Over the past few years, the Sacramento, California real estate market has seen utterly explosive growth with home prices and demand skyrocketing to record highs. Inventory levels have plunged to all-time lows while bidding wars have become the norm. So what exactly is driving this surge in popularity that has led Sacramento to become 2022’s undisputed hottest real estate market? This comprehensive guide takes an in-depth look at the major factors attracting new residents and investors alike to California’s capital city.

America’s Hottest Real Estate Market: Why Everyone Is Buying Homes in Sacramento, California

California Exodus from Coastal Cities

For years, expensive coastal cities like San Francisco and Los Angeles have been experiencing a mass exodus of residents seeking more affordable places to live. Sacramento has emerged as an extremely popular destination for these outbound transplants given its relative affordability and abundance of jobs. The COVID-19 pandemic accelerated this migration pattern with remote work granting residents more freedom to relocate.

Between 2018 and 2021, over 50,000 new residents migrated from the Bay Area and Southern California to the Sacramento metropolitan area comprising Elk Grove, Roseville, and other adjoining cities. This rapid influx of citizens from pricier neighboring cities has significantly driven up housing demand. With supply unable to sufficiently catch up, bidding wars have led to staggering home price increases. Some Sacramento suburbs have even begun to reach price parity with locales in the Bay Area.

Thriving Job Market and Economy

In addition to refugees fleeing sky-high prices along the coast, the Sacramento job market itself has also attracted many new residents on its own merits. As California’s state capital, government jobs are bountiful. Major local employers include the State of California, UC Davis Medical Center, Sutter Health, and Kaiser Permanente. The region’s plentiful hospitals and research centers provide an abundance of stable jobs that continue hiring even amidst economic lockdowns.

Sacramento is also a burgeoning hub for the technology and financial services sectors. Fast-growing fintech firms such as Stripe, SoFi, and Square have opened major regional offices, seeding an emerging tech ecosystem. The Greater Sacramento area has also become an appealing alternate location for Bay Area firms to open satellite offices given much lower taxes, overhead costs, and salary expectations compared to Silicon Valley. Major enterprise software firm Oracle is even relocating its entire headquarters from Redwood City to West Sacramento.

Investor Activity Heating Up

The desirability of Sacramento’s housing market has not gone unnoticed by investors. Buy-to-rent investors have played a major role in shrinking the inventory of homes for sale as they scoop up properties to add to their rental portfolios.

Many Bay Area investors with significant home equity have opted to cash out and redeploy their capital in Sacramento where their dollars can be stretched much further. Institutional investors have also begun buying up homes at an incredible rate over the past two years. In 2021, over 30% of homes sold in Sacramento were purchased by investors - three times the national average. With future housing starts projected to lag behind regional job growth, investor interest should remain high.

Limited Housing Supply

Despite the rapidly growing population and skyrocketing demand in the region, new housing construction has severely lagged behind. Only about 5,000 to 6,000 new housing units have been built annually over the past decade against projected demand for 15,000 to 20,000 units per year to keep pace.

Compounding supply constraints, Sacramento has relatively little vacant land remaining for development. Also, years of restrictive zoning laws have stymied dense vertical construction needed for condos and apartment buildings within city limits. Altogether, this perfect storm of housing scarcity against surging demand has led to intense competition among home buyers.

FAQ

Why are home prices rising so rapidly in Sacramento?

Home prices in Sacramento are rising at the fastest pace in the country due to drastically more buyers than available homes for sale. Bidding wars have led to homes selling for well over the asking price.

Is Sacramento cheaper than San Francisco and Los Angeles?

Yes, Sacramento remains far more affordable than pricey coastal cities. However, home values are rapidly rising towards parity with some Bay Area suburbs as buyers flock inland.

What types of jobs are fueling Sacramento’s economy?

As California's state capital, government jobs drive the economy. Major healthcare systems and research institutions also employ thousands. The technology sector is contributing major growth as investors tap Sacramento as the next emerging hub.

Are people really moving from San Francisco to Sacramento?

Yes, over 50,000 residents migrated from coastal California cities to the Sacramento metropolitan area from 2018 to 2021. Remote work has accelerated relocations inland seeking affordability.

Should I buy a house in Sacramento?

If you can stomach bidding wars and all-cash offers, buying now could pay off long term. However, wait for a correction if seeking more stable pricing. Renting may suit those wanting flexibility amidst rapid market shifts.