California adds 123,000 homes, the best since the Great Recession
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New-home construction in California soared last year despite a critical shortage of labor, materials and supplies.
The state added 123,350 homes in 2022, an almost 1% gain compared to the previous year – the largest increase since the Great Recession, according to the California Department of Finance. The figure includes single-family homes and apartments.
Almost one of every six new homes in the state, again apartments and single-family homes combined, was built in Los Angeles, and about 25% are in three cities – Los Angeles, San Diego and Oakland.
NEW-HOME CONSTRUCTION AN OPTION FOR HOME SHOPPERS
Some of the state’s fastest-growing cities cracked the top-10 list for single-family home construction in 2022, with Roseville, Santa Clarita (also known as Valencia), Irvine, Menifee and Lathrop combined for 7,000 new homes – or as much as first-place Los Angeles.
New-home contractors, think of KB Home and Lennar, have become a popular choice for home shoppers, especially as few homeowners are listing their homes on the market because of the highest mortgage rates in 15 years. Basically, why sell your current home with a 3.5% mortgage rate for another house at a 6.5% rate?
Paradise and Lathrop had the largest percentage gains in the state at 18% and 16%, respectively. However, much of the new home construction in Paradise is connected to those destroyed by the Camp Fire in November 2018, which also killed 84 people.
Tiny homes also had a huge impact in 2022. The state added more than 20,000 accessory dwelling units (ADUs) – also known as casitas and granny flats – in 2022, a 61% increase compared to the previous year. California has been aggressively encouraging cities to approve ADUs in order to help ease the housing shortage.
BETTER, NOT GREAT
Now, as much as the housing boom deserves attention, it should also be kept in perspective. When Gov. Gavin Newsom took office, he announced a lofty goal of adding 3.5 million homes by 2025.
At the current pace, California would add 3.5 million homes by 2050.
The best home construction since 2008 comes as more Californians continue to leave the state. California lost about 138,400 people, much less than the 208,000 who left in 2001, according to the Department of Finance. About two of every three people who left the state were from the three largest counties – Los Angeles, San Diego and Orange.
Fed’s higher rates to combat inflation are pushing prices lower
The Federal Reserve’s aggressive efforts to control inflation are having the desired effect on the housing market, with more than 90% of metros nationwide reporting lower prices during the first quarter compared to a year ago.
Some of the biggest declines are in one-time red-hot markets like Austin and Provo and St. George, Utah, all down 13%. Reno, a popular destination for Californians looking to escape state taxes, had home prices fall 10% over the past year, according to the National Association of Realtors.
California, one of the best-performing housing markets during the pandemic, has also experienced a decline in home prices over the past year. Ten of 11 metros surveyed by NAR had prices drop, with San Francisco and San Jose falling the most at 14%. Chico’s home prices are off 10%.
The other markets had single-digit price declines, while Bakersfield – where home prices have inched up less than $2,000 during the past year – had a slight 0.5% increase to $359,000, easily one of the most affordable markets in the state.
Metro median-home prices compared to a year ago
|Metro||Median price Q1 2023||% compared to a year ago|
|Orange County||$1.2 million||-5.1%|
|San Francisco||$1.19 million||-14.5%|
|San Jose||$1.62 million||-13.7%|
Source: National Association of Realtors
Zillow, Redfin debut ChatGPT plugins
Well, there goes the home online search neighborhood.
Redfin and Zillow – two of the three dominant home-search players – have introduced ChatGPT plugins.
“Generative AI is changing the way people search for information,” says David Beitel, chief technology officer at Zillow Group. “At Zillow, we’ve been embracing AI and machine learning starting with the Zestimate in 2006, and later introducing personalized recommendations and natural language search, which means we’re well-equipped to help customers search and find homes in this new way.”
Ariel Dos Santos, vice president of product for Redfin, says the company’s ChatGPT plugin will help home shoppers find homes and neighborhoods that might not have been found with a map-based real estate search.
“Through a simple conversation with the Redfin ChatGPT plugin, a homebuyer can get suggestions of homes for sale in nearby neighborhoods with similar amenities they might not otherwise have considered,” Dos Santos says. “This could also help home sellers get their listings in front of a wider audience of serious buyers.”
Guess clicking a few boxes in the Redfin and Zillow apps, establishing a price range and setting some other preferences – three-car garage and wood floors, please – in a specific neighborhood is too tough.
The ChatGPT apps will be available for select customers and rolled out across the board in the coming months.
Dip in price, a slight drop in equity-rich homeowners
Homeowner equity dipped slightly during the first quarter in California, as home prices dropped from a year ago.
Still, two of every three homeowners in the Golden State are considered equity rich – their equity exceeds the amount owed on the mortgage. California is among the states with the highest percentage of equity-rich homeowners, though far behind the 75% rate in Vermont.
Nationwide, the percentage of equity-rich homeowners dipped to 47.2% in the first quarter, compared to 48% a year ago, according to ATTOM Data. However, it’s worth noting that the percentage of equity-rich homeowners has declined for two straight quarters.
“Homeowners across the U.S. continue to sit in a far better position than they were just a few years ago, with historically elevated levels of wealth built up in their properties,” says Rob Barber, CEO of ATTOM. “However, the recent downturn in the housing market is chipping away at the bounty they reaped from a decade of price surges. Home equity has fallen modestly amid a larger slump in profits homeowners are getting when they sell.”
SILICON VALLEY HAS THE LARGEST PERCENTAGE OF
Three of the five cities with the largest percentage of equity-rich homeowners are in California, with San Jose leading the way at 72%. Los Angeles (65%) and San Diego (64%) also cracked the top-five list.
And five of the eight cities surveyed had a small boost in equity-rich homeowners from a year ago – Bakersfield, Fresno, Los Angeles, Riverside and San Diego.
But that could change in the current and next few quarters. “Various measures suggest that the best of the (housing) boom may be behind us,” Barber says.
Percent of homeowners considered equity rich
|Metro||% of equity-rich homeowners|
Source: ATTOM Data