Why is the Sacramento Real Estate Market So Expensive?

Buying a home. It is considered one of the biggest steps that most people take in life, and most likely your biggest financial commitment. 

However, that commitment is only getting higher and higher with the pandemic. The median home price in Sacramento was $490,000 as of April 2021.

The average price across the United States was around $290,000. 

So, why is the Sacramento real estate market an average of $200,000 more expensive than the rest of the country? Let’s take a dive into real estate in Sacramento. 

San Francisco Exodus 

The first major factor for the real estate price in Sacramento is the effects sprinkling in from San Francisco. In 2020, there was a 30 percent increase in people moving out of the city versus 2019. 

You can argue that the pandemic had a significant role in that. People had to stay home, people might have lost their jobs and businesses, and people just could not enjoy what a major city like San Francisco has to offer with everything shut down. 

So, the question is, where do all of those people who are leaving go to? That is where Sacramento comes in. 

Sacramento is only a two-hour drive from San Francisco, which makes it a convenient place to relocate to. The numbers definitely support this, with a reported 70 percent increase in people moving from San Francisco to Sacramento. 

But, besides a nearby location, Sacramento has one major draw going for it. That is the average home price. 

We said before that Sacramento was averaging $490,000 for a home. Well, in San Francisco, the average is $1.8 MILLION! 

So, you are essentially committing $1.3 million to live in San Francisco rather than the state capital.

San Francisco locals save almost 75 percent on their mortgages by moving, and the pandemic has really had this point hit home for them. 

For someone that is looking for a bit more space and more money conscience, Sacramento Real Estate is a much more appealing option than San Francisco. 

But, this is not just about Sacramento and San Francisco. 

Pandemic Housing Market

It is not just Sacramento and San Francisco being affected by this. The whole country’s housing market rose dramatically in 2020 and in the beginning of 2021. 

COVID arguably made people want to move out of cities, and find places with more open space that is easier to distance yourself from other people. 

At the end of 2019, an average home was worth around $245,000 in the United States. By the end of 2020, that value rose by almost 10%, to about $266,000. 

Everyone wanted to have a place to lock in and get comfortable, and big cities like San Francisco saw an exodus because of it.

Sacramento was no exception to this. Before the pandemic, the median home price was $385,000 in the city. So, that means that the average value went up by about $100,000 since the pandemic began. 

Then, you have to factor in the mortgage rate. During the pandemic, this fell to as low as 2.7 percent. At the end of 2018, the national average was almost double at just under five percent.

In 2000, when the millennials who are probably trying to buy houses now were little kids, the average rate was eight percent. 

What does this mean? It means that during the pandemic, people had to take less interest on their mortgage rates than they ever have before. Seriously, the graph goes back about 50 years, it has never been close to this low before.

So, having to pay back less money combined with the desire for more space in a cheaper area has played into the national market that includes Sacramento. 

But, what about California? 

The California Factor

Sacramento is the capital of California. The state is known to be one of the most expensive ones in the entire country to live in.

California has the second-highest median rent and median home price of any state in the country. Hawaii is the only state that tops them in both categories.

What does that mean? It means that is located in California creates an inflated market. 

If you want to live in a coastal state with some of the best weather in the country, you have to pay for it. If you can’t afford to live in San Francisco, Los Angeles, San Jose, or San Diego, you still have to pay to have the privilege of being within driving distance in the state.

California has a population of almost 40 million people. That is 10 million more people than the next most populated state in the country, which is Texas, at 29 million. 

So, not only does California as a state have the appeal, they have the population here to fulfill the demand. As the state capital, despite being more affordable than the rest, it is included in that. 

Want to hear something crazy? The 10 closest states to California COMBINED do not have a higher population than California itself. 

So, until there is stronger competition in the area, it allows cities in California like Sacramento to charge a higher rate in the real estate market. This does not even go into the taxes in California like state income tax, city tax, property taxes, and more.

Sacramento is considered a cheaper city in California too, but it still matches major cities like Boston and Denver for average home price because of the state it is located in. 

Beat The Sacramento Real Estate Market

During the pandemic, you may have thought about making a big move or a big change. Are you hesitant to take action?

Do you want to know more about the Sacramento real estate market? 

Contact us to get professional guidance on how to sell your home or for navigating the buyer’s market.