With Housing Healing, is Sacramento Construction Market Healing?

Total single-family home sales were down 20% in Sacramento from December 2012 to 2013. Cash buyers for home accounted for 19.5% of all sales, down from 25% a year ago. The inventory of homes increased 44.2% year-over-year in December. Sounds like bad news, right? Supply is up and demand from cash buyers, seemingly the best kind, is down. But trow into the mix that conventional sales (those where your typical buyer takes out a conventional mortgage) were up in December 2013 over the previous December and you have signs of a healthy housing market. Cash buyers are typically investors looking to rent homes. Conventional buyers signal improving consumer sentiment, a precursor to a recovering economy. The increase in inventory leads to slower price increases (with more options of houses to buy, purchasers have some leverage over sellers, keeping prices down). All this equates to an improving market in Sacramento after years of distress.

This is also signaled in home builder sentiment. Nationwide, home builder sentiment declined from 57 to 56 from December 2013 to January 2014. Results greater than 50 indicate the degree that builders feel sales conditions are good.  When homebuilders have relatively higher sentiment, they're more apt to build homes, signaling an improving economy. But let's dig deeper: In the west, sentiment increased four points to 63. Not too shabby.

Why does this matter to someone interested in in the construction of large structures? Because single-family home building is a leading indicator for the construction of roads and other infrastructure, schools, retail space, and other buildings. Sacramento has been lagging the Bay Area for some time, but perhaps it's about to break out of its doldrums. 

For more reading, click these links:

Bill McBride on Sacramento's home building market