Double bubble trouble?

One of the advantages of living in an inconspicuous region like the Sacramento Valley is that when the economic feces hit the fan, there’s more time to step out of the way. We’re somewhat insulated from the obsessive-compulsive urges of Wall Street or, say, the Bay Area. Thus, despite the collapse of the technology-stock bubble and the subsequent two-year economic downturn, local experts remain cautiously optimistic about our region’s prospects in 2003.

That’s right. Even though the federal budget deficit is once again on the rise, even though the nation may have slipped into a double-dip recession already, even though Sacramento’s largest employer (state government) is facing a $35 billion budget shortfall, most of us won’t get any you-know-what on us.

What’s the reason for this cautious optimism in the midst of such gloomy weather? In a word, growth.

By 2010, the region’s population is projected to increase by 650,000 people, increasing demand for local goods and services, including an estimated 200,000 new homes.

For now, let’s pretend we’re economists and ignore the negative impacts such growth brings. Instead, let’s talk home prices.

In October, the median price for resale homes in Sacramento County reached $211,500, an all-time high. That’s a 28-percent increase from the same month the year before, and it comes on top of a 21-percent increase in median price recorded for Sacramento County in 2001. Surrounding counties enjoyed similar double-digit gains, and increases of up to 40 percent have been seen in isolated pockets. No wonder local experts are cautiously optimistic!

Real estate is skyrocketing, and the customers are lining up. We haven’t seen rates of return like this since … ah, well, the technology-stock bubble three years ago.

Is Sacramento riding atop a speculative real-estate bubble? The numbers, more than double the normally expected rate of return on investment, say yes.

Nationally, even staid newspapers like the Wall Street Journal have been warning that investors fleeing the wobbly stock market may be causing the real-estate market to overheat. It’s not a question of if the bubble will pop, but of when.

Fortunately, Sacramento’s inconspicuous nature may come to our rescue again.