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Buy or rent in California? New report helps you make that decision

Near-record-low mortgage rates are making buying a better choice in some areas of the state. Also, luxury home sales soar, bow to the best-selling master-planned community in the state, and apartment rents slide, again.

Buy or rent? Once an easy choice in California, the decision is a little more murky, at least in a few places.

Near-record-low mortgage rates are actually making the homebuying math add up in a few markets in the state, from Butte County (Chico) in the north — about 90 miles north of Sacramento — to Imperial County (El Centro), about 115 miles east of San Diego. Buying is also a better choice in Kings and Madera counties in the Central Valley.

But while the cost of buying is getting better in many other regions, renting a three-bedroom home still makes more sense along the coast, from San Diego to San Francisco, according to an ATTOM Data Solutions third-quarter report.

For example, renting a three-bedroom house takes about half of the average household income in Los Angeles County, compared to two of every three dollars to meet the monthly mortgage payment. The comparison in San Francisco is about 42% for rent vs. 68% to own (see interactive chart below).

However, there is a bit of a caveat to the report, the monthly mortgage is based on a 3% down payment. A bigger down payment will cut the monthly mortgage, and eliminate mortgage insurance if more than 20% of the purchase price.

‘Coming year is totally uncertain’ 

Nationwide, buying makes better financial sense than renting in almost two of every three markets, thanks to low mortgage rates.

“Home prices are rising faster than rents and wages in a majority of the country,” says Todd Teta, chief product officer with ATTOM Data Solutions. “Yet homeownership is still more affordable, as amazingly low mortgage rates that dropped below 3 percent are helping to keep the cost of rising home prices in check. It’s startling to see that kind of trend. But it shows how both the cost of renting has been relatively high compared to the cost of homeownership and how declining interest rates are having a notable impact on the housing market and homeownership.”

But Teta warned that “the coming year is totally uncertain” with the Covid pandemic and a still-struggling economy. “But, right now, owning a home still appears to be a financially sound choice for those who can afford it.” 
The key being if you can afford a home. Affordability remains a major concern for many in the state. Despite the near-record-low mortgage rates, affordability dropped to 28% during the third quarter, compared to 31% in third-quarter 2019, according to the California Association of Realtors. The average buyer in California needs to earn at least $127,200 per year in order to qualify for a 30-year mortgage and make the monthly payment of $3,180.

Feature photo by Ditty About Summer/Shutterstock

East Sacramento is one of the fastest-selling neighborhoods in the Sacramento region.

Riverside, Sacramento luxury home prices soar as many wealthy escape economic pain

Luxury home sales are easily exceeding those in other price ranges, the latest evidence of the so-called K-shaped economic recovery, where the wealthy are almost untouched while lower-income households continue to struggle.

Luxury home sales surged almost 61% during the three-month period that ended Nov. 30 compared to a year ago, a dramatic increase compared to 15% for mid-priced and 7% for affordable homes, according to Redfin. It’s the biggest gain for luxury home sales since 2013.

Redfin defines luxury home sales as the top 5% of the market.

Wall Street gains help boost
high-priced home sales

Wealthy buyers are enjoying hefty stock-market gains and many have the ability to work from anywhere, including higher-priced markets such as Santa Barbara County and South Lake Tahoe, says Redfin chief economist Daryl Fairweather.

But “low- and middle-income Americans aren’t out of the woods when it comes to this recession,” she says. And “when times are tough, banks are most likely to dole out home loans to the people who need them the least.”

All of the nation’s 49 largest markets reported double-digit increases for home sales during the September-through-November period, a big turnaround from the 30% slide for the stretch that ended Feb. 28 — just before the Covid pandemic started. 

Redfin chief economist Daryl Fairweather

California had two of the eight best-performing luxury markets in the U.S., with fourth-place Riverside increasing 81% and No. 8 Sacramento at 75%. The Sacramento region also had the largest price increase for luxury home prices in the state at 12.5%.

Only San Francisco had luxury home prices decline, as more Bay Area residents, especially higher-income residents and those able to work from home, leave the region.

Luxury home sales and prices in California compared to a year ago
  • Riverside: Sales up 81.1%; prices up 9.9% to $1 million
  • Sacramento: Sales up 75.4%; prices up 12.5% to $1.24 million
  • Oakland: Sales up 59.4%; prices up 7.3% to $2.2 million
  • Anaheim: Sales up 59.3%; prices up 3.8% to $2.75 million
  • San Diego: Sales up 45.4%; prices up 11.4% to $2.35 million
  • San Jose: Sales up 41.1%; prices up 5.6% to $3.8 million
  • Los Angeles: Sales up 34.6%; prices up 6.4% to $3.05 million
  • San Francisco: Sales up 31.7%, prices down 3.2% to $4.36 million
Irvine Ranch Quail Hill
Irvine Ranch has been the longtime master-planned leader, and one of the best examples of building a community. Aerial Geo/Adobe Stock

Ranch battle: Ontario Ranch knocks off Irvine Ranch as master-planned leader

Ontario Ranch has dethroned the state’s longtime master-planned community leader and a model in the industry — Irvine Ranch.

Ontario Ranch, located in the southeast corner of the city of Ontario in San Bernardino County, sold 1,292 homes in 2020, a 71% increase compared to the 755 homes a year earlier, according to John Burns Real Estate Consulting.

In the battle of the ranches, Ontario Ranch had almost 500 more homes sold than second-place Irvine Ranch, which had an estimated 800 sales in 2020, a 6% decline from 2019.

Seven of the nation’s 50 best-selling master-planned communities

Irvine Ranch, developed by the Irvine Company, has long been the model for master-planned communities in California and nationwide since opening University Park in 1966, the first neighborhood in Irvine. Other neighborhoods followed, and Irvine became a city in 1971.

California had seven of the 50 best-selling master-planned communities in the U.S., with Ontario Ranch finishing at No. 5. Irvine Ranch landed at No. 14. Last year, the state had eight master-planned communities on the closely watched national list.

Those seven master-planned communities, from Sacramento to San Diego, sold a total of 5,021 houses, the same as 2019.

Florida had three of the four top-selling communities, with The Villages leading the way with 2,452 homes purchased.

California’s best-selling master-planned communities in 2020 (Ranked by UNITS)
Apartments on a hill in San Francisco. Berti/Shutterstock

Bay Area rents slide 20%, while inland areas surge

As we’ve reported many times during the past several months, the Covid pandemic has greatly affected the rental market in the Bay Area and Southern California, as more employees are able to work from home and are looking for lower-priced regions of the state.

But the decline in rents is staggering and worth another look. Now, consumers benefit from the double-digit declines, but many landlords and property owners are struggling.

Rent for a one-bedroom apartment in San Francisco was $2,660 on Jan.1, a 24% drop from the $3,500 a year ago, according to Zumper. Oakland was down 22%, San Jose fell 14.7% while Los Angeles was off 13.3% from a year ago.

Now, even with the drop in rents, six of the nation’s 10 priciest markets are in California, with San Francisco at the top of the list. And a few cities in the inland regions of the state are climbing higher on the list, thanks to work-from-home practices. 

The Fresno-area’s average rent has increased 17% and Sacramento is up 11%.

Ron Trujillo

Ron Trujillo

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