As the economy slows, job growth stalls and the housing market remains sluggish, homeowners in several markets in California could struggle, according to a new report.
Six of the 10 riskiest housing markets are in the state, including three of the five most troubled, according to ATTOM Data. The state had 14 of the 50 highest-risk markets in the nation, including Humboldt, Shasta and Butte counties in Northern California (see table, below).
ATTOM determines risk based on affordability, the percentage of seriously underwater mortgages, foreclosures and county jobless rates. California has one of the highest jobless rates in the nation, with the largest unemployment in the agriculture-based economies of the Central Valley and Northern California.
So, even during the best of times, these counties – and housing markets – are often among the riskiest in the U.S. But with a one-time fast-moving economy hitting the brakes in recent months, the closely watched report deserves even more attention.
“This summer’s home prices were certainly eye-catching, but there are many factors that contribute to the health of a local housing market,” said Rob Barber, CEO of ATTOM. “Our index takes into account key indicators beyond just sales price to create a barometer that helps folks better understand where their market is headed.”
SLOWER SALES AND NOW A SLOWING ECONOMY
For example, in Humbolt County – where Eureka is the largest city and home to Cal Poly Humboldt – the average household needs to spend at least half of income on the mortgage payment and almost 3% of mortgages are seriously underwater, where homeowners owe more money than the current value of the property. Humboldt County’s jobless rate was 5.6% in June, the latest data used for the report.
The county’s housing market remains rather stable, with a median home price of $450,000, up 1.7% from a year ago. But sales are slowing, down 6% in July compared to June, according to the California Association of Realtors.
“There’s uncertainty about how long prices can keep going up, and what will happen with the broader economy,” Barber said. “That can be scary for owners and prospective buyers who don’t always get a full view of their market.”
Feature photo: Sundial Bridge in Redding, one of the riskiest housing markets in the U.S.
Menifee in Riverside County.
Highest-risk housing markets in California
- Humboldt — Eureka
- Shasta — Redding
- Butte — Chico
- Madera
- El Dorado
- Riverside
- Fresno
- Stanislaus — Modesto
- San Bernardino
- Kern — Bakersfield
Source: ATTOM Data
Fewer help wanted signs send lower mortgage rates to an 11-month low
A bad jobs report is good news for house hunters and homeowners looking to refinance their mortgages.
Long-term mortgage rates dropped to 6.29% on Friday (Sept. 5), the lowest level since Oct. 3, 2024, according to Mortgage News Daily. The one-day 16 basis points drop (6.45% to 6.29%) was the largest since August 2024.
The dramatic decline followed a disappointing jobs report in August, making an at least quarter-point interest rate drop by the Federal Reserve guaranteed. Some believe the Fed could embrace a half-point cut given the paltry 22,000 jobs created in August, and a revised 13,000 loss of positions in June.
“It’s a well-known fact that the monthly jobs report is more capable of causing big reactions in rates than any other economic data,” said Matt Graham, Chief Financial Officer for Mortgage News Daily. “It happened last month in grand fashion, and it is happening again this morning.”
‘A CRUEL SUMMER FOR THE HOUSING MARKET’
Graham added that some buyers could find long-term rates in the high 5% range, a dramatic drop compared to the 7.08% rate in May.
Some analysts say the decline could help jump-start the sputtering housing market. But affordability – about one of every six households in California could purchase in the second quarter – remains a huge hurdle.
Sept. 5
6.29%
A year ago
6.35%
52-week avg.
6.69%
“Homebuyers grapple with a lack of affordability, sellers contend with more competition, and builders deal with lower buyer demand,” said Danielle Hale, chief economist at Realtor.com. “These conditions haven’t spelled catastrophe but have created a cruel summer for the housing market.”
Indeed, the housing market has stalled for several months. But a drop in mortgage rates could help more home shoppers make a move, saving them $200 or more per month.
“My message to homebuyers and refinancers: This is what you’ve been waiting for,” said Chen Zhao, Redfin’s head of economics research. “If you’re serious about locking in a mortgage rate, do it now. The mortgage market is already pricing in the Fed’s expected interest-rate cut, and rates are unlikely to fall more. There have been very few opportunities to lock in a rate as low as 6.3% in the last three years and now buyers have one.”
But some economists argue that the current economy, especially as job growth slides and layoffs increase, could cause many would-be buyers to remain the sidelines.
Moody’s Analytics chief economist Mark Zandi warned about the likelihood of a recession Friday (Sept. 5). Zandi was among the first economists to warn about a recession in 2006, shortly before the housing market collapse that prompted the Great Recession.
“I don’t think the economy is in a recession, at least not at this point,” Zandi said in a Newsweek story. “But it feels like it’s on the brink; it’s on the precipice of a recession.”
Investor-led deals increased 24% in San Francisco during the second quarter, thanks to lower prices in recent months. ADOBE STOCK
Cautious investors hold off on deals except in some California markets
Investors are getting cold feet, too.
Blame higher mortgage rates and near-record-high prices for more investors holding off on buying homes during the second quarter. Sound familiar? Yep, the same reasons causing many would-be buyers to tap the brakes.
Redfin reports that investors bought about 52,000 homes in the April-June quarter, the lowest level for the three-month period since 2020, when the world was dealing with the first months of the COVID pandemic. The current level of investor purchases is off 6% from a year ago, the largest drop since fourth-quarter 2023, according to Redfin.
Nationwide, investors bought 17% of homes that sold during the second quarter.
“For real estate investors, the numbers just don’t pencil out the way they did a few years ago, whether they’re looking to flip a home or rent it out,” said Redfin senior economist Sheharyar Bokhari. “It costs a lot to buy a home, and potential returns are simultaneously softening. That doesn’t mean investors are disappearing – they’re still buying nearly one in five homes in the country – but they’re being choosier about their home purchases, just like individual homebuyers.”
Sacramento was once a hot market for investors, but has cooled in recent quarters. ADOBE STOCK
BAY AREA BOUNCE BACK
But California is bucking the trend. Sort of.
Investor deals increased 5.5% in California during the second quarter compared to a year ago, and accounted for almost 23% of transactions, according to Redfin.
However, investor deals in the Bay Area – San Francisco and San Jose – contributed to much of the gains. San Francisco, which has experienced a drop in home prices, had home sales to investors increase 24% from a year ago, while San Jose was up 10%.
Five of the eight regions reported a boost in investor purchases, while Oakland, Riverside and Sacramento had slight declines (see table, below).
Investor deals increase in some markets, slide in others in Q2
| City | % of homes sold to investors vs. year ago | % of homes sold to investors |
|---|---|---|
| Anaheim | +5% | 26% |
| Los Angeles | +7% | 24% |
| Oakland | -1% | 19% |
| Riverside | -1% | 20% |
| Sacramento | -2% | 20% |
| San Diego | +2% | 24% |
| San Francisco | +24% | 26% |
| San Jose | +10% | 21% |
