Categories
CHN Blog

Luxury home prices, sales soar in Bay Area, Sacramento

Plus, as Covid cases decline, more Californians are coming back to cities. Fannie Mae and Freddie Mac announce a new refi program for low-income homeowners. And building permits for homes drop, again.

Estimated reading time: 11 minutes

‘A relative abundance of
high-end homes to choose from’

The rich almost always get richer, and the latest evidence is the luxury housing market in California.

The state boasts three of the four best-performing luxury housing markets in the U.S., thanks largely to record-low mortgage rates, record-high levels on Wall Street and work from home (or beach or mountain) practices. 

It’s also because the Covid pandemic has affected higher-income households much less than lower-income residents, who are hesitant to sell their homes or are struggling financially and taking advantage of mortgage forbearance. And here is another reason — the balance of deep-pocketed buyers with million-dollar homes is much better than the inventory of homes for first-time and move-up homebuyers (also read as most of us).

“With a huge shortage of affordable homes for sale, many non-luxury homeowners are hesitant to put their properties on the market because they’re worried they’ll have trouble finding their next house,” says Redfin chief economist Daryl Fairweather. “This isn’t as big of an issue for luxury homeowners since there’s a relative abundance of high-end homes to choose from.”

Redfin chief economist Daryl Fairweather

Eight days to sell a $2.3 million home in Oakland

Luxury homes — considered the top 5% of the market — are red-hot in San Jose, Oakland and Sacramento, the second-through-fourth best markets in the U.S, according to Redfin.

Luxury homes in San Jose have increased 92% during the first quarter compared to a year ago, behind only first-place Miami. San Jose-area luxury homes sold for $3.9 million, an almost 9% jump from the first three months of 2020. And those top-end homes are selling in 19 days.

Luxury homes are selling in eight days in nearby Oakland, and fetching a price of $2.3 million. Oakland’s luxury home sales have increased 82%.

Sacramento — one of the nation’s hottest housing markets as Bay Area residents look for lower-priced housing — has enjoyed a 79% increase in luxury home sales. The median price for luxury homes in the region, many in Folsom-El Dorado Hills and south Placer County, is up 18% to $1.3 million, just a few percentage points from the 21% increase for the overall market, according to the California Association of Realtors.

Riverside, San Francisco and Anaheim also outpaced the national 42% increase in luxury home sales during the first three months of the year compared to the same period in 2020.

Feature photo of a $2 million home in the Sierra Oaks neighborhood of Sacramento.

Luxury home sales, prices compared to a year ago
  • San Jose: Sales up 92.3%; $3.9 million, up 8.8% 
  • Oakland: Sales up 82%; $2.3 million, up 6.6%
  • Sacramento: Sales up 79.3%; $1.3 million, up 17.7% 
  • Riverside: Sales up 68.3%; $1.1 million, up 17.5%
  • San Francisco: Sales up 52%; $4.7 million, up 0.9%
  • Anaheim: Sales up 44.2%; $2.9 million up 12.7%
  • Los Angeles: Sales up 39%; $3.15 million, up 3.3%
  • San Diego: Sales up 29.1%; $2.5 million, up 13.4%
Bay Area condo prices dip and sales soar. Sundry Photography/Adobe Stock

Condo sales in cities spring back to life

When Covid arrived in spring 2020, some city dwellers packed their panniers and pedaled to the suburbs in search of some distance from others and lower-priced housing.

But with Covid cases declining in the state, thanks largely to more jabs in arms, more residents are rethinking — and returning to — urban centers, according to recent reports. 

And condos, mostly found in cities and nearby suburbs, are surging. California condo sales soared almost 40% in March compared to a year ago, the latest in a string of double-digit and quite often 20%-plus increases during the past several months.

Share a wall, buy a roof over your head

From the Bay Area to Los Angeles, more consumers are considering condos, considered a more affordable option to single-family homes in California.

Statewide, the average condo sold for $552,000 in March, an 11.6% increase from a year ago — but about $206,000 less (27%) than the median price for a single-family home, according to the California Association of Realtors.

Condos in Mountain View. Hank Shiffman/Shutterstock

“A major reason for condos coming back is their relative affordability and the fact that a lot of homebuyers are priced out of single-family homes, which are seeing more intense price growth,” says Redfin chief economist Darryl Fairweather. “Condos are less likely than other types of homes to be part of bidding wars, which means they’re a good option for buyers with small down payments and people who don’t feel comfortable waiving contingencies.”

Bay Area condo prices dip while sales surge

So, maybe think smaller for big savings. In some cases, even a relative bargain compared to a year ago, according to Redfin.

Condo sales in San Francisco are up 59% compared to a year ago, and prices are down 4% to a paltry (sarcasm) $1.11 million. But that price is about $640,000 cheaper than single-family homes in San Francisco.

Across the Bay Bridge, Oakland had similar results, with sales up 53% and prices slipping 4% to $533,000.

Nearby San Jose also experienced a smaller-than-expected increase in condo prices at 4% to $684,600 — about $900,000 less than a single-family home in Silicon Valley.

And even in Los Angeles, the state’s biggest condo market, prices inched up 1.6% to $550,400. Sales were up 32% from a year ago.

Condo comeback (sales compared to a year ago, median price)
  • San Francisco: Up 59.3%, $1.11 million
  • Oakland: Up 52.5%; $532,833
  • Riverside: Up 47.5%; $341,521
  • Anaheim: Up 36.5%; $525,833
  • San Diego: Up 33.3%; $473,750
  • Los Angeles: Up 32.3%; $550,417
  • San Jose: Up 28.2%; $684,604
Simone Hogan/Shutterstock

New federal program could save low-income homeowners $150-$200 per month

Low-income homeowners, many who have endured financial challenges with the Covid pandemic, will soon get some help from Uncle Sam.

The Federal House Finance Agency, better known as the parent of Fannie Mae and Freddie Mac, has announced a refi program that will lower mortgage rates and monthly payments for low-income borrowers, many who may have missed the refi craze that has greatly benefited higher-and middle-income households

Lenders must ensure that borrowers save at least $50 per month in their payments and lower the rate by at least half a percentage point. Lenders must also offer a $500 credit for appraisal fees if the homeowner is eligible.

The average borrower could save about $150 to $200 per month under the RefiNow program.

“Racial and income disparities in refinance take-up rates have persisted for far too long. With this initiative, we strive to narrow the gap,” says Fannie Mae chairwoman Sheila Bair. “We thank FHFA for its strong leadership to help all eligible homeowners reduce their monthly housing costs by taking advantage of the historically low mortgage interest rates.”

The details for the dollars

The FHFA will waive its adverse market refinance fee with the RefiNow program for loan balances under $300,000. The half-percentage point fee started in December 2020 to reduce the risk from the greatly increased number of refis. The controversial fee added another $1,400 to the average refi nationwide, and often much more in California. 

To qualify for the RefiNow program, borrowers must have an income at or below 80% of the area’s median income and current on their payments during the past six months with no more than one missed payment in the past year. They also must have a loan-to-value (LTV) ratio of less than 97% and a debt-to-income (DTI) ratio no higher than 65%. Finally, borrowers must have a FICO credit score of at least 620.

Fannie and Freddie may be acting to help borrowers but also generate some volume in 2022. Experts say refis could decline almost 50% with higher interest rates down the road.

The mortgage-refi program should start in the next several weeks.

“We look forward to implementing Fannie Mae’s new RefiNow option as soon as possible to ensure all eligible homeowners are able to avail themselves of this money-saving opportunity,” says Fannie Mae CEO Hugh Frater.

New-home construction has declined during the past several years. PBK-PG/Shutterstock

When (building) dreams face reality

When Governor Gavin Newsom entered office, he announced an ambitious plan of building 3.5 million housing units in the state by 2025.

It was a rather lofty goal. But the lack of housing, especially affordable apartments for low-income residents, is a critical issue that desperately needs to be addressed.

Well, the dream has been dashed for several reasons, from construction costs to lengthy review periods for projects and, of course, most recently the pandemic.

Let’s be honest, nobody expected the state to build 3.5 million housing units — apartment buildings plus single-family homes — in seven years. You would have better luck getting the six numbers for Mega Millions.

But California has failed to get even one number right during the past three years.

Heading in the wrong direction

California cities and counties approved 102,800 building permits in 2020, an 8.8% decline compared to 2019 — and off 3.8% from 2018, according to the state Department of Finance. Last year was the fewest building permits since 2016.

The state has approved a total of 332,000 residential building permits in three years. Yep, less than 10% of the seven-year goal.

But, again, it was an aggressive plan that needed an average of 500,000 residential permits per year. California has only exceeded 300,000 home-building permits once — in 1986, according to the state Finance Department. (You know, 1986, when Top Gun and Karate Kid Part II ruled at the box office.)

New-home sales better in Silicon Valley than in Fresno

California suffers from several challenges when it comes to new-home construction compared to the rest of the nation, including less available land zoned for housing, says Redfin lead economist Taylor Marr.

Nationwide, 26% of available homes for sale were new-home construction during the first quarter, a new record and substantially more than the 20% a year ago, according to Redfin.

New-home sales are dramatically lower in California. San Jose had the highest percentage of new-home sales as part of overall home sales at 8.4%. Los Angeles (6%) and Sacramento (5.2%) had the second and third-largest percentage of new-home sales in the overall market.

Lennar model homes in Folsom.

New-home sales were only 2.4% of overall sales in Fresno, the lowest in the nation. However, the Fresno-Clovis market’s new-home permits are up 40%.

More than half of homes sold (53%) in El Paso, Texas, were new homes, the highest percentage in the U.S. Boise was second at 47%.

Lumber prices are through the roof

Booming demand coupled with dwindling supply is largely to blame for fast-rising home prices during the past year. But there is another factor often overlooked for record-setting prices from California to Maine — skyrocketing lumber prices.

Lumber prices have tripled during the past year, adding almost $36,000 to the price of the average new single-family home, according to the National Association of Home Builders. Renters don’t escape the pain, as they pay $119 per month in rent for a new apartment.

We all get hammered by higher lumber prices.

Prices up about 250% in 12 months

Blame Covid. The pandemic has caused many lumber mills — you know, the places where flannel and rotating saws rule — to close, idling employees and production. Lumber prices are about $1,200 per thousand board feet, an almost 250% increase from the $350 a year ago.

NAHB looked at the cost for numerous products that require lumber, from beams and cabinets to walls and wood-framed windows for the report. The industry association has made lumber prices its primary concern this year.

As Covid cases decline and vaccinated people increase, lumber prices should fall some. But it could take several months, or longer, for prices to drop, according to NAHB.

Ron Trujillo

Ron Trujillo

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