CHN Blog

Bay Area residents look east to Sacramento for affordable housing

More Bay Area residents are looking at moving to the Sacramento region. Also, California has more than 75,000 delinquent FHA mortgages, nowhere is affordable in the state, only one city in the state makes Best Places to Live list, and ground-floor grocery stores often raise the rent of apartment buildings.

Goodbye, San Francisco. Hello, Sacramento

The Sacramento region dominated the top of Redfin’s inflow list for July and August, as more Bay Area employees who are able to work from home continued looking for more affordable housing. And Sacramento, about 90 minutes from the Golden Gate Bridge, Coit Tower and Oracle Park, definitely fits the criteria.

Sacramento’s median home price was $468,000 in August, an 11% increase compared to a year ago — but about $1 million less than San Francisco, according to Redfin.

Almost half of families can buy a house in Sacramento

The city’s affordability and still-easy access to the Bay Area are definitely attracting buyers, many who have cash in their pockets for purchases. Those Bay Area consumers are creating more bidding wars and increasing the competition for homes in the Sacramento region, considered one of the few affordable markets in the state.

Only one of every three Californians could afford the median-priced home in the state during the second quarter, compared to 46% in Sacramento.

That’s the primary reason why more Bay Area consumers are clicking on homes in Sacramento, according to Redfin. El Dorado County, about 30 miles east of Sacramento, is the most competitive housing market in the nation.

Homes in Curtis Park neighborhood of Sacramento. Emmy Bersa/Shutterstock

Half of online searches for Sacramento homes were from outside the region

Sacramento had 10,764 more people considering moving to the four-county region than those looking to leave, easily the largest difference between out-of-town vs. in-region home shoppers in the nation. Austin and Phoenix finished in second- and third-place with about 7,000 more out-of-town shoppers, respectively.

Slightly more than half (50.5%) of the Sacramento-area home searches were outside the region, compared to 44% a year ago.

Of course, just because a consumer checks on a market and clicks on some homes for sale doesn’t mean they are moving. Just ask anyone who dreams about buying a home in Aspen, Colo., or Hilo, Hawaii. But it’s definitely a good way to track interest.

“People who could barely afford to rent a one-bedroom or two-bedroom apartment in New York or San Francisco are finding that with their newly remote job, they can buy a nice-sized house in the most desirable part of a place like Sacramento, Tampa or Las Vegas,” says Redfin chief economist Daryl Fairweather. “And their big, coastal salaries allow them to outbid local homebuyers in bidding wars, which is starting to drive up home prices in those areas. The trend is likely to continue as remote work becomes permanent for more companies.”   

Indeed, almost one of every four consumers in San Francisco clicking online at homes were looking outside the city, while 17% of Los Angeles-area residents were shopping outside the region, according to Redfin.

Sometimes affordability beats the benefits — and cost — of a major metro region.

Feature photo of Tower Bridge that crosses the Sacramento River in downtown Sacramento. Adobe Stock

Delinquent FHA mortgages increased through August. Will they lead to foreclosures? Jeff Turner/Flickr

California has 75,000-plus delinquent FHA mortgages, Inland Empire tops list

Foreclosures dominated the housing market a decade ago, with more than 1 million homeowners in California losing their properties — the equivalent of the population of San Jose.

While most housing and lending experts are not overly concerned about foreclosures with the current recession, especially with booming housing sales and record-setting prices, a new report details evidence that some homeowners in Riverside-San Bernardino counties could be in trouble.

The Inland Empire has the sixth-most delinquent FHA (Federal Housing Administration) mortgages in the U.S., according to American Enterprise Institute’s Nowcast report. FHA loans are designed for low-to-moderate-income borrowers and require a lower minimum down payment — often only 3.5% — and lower credit scores than many conventional loans.

The Inland Empire has about 22,900 delinquent FHA loans through August, or about 17% of the FHA portfolio in the two counties. And 11% of those were seriously delinquent, or 90 days past due.

Why Inland Empire delinquencies matter

It’s a big deal because one of every five homes with a loan in the Inland Empire has an FHA-backed mortgage. If homeowners cannot make the payments, foreclosures — or at least forced sales — are possible down the road.

And that could have a ripple effect in the state. Riverside-San Bernardino counties account for 30% of the 75,300 delinquent FHA loans among the 12 largest metro regions in the state (see chart, right).

While many homeowners with delinquent FHA loans could sell and walk away with some money in their pocket, it may not be very much since FHA down payments are minimal.

Let’s assume a family bought a house in the Inland Empire for $372,000 with the minimum FHA down payment of 3.5% — or about $13,000 — in August 2019. Fast-forward a year later, and their equity has now soared to about $76,000, based on the median home price of $435,000 in August 2020, up 14.5% from a year ago.

Total delinquent FHA loans and percentage in metro areas in California
  • Inland Empire: 22,894; 17.3%
  • Los Angeles-Long Beach: 16,826; 18.3%
  • Sacramento-Roseville: 7,063: 16.4%
  • Bakersfield: 5,270; 15.5%
  • San Diego-Carlsbad: 4,661; 18.2%
  • San Francisco-East Bay: 3,935; 18.9%
  • Fresno: 3,671; 13.8%
  • Stockton: 3,148: 17%
  • Orange County: 2,652; 17.7%
  • Modesto: 2,277; 15.3%
  • Visalia: 2,208; 12.8%
  • San Jose-Sunnyvale: 594; 18.4%
Almost 19% of FHA loans in San Francisco and the East Bay are delinquent, the highest percentage in the state.

Definitely a hefty payday for making monthly mortgage payments on time. But closing costs, about 8% for the seller, will cut the profit in half. And bad credit will increase borrowing costs and demand a larger down payment to purchase a house. 

Bottom line: Foreclosures and short sales are hard on homeowners today and for at least the next several years.

Certainly, not all homeowners who are delinquent, or even seriously delinquent, will lose their homes or be forced to sell. Many have already agreed to forbearance programs with their mortgage servicers, delaying those payments for up to a year. As soon as they get back on their feet, they can catch up on the payments.

But the Nowcast report is clear evidence that foreclosures or forced sales should be closely watched and maybe even generate at least a little worry.

About 1.39 million FHA-backed mortgages are delinquent, about 17% of the portfolio. Atlanta has the most at-risk FHA mortgages with 53,000 delinquent — or more than one of every five.

The median home price in Oakland is almost $900,000, requiring the average resident to spend 65% of their paycheck to qualify for a mortgage and make the monthly payments. Shutterstock

ATTOM: Californians must dig deeper to purchase homes

Fast-rising home prices are easily outpacing the benefits of record-low mortgage rates and pay gains in much of California, making buying a home less likely for shoppers during the third quarter.

No county in California, not even in the still-affordable Central Valley, was “affordable” for residents, defined as where buyers could spend 28% of their income or less on the monthly mortgage payment, according to ATTOM Data Solutions. The affordability data is based on the county’s household income and the median home price for the region.

Bakersfield (Kern County) was the most affordable in the state at 32.5% of annual pay, where the average home price was $257,000 in the third quarter — about $450,000 less than the statewide median price. But home prices have climbed 9.5% during the past year, easily exceeding the 4.5% increase in wage gains.

Four of the nation’s five most expensive housing markets are in California

The Central Valley, from Bakersfield to Redding, was the most affordable including Butte County, where about one of every three dollars earned would go to the mortgage payment.

The Bay Area and Central Coast demand the most dollars from homebuyers, including an astounding 105% in Marin County. Southern California was a bit more affordable, largely because of San Bernardino County’s 43% of paycheck going for the mortgage.

Four of the nation’s five least affordable housing markets — based on dollars needed to qualify for the mortgage payment — were in California during the third quarter. New York’s Manhattan topped the list at $308,000, but San Francisco, San Mateo and Marin counties were in second-through-fourth place, each requiring about $285,000. San Jose was the fifth-priciest market, where the average family needed about $250,000 to purchase.

“In a year when nothing is normal, owning a single-family home has become less affordable to average wage earners across the U.S. despite conditions that would seem to point the opposite way,” says Todd Teta, chief product officer with ATTOM Data in Irvine. “Wages are up and mortgage rates are down to rock-bottom levels, which should work in favor of homebuyers. On top of that, the American economy has suffered greatly since the coronavirus pandemic began surging over the winter, a plight that normally would drop home demand and home prices. But those same low mortgage rates, along with other factors, have led a lot of buyers into the market chasing a reduced supply of homes. The result is price hikes have raced past the impact of wages and mortgage rates.”

Check affordability throughout the state — and the U.S.

An aerial view of Roseville. Devin Powers/Shutterstock

Only one California city made’s Best Places to Live list

Roseville, about 25 miles northeast of the state Capitol in downtown Sacramento, holds bragging rights as the only city in California to crack the 50 Best Places to Live by, formerly Money magazine.

With affordable homes, at least compared to the Bay Area, and an abundance of good-paying jobs, the city of 145,000 joined the closely watched list led by Evans, Georgia; Parker, Colo.; and Meridian, Idaho.

Roseville landed at No. 45, just behind West Bloomfield, Mich., and a spot better than Gilbert, Ariz., a frequent city on best places lists.

Roseville is getting a lot of attention — and residents. The city, the largest in Placer County, is the third fastest-growing city in the state at 2.7%, according to the California Department of Finance.

California’s high cost of living, largely because of the median home price of $700,000, greatly limits cities in the state to join best-places-to lists.

A Whole Foods Market on the ground-floor of an apartment building in Burbank. Let Go Media/Shutterstock

Grocery stores should top shopping list for apartment community developers

Living above a grocery store definitely has its perks, like when you desperately need a jolt of coffee in the early morning or have the late-night munchies. But that easy access comes at a cost — and more than just the temptation from the dessert case.

An apartment building that includes a ground-floor premium grocer — such as a Whole Foods Market, Trader Joe’s or Sprouts Farmers Marketcan bag a 5.8% increase in rent, according to RCLCO (formerly known as Robert Charles Lesser & Co.). The Thousand Oaks-based company crunched data for about 20 apartment communities with premium grocers, from Washington state to Washington, D.C.

Two apartment communities in California were included in the report, with mixed results.

Angelene, an apartment community with a ground-floor Sprouts Farmers Market in West Hollywood, has rents 6.1% higher than comparable nearby properties. In San Francisco, Soma at 788 only gets 2.1% higher rent with a Whole Foods. For apartment residents, the premium grocer report details the additional cost of easy access to avocado ice cream or cauliflower pizza crust. 

It’s critical to note, RCLCO conducted the study before the COVID pandemic. Now, many residents in urban areas who are able to work from home are starting to look at lower-priced areas (see previous item above).

Ron Trujillo

Ron Trujillo

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