Record low mortgage rates and extremely low inventories continue to drive up residential real estate prices in Sacramento. The median home price in the city

from October to December 2012 was $155,000. This represents an increase of 3.3% over the previous quarter, and 22.6% over the year prior. A similar year over year increase is seen in average price per square foot, which now sits at $119.

Despite the drastic climb, sales prices in the region still remain more than 37% below levels five years prior. This gap is providing home buyers and investors with added confidence that prices will continue to rise in 2013. Although investors are snatching up much of the distressed properties on the market, retail home buyers are rushing into the market in hopes of not “missing out.”

So what should buyers in this market be watching for? First, much of the recent growth has been driven by todays rates. The Fed has vowed to keep target rates low until mid 2015, which bodes well for continued low mortgage rates. As well, Fed Chief Ben Bernanke said this week he is unsatisfied with the rate of the recovery, and will continue the mortgage bond buying process. Thus, rates are forecasted to remain low.

Secondly, home builders have begun to pick up production. New home sales increased 67% in 2012, but remain at 50 year lows. This will do little to dilute the scarce sacramento inventory, but the momentum will be important to watch.

Lastly, as prices rise, more and more homeowners will recover from their underwater mortgages and return to the home buying market. This should increase both supply and demand, while drastically reducing the number of short sales and distressed properties on the market. About 7 million borrowers remain underwater on their mortgages, down from 12 million at the peak of the down turn.

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