Rents soar, mortgage rates remain low and the buy vs. rent decision gets complicated

It’s cheaper to buy than rent in three California cities, as long as you have a 5% down payment

Estimated reading time: 10 minutes

Buy or rent? 

It’s often an easy answer, especially in high-priced California where affordability is an issue (CHN Blog, third item).

But with fast-rising rents and record-low mortgage rates, the answer is a bit more complicated in recent months, according to a just-released report from Redfin.

Buying a home was cheaper than renting an apartment in August in three big cities in California — Los Angeles, Sacramento and San Diego. The difference between mortgage payments and rent was almost $700 in Riverside and about $400 in Sacramento.

And in four California cities — Riverside, Sacramento, San Diego and San Francisco — the apartment rent percentage hikes exceeded the average monthly mortgage payment increases for new homebuyers in August (see list below). 

Now, the average mortgage payment was based on a down payment of 5%, with the amount depending on the housing market. It’s also definitely worth noting that the Redfin report focused on new homebuyers, who generally buy cheaper homes.

But even with the caveat, buying is making more financial sense for many first-time buyers, a dramatic turnaround from the past decade.

When the Covid pandemic started in spring 2020, apartment rents (third item in CHN Blog) and home prices soared, as more Californians worked from home and wanted more space — and often lower housing costs.

But even as more Californians get “jabbed” and fewer Covid cases are reported, the demand for apartments and single-family home rentals remains strong, especially since many wanna-be buyers have been priced out of the market.

Or so many think. But near-record-low mortgage rates — below 3% since mid-April and much of the past year — are making borrowing almost money for nothing and keeping mortgage payments more manageable than a few years ago, even with the record-high home prices.

Average apartment rent vs. median monthly mortgage payments for first-time homebuyers in August (percentage increase or decline compared to a year ago)
Los Angeles$3,343+7.6%$3,217+14.0%
San Diego$3,169+17.4%$2,943+13.0%
San Francisco$3,530+1.5%$5,984-1.2%
San Jose$3,298-2.9%$5,326+9.8%
Source: Redfin
Mission Viejo finished at No. 48 on Money’s Best Places to Live list.

Two California cities land on Money’s Best Places to Live list

With increased attention to the cost of living and housing affordability, California was already at a significant disadvantage for Money’s 50 Best Places to Live. 

But two cities in the state — Rocklin at No. 43 and Mission Viejo at No. 48 — overcame the challenge and landed on the closely watched list.

Rocklin, a fast-growing suburb about 25 miles northeast from the State Capitol in Sacramento, boasts award-winning schools, entertainment and recreational opportunities. Rocklin’s amenities include numerous brewpubs and Quarry Park, a former mining quarry that features an amphitheater, paddle boats, rock climbing and zip-lining. 

The 65,000-population city — adjacent to Roseville, which has landed on numerous lists — also has a community college (Sierra College) and private university (William Jessup University), and numerous outdoor activities, including the Whitney Oaks Golf Course.

Rocklin’s median-home price is $615,100, a 23% increase during the past year, according to Zillow. The city’s home price is about $200,000 less than the statewide median — and at least half the price in the nearby Bay Area.

Rocklin, and many communities in the Sacramento area, are attracting residents from the Bay Area seeking lower-priced housing and more space. The region was recently listed as one of the nation’s hottest housing markets.

Master-planned magic

Mission Viejo, a master-planned community in southern Orange County about 60 miles south of downtown Los Angeles, offers high-rated schools, 50 parks and is a short drive from some of the best beaches, like Laguna Beach and Newport Beach.

The 97,000-population city is probably best known for Lake Mission Viejo, which features beaches, beach volleyball courts, fishing and a yacht club. The city, which has been around for almost 60 years, has some of the best public schools in Southern California and the state, with Capistrano and Saddleback unified school districts.

Mission Viejo is also near the award-winning cities of Aliso Viejo, Irvine, Lake Forest and Tustin.

Mission Viejo’s median home price is about $950,000, according to Zillow. The current price is about $125,000 more than the statewide median home price.

Sorry, no repeat winners (and congrats Chanhasssen)

Money magazine has been crunching data to determine the Best Places to Live since 1987. The publication looks at cities with populations of 25,000 to 500,000, big enough with numerous services — such as grocery stores and hospitals — and economic opportunities.

Money editors eliminated communities with a crime rate of more than one and half times higher than the national average, the median income is lower than the state figure, a declining population, and little or no ethnic diversity.

They also looked at cost of living, economic opportunity, diversity, education, recreational amenities, health and safety, the housing market, income, and quality of life.

With the above criteria, Money analysts and editors reviewed 1,300 communities. However, they eliminated last year’s winners and only allowed three cities for each state — an obvious disadvantage for California — and one city per county.

The top three cities this year are Chanhassen, Minn.; Carmel, Indiana; and Franklin, Tenn. 

Adobe Stock

Home-flippers beware, profits are slipping

The home-flipping craze generated by HGTV and DIY network shows has hit a hard-to-overcome reality — the buy-renovate-sell for a nifty profit model doesn’t always work.

Home-flippers buying homes in a competitive market and record-high prices coupled with rising construction costs can greatly affect the bottom line. 

Nationwide, flipped homes accounted for one of every 20 sales during the second quarter, the first increase in more than a year, according to ATTOM Data Solutions. But the gross profit — the difference between the purchase and the sell price — dropped to 33.5% in the second quarter, compared to 40.6% a year ago and the smallest return on investment since 2011 during the Great Recession.

California fared worse. The average flipped home sold for $114,200, but the return on investment dipped to 23.8% during the April-June period compared to 26.8% a year ago.

Los Angeles and Sacramento-area home-flippers endured much smaller profits of about 18% and 19%, respectively. Fresno boasted the best profit at 39% during the second quarter, but was down significantly from 52% a year ago. 

Competition cuts into profits

The decline in profit is attributed to home-flippers competing with other buyers for far-too-few homes that have helped push up prices throughout the state. But when home-flippers sold during the second quarter, the demand had dropped — and profits slipped.

Plus, renovation costs — from hiring contractors to buying materials — have dramatically increased during the past year. Those costs have also cut into profits, though they aren’t detailed in the flipping report.

Before you shed a tear for those risk-embracing entrepreneurs, many still enjoyed some nifty paydays. 

San Jose-area home-flippers had a $242,500 profit during the second quarter, easily the best in the nation while San Francisco came in third place at $182,000.

Home-flipping dollar and percentage profits in the second quarter
Dollar profitPercentage profit
Los Angeles$117,50017.8%
Riverside-San Bernardino$102,52029%
San Diego$154,00028.7%
San Francisco$182,00024.7%
San Jose$242,50022.9%
Source: ATTOM Data Solutions
light city road traffic
Photo by KEHN HERMANO on

Stockton among most overvalued housing markets in U.S.

A decade ago, Stockton was the epicenter of the foreclosure crisis.

How times change. Now, the city — about an hour south of Sacramento and an hour east of San Jose — is one of the most overvalued markets in the U.S., according to a new report by Florida Atlantic University and Florida International University. 

Stockton is the 10th-most overvalued market, with a 38% premium compared to past pricing history, according to the report. 

State sets aside $1.75 billion for more affordable housing projects

California has approved $1.75 billion for affordable housing for developers with ready-to-build projects, allowing them to bypass complex and often-delayed tax credits. 

The much-needed funding will help pave the way for 90 affordable housing communities, creating at least 6,300 units for low-income housing statewide. More than one of every five housing units will be reserved for residents experiencing homelessness.

Tax credit crunch prompts move

The California Department of Housing and Community Development (HCD) has already approved many projects with state funding, but many have been delayed because of a lack of tax credits and bonds needed.

HCD has established a so-called strike team to review and streamline the application process and award projects within 60 days. State housing officials are optimistic that awarded projects could begin construction within six months.

The effort “answers the call to move faster to fund and build more affordable housing,” says HCD director Gustavo Velasquez. “These swift and bold solutions are how we ensure our families and communities come back better than ever before.”

Ron Trujillo

Ron Trujillo

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