California home-sellers continue to enjoy nifty profits, but those head-turning gains caused some head-scratching during the second quarter.
Despite record-high home prices, home-seller profits dipped during the April-June period compared to the first quarter, proving that timing is everything. The quarter-to-quarter decline was based largely on when homeowners bought their house and when they sold, according to ATTOM Data Solutions.
Nine of the state’s 10 largest housing markets declined during the second quarter compared to the previous quarter, including a 19.5% drop in Los Angeles — one of the largest slides in the U.S.
“Prices and profits from the second quarter painted yet another picture of a housing market in high gear — except for one thing,” says Todd Teta, chief product officer for ATTOM. “Profit margins dropped in the second quarter, which is very unusual for any springtime period because that’s when the housing market is usually hottest or close to it. While it may just be a momentary thing in today’s volatile market, it’s definitely something to keep an eye on in case it’s a sign that the market is finally cooling or giving in to some of the economic forces connected to the virus pandemic.”
A half-million-dollar profit for San Jose-area sellers
Maybe cooling, but not cold. A quarter does not usually make — or break — a housing market. It’s better to look at annual gains to avoid the quarterly pops and dips, housing experts say.
And a vast majority of homeowners who sold their property in the state during the past year have much to cheer.
Home-sellers in eight of the state’s 10 largest markets enjoyed solid percentage profit gains during the second quarter compared to a year ago, with Riverside-San Bernardino counties (also known as the Inland Empire) leading the way at 40.5%. Sacramento and San Diego counties followed at 32% and 23%, respectively.
San Jose had the largest money-in-pocket profit in the nation at $495,500, followed by San Francisco at $402,500. San Diego and Los Angeles were in the $230,000 range.
Only Bakersfield ($85,200) and Fresno ($92,800) had profits of less than $100,000 among the 10 cities studied.
Home-seller profits during second-quarter 2021 compared to a year ago
- San Jose: $495,500, down 9.6%
- San Francisco: $402,500, up 7.9%
- San Diego: $235,574, up 23%
- Los Angeles: $227,000, down 4.6%
- Ventura-Thousand Oaks: $194,350, up 2.2%
- Sacramento: $180,000, up 32.4%
- Santa Barbara-Santa Maria: $174,500, up 8.4%
- Riverside-San Bernardino: $170,000, up 40.5%
- Fresno: $92,800, up 3.1%
- Bakersfield: $85,200, up 9.8%
Source: ATTOM Data
More investors are competing for homes with everyday buyers
California is one of the most competitive housing markets in the nation, and getting more crowded with a dramatic increase of real estate investors.
Real estate investors bought about one of every six homes sold during the second quarter in California, more than double the rate a year ago, according to a just-released Redfin report. And real estate investors — corporations, partnerships and trusts — bought almost one of every five homes sold in San Diego and San Francisco, one of the highest percentages in the nation.
The interest by investors makes sense — and likely a ton of dollars. Like most buyers, investors are attracted by fast-rising home prices and near-record-low mortgage rates. But investors also benefit in another way: Many wanna-be buyers are being priced out of the market and forced to rent, sending rental rates soaring.
For some investors, buying homes may even generate better returns than stocks on Wall Street.
“Investors see soaring home prices as an opportunity,” says Sheharyar Bokhari, senior economist with Redfin. “With housing values consistently on the rise, solid returns are pretty much guaranteed, especially when you’re an investor who has access to extremely cheap debt. Investors are also taking advantage of surging demand in the rental market. With so many Americans priced out of homeownership, investors can turn an easy profit by buying up properties and renting them out.”
Or buying today and selling down the road.
Real estate investors, from big corporations to family members or friends forming a limited liability corporation, were cautious during the first few months of the Covid pandemic. But caution has given way to a can’t-buy-them-fast-enough approach.
“With investors throwing money at the housing market, some homebuyers are finding it tough to compete,” Bokhari says. “Investors frequently pay with all cash, which means they often have a much higher chance of winning bidding wars than buyers who take out mortgages.”
Real estate investors account for one of every six homes sold in second quarter
And it’s very competitive. Sacramento, one of the hottest housing markets in the nation, has caught the eye of many investors. Real estate investors account for one of every six homes sold during the past three months — a 145% increase compared to a year ago, the highest in the state.
But all eight housing markets surveyed in the state — including Anaheim, Los Angeles, Oakland, Riverside and San Jose — had sales to investors more than double from second-quarter 2020, according to Redfin.
Real estate investors bought a total of 14,478 houses for a combined $21.6 billion — or about $1.49 million per transaction. Some deals included high-priced properties or multiple housing units, such as a duplex.
Los Angeles had the most deals (3,918) and total value at $7.37 billion, or more than one of every three homes purchased by real estate investors in the state.
California is the second-most popular destination for foreign buyers
Don’t blame foreign buyers for the record-high home prices and the shortage of homes, many are choosing their health and safety over a piece of the American dream.
The U.S. had the fewest foreigners buy homes in a decade in 2020, as Covid and the pandemic-prompted travel restrictions kept many out of the country, according to the National Association of Realtors.
Foreigners bought 107,000 homes — worth a total of $54.4 billion — in 2020, a 31% decline compared to 2019, and the lowest level in value and volume since 2011.
“The big decline in foreign purchases of homes in the U.S. in the past year is no surprise, given the pandemic-induced lockdowns and international travel restrictions,” says Lawrence Yun, chief economist for NAR.
Buyers from five countries — Canada, Mexico, China, India and the United Kingdom — accounted for a combined $17.4 billion, or 32%, of the overall sales. They were also largely responsible for the slide, with home purchases by Chinese, Canadian and Indian buyers tumbling by more than 50% last year compared to 2019.
California continues to attract buyers from China
According to NAR, Florida was the most popular destination for the 13th-consecutive year, accounting for 21% of international buyers. California was the second-most popular state at 16%, or about one of every six deals by foreign homebuyers.
More than one of every three buyers from China who bought a U.S. home purchased in California, paying about $476,500 — easily the highest price in the nation, but well below the median home price of more than $800,000 in June, according to the California Association of Realtors.
Despite the higher prices, foreign buyers continue to prefer cash rather than financing. Almost two of every five (39%) foreign buyers paid cash for their homes, about double the overall rate.
The biggest decline in a decade is likely an anomaly, largely due to Covid rather than foreigners losing interest in the U.S, Yun says.
“As travel restrictions loosen and foreign students return to U.S. colleges in the upcoming year, there is likely to be some growth in foreign buying of U.S. real estate,” he says. “High home prices and the ongoing lack of inventory could, however, pose a challenge for buyers.”
Housing expert appointed to oversee CalHFA
Housing advocate Tiena Johnson Hall has been appointed executive director of the California Housing Finance Agency, a self-funded agency that helps low- to moderate-income consumers become homeowners.
Johnson Hall, who has been on the CalHFA’s Board of Directors since late-2014, was appointed by Governor Gavin Newsom on July 19. Johnson Hall, a senior vice president and manager of community development finance for BBVA Compass Bancshares Inc. since 2014, replaces Tia Boatman Patterson, who was tapped by the Biden administration and joined the Office of Management and Budget earlier this year.
“I believe CalHFA plays a critical role in the state’s efforts to help Californians find an affordable place to call home,” says Johnson Hall, who will officially start in August. “Between California’s housing affordability crisis, the pandemic’s disproportionate effect on lower-income residents and people of color, and the unprecedented amount of federal and state resources going into housing, now is the time for organizations like CalHFA to make an even more meaningful impact.”
‘Perfect person to lead a mission-driven agency’
CalHFA assists low- and moderate-income families buy homes, with down payment assistance and competitive mortgage rates. Down payments are often the biggest hurdle for first-time homebuyers.
However, CalHFA’s household income limits (CHN Blog, fifth item) are often higher than many may think — from about $139,000 in rural counties to $248,000 in the Bay Area.
CalHFA has been aggressively developing programs to help meet the housing needs of lower-income Californians, from a Building Black Wealth initiative that educates and encourages Blacks to become homeowners to partnering on projects with tech giant Apple.
“Tiena’s background makes her the perfect person to lead a mission-driven agency like CalHFA that relies on partnerships with all levels of government as well as the private sector,” says Michael Gunning, chairman of the CalHFA Board. “As a longtime board member, Tiena has already used her extensive experience and knowledge to help lead CalHFA through some of the most successful years in the history of the organization and we are excited about the future.”
CalHFA assisted 7,600 homeowners during its just-completed fiscal year (July 2020 through June 2021), down from a record 13,000 homeowners in 2019-2020. However, with the Covid pandemic, CalHFA has been focused on helping Californians worried about making their rent or mortgage payments.
HCD rolls away mobile home program
A state program that assisted and encouraged manufactured home and mobile homeowners to register their homes has officially ended, amid little fanfare and some success.
The Register Your Mobilehome California program helped consumers who bought a mobile home but were not able to transfer title because of delinquent fees or taxes. The state-funded program waived $3.24 million in fees and taxes during the past four years, helping 3,622 homeowners.
Waiving the fees and taxes allow the owners — many who are on fixed incomes — to hold the official title for the mobile home, making selling or transferring the house much easier down the road, according to the California Department of Housing and Community Development.
Of course, it also allows HCD to collect information and future taxes from homeowners.
Longtime business journalist-turned-communications executive who enjoys reporting on residential real estate in his spare time.