Sacramento’s New Construction Pipeline Shields Market From Rate-Driven Slowdown

Written by:

Steve Marcinuk

Date:

27 Mar 2026

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While high interest rates and tight inventory have stalled home sales across much of California, Sacramento’s steady stream of new construction is keeping its real estate market active even as others slow or freeze. This supply of new homes, paired with targeted incentives, is giving buyers options and helping the region weather challenges that have brought coastal markets to a standstill.

Mark Patrick McDonough, team leader at Sacramento Real Estate Group, has seen this dynamic shape the market over the past year. His team closed $45 million in transactions in 2023, much of it driven by a weekly YouTube show that draws between 200 and 1,000 viewers from across California and out of state. McDonough credits the region’s new construction pipeline with keeping deals moving even as resale activity slows.

“Last year alone, maybe 5,000 new homes were built in various areas of Sacramento Metro,” McDonough says. He notes that builders are offering significant incentives to buyers, including interest rate buy-downs, which have become a key driver of local sales. “Because new homes have come into our market so impactfully, it has led our market to keep going where other markets stop.”

New Construction Keeps the Market Moving

In Sacramento, when interest rates rise and resale activity slows, buyers shift their focus to new construction, where builders can offer incentives to offset higher borrowing costs. This flexibility stands in stark contrast to Peninsula and Bay Area markets, where limited new development leaves buyers and sellers at an impasse when rates spike.

“When interest rates go up, the resale stuff is going to stop, but new homes are probably going to be more aggressive with their incentives, and people are going to pivot to the new homes,” McDonough says. “We have that ability to keep going in the real estate market, where a lot of other markets have to stop because they don’t have new homes.”

The incentives are substantial. McDonough reports that buyers can secure interest rates as low as 4% on brand-new, energy-efficient homes with solar at prices that often match or beat resale listings. For first-time buyers, these offers have become the main path to ownership.

“First-time buyers are all going to new homes. That’s it,” he says. “You don’t have to deal with problems, you don’t have to deal with anything, and you can get it for pretty much cheaper than a resale home, and you get a fantastic interest rate.”

The Lock-In Effect and Resale Inventory

Like many regions, Sacramento faces a persistent lock-in effect: homeowners with ultra-low mortgage rates secured during the pandemic are unwilling to sell and take on a higher rate, which keeps resale inventory low and puts upward pressure on prices.

“Ever since we got into the 2.75s back in COVID, because a lot of people have these 2.75s, it’s stopping them from selling their homes and buying more homes,” McDonough says. Many sellers are reluctant to lower their asking prices; instead, they anchor expectations to peak market values and the advantage of their current rate.

He describes the mindset: “You’re sitting on a 2.75 interest rate. If you sell it at $1.1 million, that’s worth your while. If you sell it for anything below that, it’s not. So all of a sudden, you’re listing your home at $1.1 million, and when realtors say we have to reduce the price, you say, ‘I don’t want to reduce the price. I got a 2.75 interest rate. I’m going to stay in my house.”

This reluctance to list at market-clearing prices keeps resale inventory tight, which further boosts the appeal of new construction options.

Migration and Sacramento’s Value Proposition

Sacramento continues to attract buyers from the Bay Area and Los Angeles who want the California lifestyle without the coastal price tag. McDonough’s team frequently works with clients from major tech firms like Nvidia, Google, and YouTube, many of whom are relocating or working remotely.

“Sacramento gives you the California lifestyle without the Bay Area prices or LA prices,” he says. The region’s proximity to San Francisco, Napa, and Lake Tahoe, along with its relatively mild winters, appeals to buyers looking for value and quality of life. “It’s a little hot during summer, but you can afford a pool.”

The price gap remains significant. “Two million dollars will get you four or five thousand square feet, a pool, maybe half an acre to an acre, probably in a gated community,” McDonough says, comparing that to a 1,000-square-foot condo in San Jose for the same price.

Submarket Strength and Buyer Behavior

Not all areas of Sacramento are performing equally, but several submarkets have remained resilient even as the broader market cools. Folsom stands out for its lower electricity costs through SMUD, access to Folsom Lake, and high-end shopping. Elk Grove draws buyers with its proximity to the Bay Area and relatively affordable entry-level homes. In central neighborhoods like East Sacramento and the Fab 40s, limited supply and access to downtown continue to drive demand.

“If you look historically at areas that have been selling like East Sacramento, Granite Bay, Folsom, those are areas that historically have always been very strong,” McDonough says. “Those markets tend to still be very strong, even in slower markets.”

For buyers, this means certain neighborhoods still see competitive bidding and higher prices, while others offer more room to negotiate and slower-moving inventory.

Investment Strategies Shift

For investors, the current market requires a different approach. McDonough advises against buying new construction for investment purposes, as builders typically reserve their best incentives for owner-occupants rather than investors. Instead, he sees more opportunity in multi-unit residential and commercial properties, especially manufacturing and business facilities that benefit from rising demand from AI and tech-related industries.

“Commercial spaces, manufacturer spaces, they’re hot right now. That’s probably one of the only things at this point that’s really penciling,” he says.

Market Outlook

Looking ahead to 2026, McDonough expects continued market softness, with few signs of a rapid rebound unless there are significant changes in federal monetary policy. He is watching for potential impacts from changes in Federal Reserve leadership and how the bond market might react, which could affect mortgage rates.

“The only thing I’m watching for is when Jerome Powell gets a boot in May, how the bond market is going to react to it. That could do something for interest rates,” he says.

Broader geopolitical tensions and higher oil prices add uncertainty. Still, Sacramento’s ongoing new construction pipeline continues to provide a buffer against the kind of market paralysis seen in other parts of California.

Marketing and Technology in Real Estate

McDonough’s business model, which relies heavily on original content and direct engagement with buyers, highlights broader changes in real estate marketing. He cautions against overusing AI-generated content, noting that some agents rely on automated tools for property descriptions and blog posts, which can lead to poor search results and a less personal connection with clients.

“Real estate people are shortcutting and using AI to write descriptions of their property. They’re doing blogs every single day, and AI is just turning out. They’re messing up with the searches, and they’re doing spammy stuff,” he says.

Instead, McDonough’s team focuses on producing authentic content that showcases Sacramento’s neighborhoods and lifestyle, aiming to build real relationships with potential clients.

What Sets Sacramento Apart

Sacramento’s resilience in the face of high rates and limited resale inventory comes down to three core factors: a robust pipeline of new homes, a location that attracts buyers from high-cost areas, and a flexible approach to marketing and sales. While the market is not immune to national headwinds, its structural advantages offer buyers options and keep deals moving even as other California markets slow to a crawl.

As long as builders continue to deliver new homes and offer buyer incentives, Sacramento will likely remain one of the few major California markets where buyers still have choices – and where the market can adapt quickly to changing conditions. For now, Sacramento’s unique mix of supply, value, and geographic appeal is giving it an edge in a challenging real estate environment.