Billionaires, companies and everyday folks may be abandoning California, but the Golden State should still shine when it comes to housing.
Four of the nation’s top 10 hottest housing markets are in California, including the top two — Sacramento and San Jose, according to Realtor.com. The website based the list on past sale prices and number of sales, the rate of new construction, and economic and job growth expected in 2021.
Sacramento easily tops the list — and has earned high marks from Redfin as well — thanks to its relatively affordable housing and easy access to the Bay Area. The four-county region’s median home price ($554,000) is about one-third the price of San Francisco, which is 90 minutes away without traffic. Sacramento-area home sales should increase 17.4% in 2021, the largest among the 10 hot markets.
“It’s far enough away [from the Bay Area] that homes are more affordable,” says Realtor.com chief economist Danielle Hale. “But it’s close enough that, if people are working occasionally from the office, they can get in.”
San Jose landed at No. 2 on the list, thanks to hefty paychecks and rock-solid job growth, which helps make up for for the $1.2 million price. Home prices and sales are both expected to increase almost 11% in 2021.
Oxnard, about an hour north of downtown Los Angeles, landed at No. 8, while Riverside rounded out the list at No. 10.
Feature photo of Tower Bridge in Sacramento. Adobe Stock
Home-flipping continues to slow, but profits and profit margins improve
Home-flipping may be hitting a tough wall.
The home-flipping rate declined to 5.1% of home sales during the third quarter, the second consecutive quarterly drop and a possible sign of a slowing piece of the housing market, according to ATTOM Data Solutions.
But profits and profit margins reached the highest level since 2000, as speculative buyers continued to benefit from fast-rising home prices and record-low mortgage rates. Flipped homes are properties bought and sold within a year.
Investors enjoyed a gross profit of $73,766 during the third quarter, compared to $69,000 in the second quarter (fifth item in CHN Blog) and $61,800 a year ago. The gross profit is based on the purchase price compared to the sale price, but does not include home-improvement costs, says Todd Teta, chief product officer at ATTOM Data.
California cities fared better than others in U.S.
Four of the five cities with the largest gross profit margins were in California, with San Jose topping the list at $290,000, followed by Ventura ($180,000) and Los Angeles ($161,500). San Francisco finished in fifth place at $158,500, just behind Bridgeport, Conn.
The average flipper nationwide had a profit margin of 44.4% during the July-through-September period, slightly higher than the 42.9% for the previous quarter (fifth item in CHN blog) — and the 40.3% a year ago. It’s the second consecutive quarterly increase, which followed nine straight quarterly declines.
Home-flippers are facing the same challenges as other shoppers: A critical shortage of homes on the market, competition for those listings and fast-rising prices. But they also benefit from the higher prices when they sell their one-year investments.
“This all happened in the context of the pandemic, which has created unusual circumstances for the housing market to thrive and that has included the home-flipping business,” Teta says. “Too much is uncertain these days to say whether the latest trends will continue. But for now, the prospects continue looking up for home flipping after a period when they were trending the opposite way.”
Renters leave coastal cities causing rents to slide
Renters cheer and landlords fear the far-reaching effect of Covid on the apartment rental market in California.
Renters are finding bargains in the coastal cities of the state, as more Californians are able to work from home and look for lower-priced markets, such as Bakersfield, Fresno and Sacramento. Faced with a decline in demand — and a lot more empty units — landlords are being forced to lower rents.
California had three of the eight cities nationwide with the largest rent declines during the past year, with San Francisco’s 17% drop topping the list, according to RENTCafe. San Francisco’s average rent is now $3,055, compared to $3,695 at the end of 2019.
San Jose finished at No. 6, with a 7.7% decline to $2,531. Los Angeles landed at No. 8, off 5.8% to $2,359. San Diego had the 13th-largest decline among major metro regions, with a 1.6% drop.
31% decline in renters moving into San Francisco
California’s largest coastal cities are experiencing a huge decline in renters during the past year, thanks to the pandemic. A RENTCafe report found that San Francisco had an 11% increase of renters leaving the city — and a head-turning 31% drop in people looking to move to the pricey housing market.
San Francisco’s increase in renters leaving was the eighth largest in the nation; Detroit had the largest percentage at 36%, followed by Oklahoma City at 34%.
Los Angeles and San Diego were basically flat between renters leaving and people moving in.
San Jose had the most perplexing data — a 16% decline in renters leaving the center of Silicon Valley, and a 14% increase in people moving to the city. And 55% of renters were price shopping in San Jose during the past year.
Zumper also follows the apartment rental market and has reported on the slide in recent months.
Record wildfire season sparks another round of homeowners’ insurance increases
California’s so-called home insurer of last resort will increase annual premiums an average of almost 16% starting Jan. 1, the latest insurance price hike that follows the worst-ever wildfire season.
The California FAIR Plan covers Californians in rural areas who have lost homeowners’ insurance because of devastating wildfires the past few years, including a record 4 million acres burned in 2020. Coverage will cost two or even three times more than premiums just a few years ago, before fires destroyed Paradise, Santa Rosa and other communities.
The average 15.6% increase includes little-or-no hikes for homeowners in urban areas, while those in rural communities will see significantly higher premiums. The current premium hike follows a 20% increase less than two years ago, according to The Sacramento Bee.
But the choice is either pay the price — or risk the potential of a traumatic loss from wildfires.
Financial pain for homeowners, insurers
The California FAIR Plan also has few, if any, options. The FAIR Plan has paid about $350 million in wildfire claims since Sept. 1, a large percentage of the $400 million premiums received this year. Plus, the FAIR Fair Plan must still cover homeowners for other damage, such as leaky pipes or theft, and natural disasters.
California Insurance Commissioner Ricardo Lara has attempted to ease the financial burden on homeowners with moratoriums prohibiting insurance carriers like Allstate and State Farm from canceling coverage in regions burned by wildfires. The effort will help hundreds of thousands of homeowners to keep relatively affordable policies.
However, the insurance commissioner-ordered moratorium only lasts a year, while wildfires continue to ravage the state every summer and fall. It’s a short-term solution for a long-term problem.
Traditional carriers dropped almost 42,000 homeowners in the most wildfire-prone areas of the state in 2019, and many of those have joined the FAIR Plan, which does not receive taxpayer funding.
Paradise homeowners suffer another loss — home values
California’s most devastating wildfire greatly increased homeowners’ insurance premiums — and also caused home values to plummet in Paradise, according to a recent report.
Paradise, a foothill community that basically burned down in 2018, has endured a 20.5% drop in home values, the largest in the nation, according to Redfin. The average home value in the community, about 90 minutes from Sacramento, was $136,000 in October compared to a year ago. The community’s average home price is about one-fifth of the statewide median.
“Relative affordability is luring some buyers into certain wildfire-prone parts of California but Paradise is not one of them,” says Redfin chief economist Daryl Fairweather. “Much of the town was destroyed by the Camp Fire two years ago, and the pandemic halted a return to a normal life, including a pause on rebuilding the nearly 14,000 homes that were lost in the fire. Most of the properties for sale right now are empty lots where homes used to be. The devastation caused by past fires and the looming threat of future wildfires are causing buyers to look elsewhere.”
The pandemic has also affected home values in San Francisco, which has experienced a 6% decline to $985,000. The demand for homes in the City by the Bay has slipped, as more residents — homeowners and renters — look for lower-priced regions of the state like Sacramento (see the previous item).
California homeowners enjoy huge equity gain
For many homeowners in California, their equity soared thanks to record-setting home values, according to CoreLogic.
The average homeowner enjoyed a $34,000 increase in equity during the third quarter compared to a year ago, the second-highest gain in the nation behind Washington state at $36,000. California’s equity increase was double the national average of $17,000.
In addition, California had the nation’s second-lowest rate of homeowners with negative equity at 1.5%, just a tick higher than the 1.4% rate in Oregon. San Francisco boasted the lowest negative equity rate among major cities at 0.7%, followed by Los Angeles at 1.1%.
Despite COVID, the battered economy and about 1.8 million Californians out of work, foreclosures are of little concern in the state. For example, Los Angeles County had 111 houses enter foreclosure in November, the second most in the U.S., according to ATTOM Data Solutions. Yes, 111 of the county’s 10 million residents, including about 4.5 million homeowners, though some don’t have mortgages.
During the housing collapse of the Great Recession, about one of every four homes nationwide — and more in California — had underwater mortgages, where homeowners owed more than the value of their house. More than 1 million owners lost their homes to foreclosure during the Great Recession.