rent. Because our median sales price in Sacramento is now $370,000.
However, if you look at a new survey by Forbes, Sacramento ranks #10 as the hottest place in the country to buy an investment property:
10. Sacramento-Arden-Arcade-Roseville, Calif.
Average home price: $327,073
3-year population growth: 3.7%
2-year job growth: 4.8%
1-year home price growth: 10%
3-year price growth forecast: 33% source: Forbes
Midtown is no stranger lately to new Sacramento apartment buildings, either. Look at the 263 units going up over on 21st and Q Street, and the new 68-unit building for 19th & Q. Just hope we don’t turn into a city like Stockton in which rentals outnumber homeowners. According to the US Census, our home ownership rate in Sacramento is 55.2%. On par with California as a whole.
But then you’ve also gotta look at the hedge fund Blackstone, which bought up more than 1,500 single family homes in our residential resale market during the crash and turned those homes into rentals. Blackstone is the largest owner of single family rentals in Sacramento. Demographics of some neighborhoods have changed. Almost 100,000 Sacramento homes are rented, according to a KCRA report, which make up about 25% of single-family homes.
We desperately need to build new single family homes in Sacramento as our demand has outpaced supply. We have slightly more than 1 month of inventory for sale in Sacramento. And I just don’t see a lot of new single family homes being built, do you?
The Fall Sacramento Real Estate Market Update
Say what you will about the down Sacramento real estate market years of 2005 through 2012, but the best thing to hit Sacramento real estate is the fact that period is over. This spring marked the turnaround in real estate. We have a little bit more inventory this fall than we did last spring; however, by all practical standards, it’s still a seller’s market, yet buyers are really the deciding factor. So, is that a seller’s market? Based on inventory alone? I don’t believe so. I believe it’s a buyer’s market disguised as a seller’s market.
You know what I see when I look at this chart? I see twice as many homes for sale and half as many selling. The sold numbers have dropped below the pending sales. But the market is still relatively stable because the pending sales are about the same over the past 15 months. This means buyers have choices.
You can look at what the giant investment firm Blackstone accomplished in Sacramento, buying up some 1,500 homes and turning them into rentals, and you can say that was a bad thing for communities. Now, Blackstone has turned those rentals into securities and leveraged their investments by selling off 75% of its value in the form of bonds to pension funds, or so they say. Hard to know how they are establishing market value. They might have decided that their investments have grown by 25% and are leveraging 100%.
It’s similar to what other investors in Sacramento have done by buying homes supposedly for cash and then converting those offers into hard-money financing. I’ve had to counsel investors that writing an offer for cash when the intent was hard money is not a cash offer. It’s a hard-money financed offer. Cash is cash. I would suggest they include the option in the offer to convert to financing, and many did just that.
Of course now, the investors are pretty much gone. I have a fixer in South Sacramento that has not yet sold and, last spring, this home would have had multiple offers with buyers fighting over it.
Most homebuyers in Sacramento who intend to occupy a home, well, they want that home in turn-key condition. They don’t want to have to make any improvements. Many want their homes to be new or remodeled, with all the bells and whistles.
In closing, I spotted a survey by NAR the other day about the types of things that buyers wanted in a home. Top of the list was energy-efficient improvements. Never have I heard a buyer say that energy efficiency was a #1 concern. I wonder if the utility companies or manufacturers of energy efficient appliances sponsored this survey? Or, maybe they interviewed only buyers from Davis. Nope, Sacramento buyers want those granite counters and stainless appliances. Energy efficiency is welcome, but I doubt it’s a #1 motivating factor.
