Bay Area rents continued to decline for the second consecutive month in July, as more employees able to work from home looked for lower-priced regions.
San Francisco’s average rent for a one-bedroom apartment fell to $3,280, a record 11.8% drop compared to a year ago — and the second straight month with a record slide, according to industry tracker Zumper. San Jose’s average dropped 8% to $2,300, also a record but the region is still the fourth-priciest rental market in the U.S.
While San Francisco and San Jose rents plummeted, nearby Oakland remains one of the strongest rental markets in the nation, with rent up 4.5% from a year ago to $2,300. In short, San Francisco renters can cross the Bay Bridge and save almost $1,000 per month (and a ton on parking).
California’s other higher-priced areas — including Los Angeles, Orange County and San Diego — are also dealing with declining demand as more employers and their employees embrace work-from-home measures. Los Angeles’ average rent is off 3.6% to $2,150. Santa Ana, Anaheim and San Diego were also lower.
But inland cities are definitely benefiting from the so-called pandemic pricing, with Bakersfield rent up a record 13.5% from a year ago. Bakersfield is easily the most affordable major city in the state, where a one-bedroom apartment rents for $840 — or almost one-fourth the rent in San Francisco.
Feature photo of Menlo Park apartments. Sundry Photography/Shutterstock
Apple to invest $400 million this year for affordable housing
Apple Inc. has been at the cornerstone of change for the past two decades, from the first iPod in 2001 to the launch of the iPhone six years later — and, really, the start of the smartphone revolution.
Now, the Cupertino-based company has another attention-getting and much-needed product — affordable housing in the Bay Area.
Apple is allocating $400 million toward affordable housing projects and homeowner-assistance programs in the state this year, the latest effort by the tech giant to combat the housing crisis. The dollars, just part of the company’s $2.5 billion commitment to housing, will help thousands of first-time homebuyers and the development of new affordable housing units.
Apple is partnering with Housing Trust Silicon Valley on 250 affordable units in the Bay Area, many reserved for veterans, the homeless or formerly homeless, and residents with developmental disabilities.
The company will also continue with its mortgage assistance and down payment assistance funds with the California Housing Finance Agency (CalHFA), a state agency that helps very low-income and low-income residents. Apple and CalHFA will also partner on a first-of-its-kind affordable housing investment support program that will help develop housing for low-income residents.
“At a time when so many members of our community are facing unprecedented challenges, we believe it’s critical to make sure that their hopes for the future are supported through tangible programs and results,” says Kristina Raspe, vice president for Global Real Estate and Facilities for Apple. “As cities and states have been forced to pause many of their long-term affordable housing investments amidst the current public health crisis, Apple is proud to continue moving forward with our comprehensive plan to combat the housing crisis in California.”
High-end homes in Sacramento, Riverside suffer some of the largest price drops in Q2
High-end homes have been harder hit by the COVID pandemic, the subsequent shutdown and the recession than the rest of the housing market, with Sacramento and Riverside among the most impacted nationwide during the second quarter.
Luxury home prices — considered the top 5% of the housing market — declined 2.3% compared to the 4.1% increase for homes in the 36th to 65th percentile from April through the second week of June, according to Redfin. The dip, though certainly not significant, clearly shows that higher-end homes are less in demand during the pandemic.
“The pandemic is playing an outsized role in the luxury market, as very expensive homes are particularly sensitive to periods of economic uncertainty,” says Redfin economist Taylor Marr. “Many luxury buyers are nervous about pouring money into an investment that may be difficult to sell if the economy takes a nosedive … Although access to credit is loosening up, it has tightened considerably for jumbo loans, which a lot of luxury buyers use.”
Entry-level and move-up buyers are more concerned about the down payment and the monthly mortgage bill than liquidity or losing some equity in the event of a housing slide, considered highly unlikely given the latest home prices and limited supply of homes on the market in the state.
Sacramento’s high-end home prices declined 5% to $1.145 million, the fourth-largest drop in the U.S., with Riverside in seventh place, falling 4% to $1.02 million, according to Redfin. Dallas’ luxury home prices plummeted 12%, easily the largest decline with Las Vegas in second place at 6.7%.
Other California cities fared much better, with no or even some slight gains during the 12-week period. San Diego’s high-end home prices increased 5.1% to $1.53 million, one of the 10 best markets in the U.S.
Now, high-end homeowners who are looking to sell should not worry, luxury home prices are already recovering. In fact, there is evidence that high-end home listings are already improving, with San Francisco and San Jose luxury homes up 34% and 27%, respectively, during the second quarter, compared to the same period a year ago, according to Zillow. San Diego and Sacramento’s high-end home listings increased 5% and 2%. Los Angeles was off 11%.
“Luxury home prices have likely already bottomed out. Price growth may continue to be lower than last year through the summer and fall, but with smaller drops as the months go on,” he says. “The top end of the real estate market will recover more slowly than the rest of it.”
Higher prices, record-low rates make homes more affordable
Homebuyers and home-sellers are enjoying a rather interesting market, as home prices increase but are being offset by record-low mortgage rates.
Affordability has improved in about half the markets statewide, with Butte County at the top of the list with an affordability index of 124 (anything above 100 is considered less affordable than the historical average).
Other communities have also become more affordable during the past few months. San Luis Obispo County — one of the pricier markets in the state — had an affordability index of 118, and even high-priced San Francisco looked cheaper, at least on paper, at 113, according to ATTOM Data Solutions. Los Angeles, Orange and San Diego counties were also a bit more affordable during the second quarter, thanks to record-low mortgage rates.
But even with long-term mortgage rates at or even below 3%, most Bay Area markets barely budged on the index. And low mortgage rates are great, but home prices continue to outpace wage gains in many markets statewide, though Los Angeles, Orange and San Diego counties bucked that trend during the second quarter.
Plus, with millions of Californians out of work — and many others worried about their jobs with the pandemic and shutdowns — affordability is nice, but only makes the dream of homeownership just slightly more likely.
For example, homebuyers in San Francisco and San Mateo counties need to earn about $330,000 per year in order to qualify for a mortgage for the median-priced home, according to ATTOM. Marin and Santa Clara counties were only slightly more affordable at demanding incomes of about $285,000.
“The latest affordability numbers reveal a win-win situation for sellers as well as buyers,” says Todd Teta, chief product officer with ATTOM Data Solutions. “Prices are rising again around the county during the current home-buying season, despite worries that the economic impact of the coronavirus pandemic would halt the nine-year runup in home values. But a combination of wage gains and declining mortgage rates are helping to override the increases and make homes more affordable in large swaths of the United States. Virus pandemic concerns are still quite valid and may show up in the coming months, which could hurt prices as well as affordability. That remains a significant potential cloud hanging over the market.”
Click below to see if your county has become more affordable during the second quarter compared to the historical average.
Longtime business journalist-turned-communications executive who enjoys reporting on residential real estate in his spare time.