Our Local Residential Real Estate
Today's Sacramento Bee had an article about the region's residential real estate market, which has been "on fire" lately. Housing prices have soared, rising consistently since the recession years of 2008/2009. Bank foreclosures have been replaced by sellers receiving multiple offers, often over asking price. Whether driven by Bay Area ex-pats, low inventory, Covid, profit-taking by house flippers, or other factors, it's pretty clear that residential property is in short supply these days.
It's also interesting to note that the current situation is just 10 years out from the 2010 ballot measure to form a city in Arden Arcade. Back then, at the depths of the recession, the LAFCO (Local Agency Formation Commission) Fiscal Analysis - the "official" economic outlook for whether the new city could take care of itself - said Arden Arcade "might succeed" once the economy recovered. Incorporation opponents took that to mean "won't ever succeed" even if the economy recovered. They said incorporation would end up in the gutter because car sales would never come back (a respected used car lot owner actually said that in a public meeting) and they falsely claimed the only way to meet expenses would be to drive residents into the poorhouse by raising taxes above and beyond what was locked in by by Prop 13. Voters bought the opponents' position hook link and sinker, defeating the proposal by a 3-1 margin.
Those voters missed their chance to form a city when prices were low and the economy had nowhere to go but up. Within 5 years after that blown opportunity, auto industry sales were setting records, consumer spending was on a roll, and unemployment was low. Now, another 5 years later, jobs are widely available and local government revenues from residential real estate taxes have risen substantially without action by government. Why did those revenues go up? According to the Tax Foundation, California's owner-occupied real estate taxes paid as a percentage of housing value are among the lowest in the country (#34 out of 50, ranking between Montana and Idaho). However, since Proposition 13 establishes taxes as a percentage of sales, sales of higher-priced homes translate to higher levels of property tax revenues. That's the market at work, not government. Still, the voters did what they did and by now it's just water over the dam, isn't it?
But back to the Bee article: does it really paint a true picture of Arden Arcade's situation? That depends. You see, Arden Arcade has 3 zip codes and a whole lot of, shall we say, "bare bones" apartments that tend to confuse the picture. Our southernmost zip code, 95864, straddles Watt Avenue. East of Watt in 95864 are generally upscale homes on fairly large lots, many approaching or above the $1M price level. West of Watt and above Northrup, the houses tend to be smaller homes, on smaller lots, with smaller price tags. So when the Bee article says the median-priced home in the 4-county region is $550,000, you have to take it with a grain of salt. Zillow's estimates of property values on each side of Watt tell a different story. Zip codes 95825 and 95821 don't quite fit the narrative either. They are loaded with rental property - apartments, duplexes and fourplexes and the residences are often degraded due to proximity to commercial property, not all of which is kept up to speed.
A new wrinkle in the mix is the state's new one-size-fits-all hostility towards single-family zoning. Sure, there are parcels in our area that can absorb additional dwellings (known as "Accessory Dwelling Units") but they tend to be in subdivisions with parcels that have room to spare. And those parcels are typically found in well-off neighborhoods where the owners don't want more density and the prices are too high to attract interest from speculators seeking quick bucks. Time will tell if this means speculators will start snapping up adjacent 1/5 acre lots in order to tear down the cheaper, comparatively small single-family units and replace them with multi-family units.