CHN Blog

Stitch Fix’s cost-cutting move is tailor-made fit for those looking to buy in Midwest, Texas

Stitch Fix has announced plans to leave much of its customer representatives from San Francisco to other U.S. cities. Affected employees could buy a house and save a ton of money. Also, home-flipping sales soar but profits tumble, Welk Resorts agrees to $5.4 million settlement with timeshare owners, and a 60-hour work week is needed to pay the rent in many cities in California.

Goodbye, San Francisco. Hello, Pittsburgh.

Leaving the City (and your heart) by the Bay for the Steel City is a bit easier when your dollars stretch so much more, even with a significantly smaller paycheck. 

Stitch Fix, a personal-shopping service and online retailer, is the latest company to ditch the Golden State. The company will lay off 1,400 employees in San Francisco in September, and hire stylists in lower-priced cities like Austin, Dallas, Cleveland, Minneapolis and Pittsburgh. The company’s headquarters will remain in San Francisco, but a large majority of its workforce will be elsewhere.

The cost-cutting effort and hiring of lower-priced employees in other states will save the publicly-traded company a ton of money.  “Any decision that impacts our hardworking and talented people is incredibly tough, but we believe this is the right thing to do for our business,” says Stitch Fix founder and CEO Katrina Lake.

Move 2,500 miles, save more than $1 million on a house

It could also be a money-saving move for Stitch Fix employees who relocate to Texas, the Midwest or Pittsburgh. Those who abandon the Bay Area will get a pleasant surprise — much-lower home prices. Even with a big pay cut, buying a home in Pittsburgh is easy compared to the $1 million-plus prices in San Francisco, according to the U.S. Census Bureau.

Certainly, many Stitch Fix employees likely rent, and may even have a roommate or two in San Francisco, but please play along here to see the head-turning disparity in housing prices between San Francisco and just about anywhere else other than San Jose or Manhattan. We crunched data on the median household income and the median home value for San Francisco and the five cities identified by Stitch Fix. 

The disparity is hard to imagine. It’s like trying to squeeze into skinny jeans after dinner at The Cheesecake Factory.

San Francisco’s median home value was $1.2 million in 2019, 10.7 times the median household income of $112,400, according to the U.S. Census Bureau. (The California Association of Realtors reports San Francisco is the least affordable city in the state, with fewer than 20% of households able to buy a home.)  

Victorian homes in San Francisco/Flickr

San Francisco’s home value-to-income multiplier is four times higher than the rate in Pittsburgh. The Burgh’s median home value is $160,300, only 2.7 times more than the household income of $59,710.

The lower home price easily makes up for the much smaller paychecks in the City of Bridges (yep, Pittsburgh has a lot of nicknames), about $52,000 less than San Francisco. But buying and paying off a home in Pittsburgh is likely easier — and probably takes less time — than learning how to spell the Allegheny and Monongahela rivers that run through the city.

Here is how the other cities median home prices and median incomes compare:

  • Cleveland: The median home price ($158,000) is 2.7 times more than the median income of $56,203.
  • Minneapolis: The median home price ($270,600) is 3.4 times more than the median income of $79,578.
  • Dallas: The median home price ($238,800) is 3.44 times more than the median income of $69,445.
  • Austin: The median home price ($365,500) is 5.1 times more than the median income of $71,543. 

But the best comparison is that the median home prices of all five cities combined come to $1.9 million, slightly less than the $1.2 million price in San Francisco. Even that could make Tony Bennett, who was born in Astoria, N.Y., sing a different tune.

Feature photo of Pittsburgh skyline and the three rivers. Mihai Andritoiu/Shutterstock

San Francisco, San Jose and Los Angeles were the three best markets for home-flipping profits. Roger Sullivan/Flickr

Home-flipping soars but profits slide

Home-flipping figures were a bit perplexing during the first quarter of the year, with flips accounting for the largest percentage of total home sales in 14 years — but the smallest profit margin since mid-2011.

About 53,700 single-family homes and condos were flipped during the first three months of the year, 7.5% of home sales overall, the largest percentage since second-quarter 2006, according to ATTOM Data Solutions. Flipped homes are those bought, often renovated and sold within a 12-month period. 

But booming home prices are certainly hurting profit margins. The average home-flipper pocketed a nifty $62,300 during the first quarter, but higher prices are cutting into profits, which dropped to 36.7%. That’s the lowest return since third-quarter 2011, when the housing market was still recovering from the Great Recession.

Now, the housing market — and home-flippers — are dealing with the COVID-19 pandemic. So far, the housing market, especially in much of California, has remained resilient, as homebuyers shrug off the pandemic. The critical shortage of available homes coupled with record-low mortgage rates are encouraging buyers to continue home shopping, even as many worry about the economy and the future of the pandemic.

Despite the uncertainty, California had three cities with the biggest returns nationwide. San Francisco home-flippers had an average gross profit of $171,000 followed by San Jose-Sunnyvale and Los Angeles-Long Beach at $165,000 and $145,000, respectively. Gross profits are before taking into account the cost of home-improvement projects, such as a kitchen remodel or new siding.

Los Angeles neighborhoods had four of the 10 best gross profit margins in the nation, with home-flippers in the 90042 ZIP code (Highland Park and northeast Los Angeles) grabbing a return of $369,000.  

Almost 400 consumers will receive payments as part of a settlement with Welk Resorts.

Welk Resorts pays $5.4 million for false statements to timeshare buyers

Welk Resorts, a timeshare community north of Escondido in San Diego County, has agreed to pay as much as $5.4 million to resolve consumer complaints against its sales staff for lying or failing to provide important information to potential buyers — the largest-ever settlement under the Vacation Ownership Timeshare Act.

The San Marcos-based company has also agreed to start a compliance program to prevent future issues by the sales staff, according to state and local prosecutors.

Welk Resorts will pay $2 million in penalties and up to $3.4 million in restitution to timeshare buyers who were victims of false or misleading statements during sales presentations between January 2011 and through March 2016. The agreement contains no admission of liability by Welk Resorts.

The settlement is a “significant win for California consumers,” says California Attorney General Xavier Becerra. “It provides victims with the largest consumer relief package ever obtained … returning money to the pockets of those cheated by Welk.”

Almost 400 consumers’ pockets will be heavier, with payments of $500 to $29,000 as part of the settlement.

The company cited fast-paced growth for the false and misleading statements by sales staff. “We had such sales volume that the small percentage of complaints didn’t attract our attention the way they should have,” Welks Resorts CEO Jon Fredericks said in a statement to the San Diego Union-Tribune.

Fredericks added that Welk Resorts has been more focused on improvements in recent years.

The California Attorney General’s Office, the California Department of Real Estate and the San Diego County District Attorney’s Office conducted a joint investigation of Welk Resorts after receiving complaints from consumers. 

Welk Resorts has resorts in California, Colorado, Missouri and in Mexico. Bandleader Lawrence Welk, who had a popular TV show from 1955 to 1982, founded Welk Resorts in 1964. Welk died in 1992.

The average San Jose renter needs to work more than 68 hours per week to cover rent. Sundry Photography/Shutterstock

60 hours of work per week may not be enough to cover the rent in some California cities

Better get some overtime, grab a part-time gig or a pay raise if you want to rent an apartment in many California markets, according to a new report.

Four of the nation’s most expensive housing markets — based on the average hourly pay and the fair rent for a one-bedroom apartment — are in California, with San Jose-Sunnyvale the priciest, according to Self. The average employee, who earns about $29.80 per hour, needs to work 68 hours per week in order to pay for the rent of $2,458 in Silicon Valley.

The hours needed to work is based on the 28% rule, a longstanding rule of thumb that consumers should only spend 28% or less of their gross income on rent. The other three California cities in the top four spots on the national list:

  • San Francisco-Oakland: 65.5 hours (based on $27.42 per hour and rent of $2,179).
  • Los Angeles-Long Beach: 60.9 hours (based on $20.52 per hour and rent of $1,517).
  • San Diego: 59.6 hours (based on $21.66 per hour and rent of $1,566).

The Inland Empire, also known as Riverside-San Bernardino counties, finished at No. 12 on the national list, at 46.7 hours.

Two full-time jobs needed in Santa Barbara, Santa Cruz

Self also crunched the data, compiled from the U.S. Bureau of Labor Statistics and Zillow, for midsize and small cities, and California dominated those lists as well. Santa Barbara and Santa Cruz residents needed to work about 80 hours per week to pay the rent, the most hours needed among midsize and small markets, respectively.

It should be noted that fair market rents listed seem lower than other reports. 

Nationally, the average American needs to work about 42 hours per week to pay the rent and follow the 28% rule for housing, according to the report. Several states — including Iowa, Kentucky, Nebraska and Wyoming — require fewer than 30 hours per week to cover the rent.

Ron Trujillo

Ron Trujillo

Longtime business journalist-turned-communications executive who enjoys reporting on residential real estate in his spare time.