As a pandemic real estate hotspot, Sacramento region now rated in top 10 markets vulnerable in post-COVID recession
Even though American job growth has remained strong as employers struggle to fill open positions, along with battling 40-year high inflation, the country could be headed into a recession, according to many economists.
A recession is typically defined as two-quarters of negative growth. Tomorrow gross domestic product figures will be released, and if there is negative growth for the quarter ending June 30, it would mean two consecutive quarters, which indicates a recession.
According to a recent study by RedFin, Sacramento is one of the top 10 most vulnerable real estate markets nationally. The study ranked Sacramento sixth.
Interestingly, Sacramento's expected vulnerability stems from the COVID-19 real estate boom. After the start of the COVID-19 restrictions, Sacramento experienced fast estate price growth driven primarily by San Fransisco Bay Area migrants.
However, that price growth has slowed by mortgage rates that have almost doubled from the start of 2022. In Elk Grove, there have been many price drops for residential real estate listings, indicating price weakness.
Today the Federal Reserve raised prime interest rates by 75 basis points which will further drive up mortgage rates. High-interest rates and a slowing economy will hurt Sacramento and several other boom areas, according to RedFin.
The 10 most vulnerable cities are Riverside is followed by Boise (76.9), Cape Coral, FL (76.7), North Port, FL (75) and Las Vegas (74.2). Sacramento, CA (73.1), Bakersfield, CA (72.2), Phoenix (72), Tampa, FL (70.7) and Tucson, AZ (70.1) round out the top 10. A score of 100 the highest likihood of a housing market downturn.
"...A recession – or even a continued economic downturn that doesn’t reach recession levels would impact some local housing markets more than others, and there are a few factors that put certain areas at risk,” Redfin Senior Economist Sheharyar Bokhari said. “First, what goes up must come down. Home prices soared at an unsustainable rate in many pandemic homebuying hotspots, both with second-home buyers and remote workers permanently relocating who were taking advantage of record-low mortgage rates.
In a foreboding note, Bokhari added, "Additionally, places where people tend to have high debt compared with their income and home equity are vulnerable because their residents are more likely to foreclose or sell at a loss.”
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