A bubble pop or just your basic equity drop?

Estimated reading time: 6 minutes

Are you feeling a bit poorer these days? You’re not alone.

As home prices decline, albeit slightly, equity has dropped for many homeowners nationwide – and in California, according to industry tracker CoreLogic.

California homeowners with a mortgage who enjoyed double-digit percentage gains during the past few years are enduring a rather sizable drop in equity

GOLDEN STATE HAS THE SECOND-LARGEST EQUITY DROP

The average California homeowner had equity plummet $59,600 in the first quarter compared to a year ago, the second-largest drop in the nation behind only Washington state, which had equity tumble $74,300. Utah had the third-largest equity fall-off at $37,700.

San Francisco homeowners were the hardest hit, with a $151,000 drop – or 16% – in equity during the first quarter compared to a year ago. But Bay Area homeowners still have almost $800,000 in equity.

Los Angeles-area homeowners’ equity declined 6% – about $41,500 – and Bakersfield fell a more modest 3% or $5,100.

“Home equity trends closely follow home price changes,” says CoreLogic chief economist Selma Hepp. “As a result, while the average amount of equity declined from a year ago, it increased from the fourth quarter of 2022, as monthly home prices growth accelerated in early 2023.”

PRICES ARE FALLING. NOT THE SKY

But even with the decline in equity, California homeowners are faring better than other states in the West, according to ATTOM Data. Only eight cities in the state landed among the top 50 struggling housing markets in the nation – with Humboldt County in the top 10 (see table, below).

In previous housing market downturns, many cities in California, from Riverside to Sacramento, dominated such lists. ATTOM’s report is based on home prices, affordability, underwater mortgages and foreclosures since second-quarter 2022.

Almost half of the 50 counties with the greatest impact were in the West, but most were in Oregon and Washington, states where home prices have soared and affordability has tumbled. In comparison, California’s home prices have dipped lower and affordability has dropped in recent years, but that has been an issue for decades. 

“We are starting to see some patterns that show where the U.S. housing market is cooling off and how it’s hitting homeowners based on some key metrics,” says Rob Barber, CEO of ATTOM. “It looks so far — and it’s important to stress, so far — to be having more impact in places with the highest housing costs and less impact elsewhere. This doesn’t mean those markets are in danger of a big fall while others are immune, but the data does provide a useful geographical snapshot of the initial market dip.”

San Francisco was the 13th hardest-hit market, but that is largely because of affordability and home prices falling 18%. Much of California’s counties are in the middle of the pack in the report that ranks almost 600 counties nationwide.

MORE NEW BUYERS MAY BE UNDERWATER AS PRICES SLIDE

Nationwide, the average homeowner lost $5,400 in equity in the first three months of the year compared to a year ago. Despite the decline, the average homeowner has more than $274,000 in equity – almost $100,000 more than before the pandemic started, Hepp says. 

But many recent buyers are struggling, especially since their mortgage rates – and monthly payments – are about twice as much as homebuyers who purchased before spring 2022.

“While homeowners in some areas of the country who bought a property last spring have no equity as a result of price losses, forecasted home price appreciation over the next year should help many borrowers regain some of that lost equity,” she says.

Even with the drop in equity, few homeowners have an underwater mortgage in California; less than 1% in Los Angeles and San Francisco.

Feature photo of San Francisco row houses/SHUTTERSTOCK

The hardest-housing markets in California

CountyNational rank% of income for the average household to buy a home
Humboldt851%
San Francisco1348%
Shasta2841%
Solano4354%
Nevada6862%
Santa Cruz73101%
Madera8348%
El Dorado9962%
Butte11144%
Marin 11588%

Source: ATTOM Data

Many residents in the City of Angels have a devil of a time with their mortgage payments/SHUTTERSTOCK

Spend more than 30% on the mortgage? You have plenty of company

Many Californians are house-rich but cash poor, spending at least 30% of their household income on the mortgage.

Almost half of the 30 cities with the most house-poor residents are in California, including Los Angeles in second place behind only Hialeah, Fla. About 49% of homeowners in Los Angeles are considered cost-burdened, spending 30% or more on their mortgage payments.

Many other cities – and households – are also considered cost-burdened in California, including markets often deemed more affordable for middle-income families, according to the Chamber of Commerce report based on U.S. Census Bureau data.

SOCAL HOUSING COSTS ARE GREATER THAN NORCAL

More than two of every five homeowners are cost-burdened in Long Beach, Oxnard and Garden Grove. Twelve of the 14 most cost-burdened cities in the state are in Southern California (see table, below).

Nationwide, almost three of every 10 homeowners are cost-burdened, creating a financial challenge, especially if an unexpected expense comes up, like a broken air conditioner or car repair.

However, while many California homeowners are financially strapped, most are considered equity rich – with more equity in their homes than mortgage debt, according to ATTOM Data. However, the figure has dipped slightly in recent months with the drop in home prices.

HUNTSVILLE (ALA.) HOMEOWNERS ENJOY TINY MORTGAGES

The Chamber of Commerce report also included the most budget-minded cities, based on the percentage of households that spend 20% or less on their mortgage. 

Huntsville, Ala. – where higher education and higher income abound – has the highest percentage of dollar-squeezing homeowners at 65%. The average annual income is $100,000 in Huntsville, and the average housing cost is about $15,000 per year.

Cary, N.C., and Pittsburgh round out the top three most budget-minded cities in the U.S. 

No California city cracked the budget-minded list.

California cities with the highest percentage of households burdened by housing costs

City (national rank)Annual housing costs (mortgage, insurance, etc.)% of households that spend at least 30% of income on housing
Los Angeles (2)$35,66449%
Palmdale (7)$24,10844%
Long Beach (9)$29,61644%
Oxnard (10)$28,66843%
Garden Grove (11)$27,06043%
Oakland (14)$38,18441%
Anaheim (15)$32,06440%
Oceanside (16)$29,90440%
Chula Vista (17)$32,30439%
San Diego (18)$33,32439%

Source: U.S. Chamber of Commerce

Arizona welcome sign at the Hoover Dam/ADOBE STOCK

How many people moved from California in 2021? More than the population of San Francisco

Goodbye, California. Hello …

California lost more than 407,660 residents in 2021, a 135% increase compared to the 173,350 residents in 2019, according to the U.S. Census Bureau. It’s the largest decline of any state in the U.S. (The Census Bureau did not release migration figures in 2020 because of the COVID pandemic.)

The figure – the equivalent of Bakersfield – is based on the number of people who moved out of and into the state.

NEWCOMERS ARE A FRACTION OF THE POPULATION

More than 840,000 people left California in 2021, a 29% increase from the 654,000 in 2019. The figure is more than the population of San Francisco.

California had the most residents hitting the road for somewhere else than any other state, with second-place New York losing 571,000 residents.

California had 433,400 people move into the state in 2021, a 10% drop compared to 2019. The state had the third-highest figure of new residents, behind Florida and Texas.

However, newcomers account for only 1.1% of the state’s population, the smallest percentage increase in the U.S.