When Covid arrived and the lockdown and work-from-home followed, many Californians living in big cities looked for larger spaces and smaller housing costs.
Fifteen months later, Californians continue to move out of the Bay Area and Los Angeles, according to a new report from Redfin. And the Sacramento region is one of the most popular destinations.
The four-county Sacramento region had a net inflow of 6,165 buyers during the first quarter of the year, according to Redfin. And almost half (49%) of searches for Sacramento-area homes were from outside the area, with many of those home-shoppers from the Bay Area.
Affordability and buying power
Affordability is the primary reason. Bay Area residents relocating to Sacramento get more bang for their buck and are still less than two hours from San Francisco and Silicon Valley.
The Sacramento region’s median home price was up 23% in April compared to a year ago, according to the California Association of Realtors. Bidding wars with the increased competition and the slumping inventory for homes have pushed prices to a record. But even at the current price, Sacramento-area home prices are often $1 million less than those in the Bay Area.
“I’m still seeing tons of interest from homebuyers outside the area,” Sacramento Redfin agent Andrea White says on the company blog. “Some remote workers living in San Francisco or Silicon Valley are paying more than $3,000 a month to live in very small spaces. When potential buyers look at listings in Sacramento, they realize their big-city rent costs more than a mortgage here. Most of them aren’t concerned that competition is intense and home prices are going up because it’s an attractive lifestyle move. Employees who have the option to work remotely often decide it’s worth the tradeoff to move out of a big city to live in a larger home for less money.”
Sacramento is the third-hottest inflow market in the nation, behind Phoenix and Las Vegas, respectively. But many consumers are looking elsewhere as well.
Almost 32% of consumers searching on Redfin were looking outside their housing markets during the first quarter, a healthy increase from the 26% a year earlier. April out-of-market searches were down slightly to 30.6%, but not enough to show a significant shift.
“Redfin agents in popular destinations say the surge of out-of-towners shows no signs of slowing,” says Redfin chief economist Daryl Fairweather. “The small decline in April could be the start of a slowdown in the yearlong surge of people moving from metro to another, but it could just be a blip before things pick right back up. The dust has not settled, as there are still a lot of unknowns about what portion of workers will return to the office and how many will pick up and move because they finally have clarity from their employers about whether or how often they can work remotely. Once people know more about their future, we could see another big wave of migration as people settle into the new normal.”
Half of homeowners have more equity than mortgage debt
Feeling rich? If you own a home, you should feel pretty good, at least on paper.
Thanks to the big run-up in home prices during the past couple years, almost half of California homeowners with a mortgage are considered “equity rich” — or owe less than 50% of the estimated value of their home.
California had the third-largest percentage of equity-rich homeowners at 49% during the first quarter, just behind Vermont (51.5%) and Idaho (50.6%), a popular destination for Californians looking for a more affordable housing market — and often more conservative politics.
“It continues to be a great time to be a homeowner most everywhere in the country,” says Todd Teta, chief product officer with ATTOM Data in Irvine. “The ongoing price spikes we’re seeing help to cut down the number of seriously underwater properties and boost the level of equity-rich properties.”
California has four of the five cities with the highest percentage of equity-rich owners in the nation, with San Jose at 67% and San Francisco at 61%. Los Angeles is the fourth-best in the nation at 53.6% (two-tenths of a point lower than Boise, Idaho), followed by San Diego at 49.3%.
And four of the five counties with the largest percentage of equity-rich owners are in California, with San Mateo at 71% topping the list.
Buy or rent? Another report has familiar findings
Should you buy a home or keep on renting? In California, the choice is clear — renting is cheaper and makes more financial sense.
Half of the 10 cities nationwide where the difference between owning and renting is the greatest are in California, including San Francisco, San Jose and Los Angeles, according to Lendingtree.
San Francisco homeowners pay, on average, about $1,183 more per month than renting, the second-largest difference behind only New York City at $1,363. The figure is based on monthly rent of $1,905 vs. $3,088 for a home with a mortgage.
Of course, buying has numerous advantages, including building equity (see previous blog item) that can help with long-term financial planning. Also, homeownership includes some tax benefits. The Lendingtree report does not take into consideration these factors.
Bay Area, Los Angeles apartment rents rebound, slightly
So, buying a home costs more than renting in the state, but rent is far from cheap in California, according to multiple reports.
And the cost depends on the city — and the housing
Big-city rents, which dramatically declined with the Covid pandemic and the subsequent lockdown that prompted many residents to look for lower-priced housing markets, are inching higher in the Bay Area and Southern California.
San Francisco rents bumped up almost 2% for a one-bedroom and 3% for two-bedroom apartments in May compared to April. But the average rent for a one-bedroom apartment ($2,650) is still off 21% from a year ago, according to Zumper.
San Jose-area apartment rents were up 6.3% in May compared to April, easily the largest increase among the 100 largest metro regions tracked by Zumper. But rent is down 9.9% to $2,180 from a year ago.
Lower-cost regions — such as Sacramento, Fresno and Bakersfield — reported a healthy increase in apartment rents with the surging demand (see chart, right).
Demand — and rents — surge for single-family homes
While apartment rents are a mixed bag — down in big cities, up in smaller markets and the suburbs — rent for single-family homes is soaring in most markets. The booming demand and limited supply that is causing home prices to surge are lifting standalone rentals, too.
Nationwide, rent for single-family homes has increased 4.3% compared to a year ago, largely because of fast-rising rents for higher-end homes, according to CoreLogic. It’s the largest increase in 14 years.
Basic economics are to blame.
The U.S. Census Bureau reports that the occupancy rate is at the highest in decades, and seven of every 10 consumers are looking to rent homes because they are priced out of the market.
There is a “preference shift to standalone properties as renters seek more space in less dense areas,” says Molly Boesel, principal economist at CoreLogic. “Prior to the pandemic, rents for detached properties and attached properties (apartments) grew at similar rates. However, starting in June 2020, rent growth for detached properties accelerated and by March, grew at five times the rent growth rate of attached properties.”
For example, San Diego-area rents are up 5.6% to $2,946, more than double the pace a year ago. The average rent for homes in Los Angeles, where more residents are leaving, was up a modest 1.5% to $2,983, about half the percentage gains in 2020.