A cool housing market has a somewhat warm segment – starter homes.
Despite near-record home prices and slightly lower but still 6% mortgage rates, budget-minded buyers are looking for starter homes, from the Bay Area and the Sacramento region to Southern California.
Sales of starter homes – considered those in the bottom 5% to 35% of transactions — have increased in seven of the eight regions surveyed during the past year, according to Redfin.
CRACKING OPEN THE DOOR TO OWNERSHIP
For many, the chance to buy as prices barely budge and mortgage rates ease is too hard to pass up.
Many are first-time buyers, who avoid the emotions and financial hit of selling a home and leaving behind a 3%-4% mortgage, but others are current homeowners looking for a bit more space without stretching their budgets too much. (Slightly more than half of homeowners have a mortgage lower than 4%.)
“Starter homes are holding up better than other price points because they’re the most attainable option in a market where affordability is still stretched,” said Redfin senior economist Sheharyar Bokhari. “First-time buyers and downsizers alike are competing for the same pool of smaller, less expensive homes, which is keeping demand relatively strong even as higher tiers remain sluggish. For many households, stretching into the mid-tier isn’t feasible with high prices and elevated mortgage rates.”
MORE STARTER HOMES AVAILABLE KEEP PRICES IN CHECK
Riverside, one of the most affordable markets in the state, boasts the largest annual boost in sales at 10.8%, followed by Anaheim, Los Angeles and San Francisco. Only San Jose had a decline in sales during the past year (see table, below).
The median-home price for starter homes – meaning half the homes sell for more, the other half for less – increased in five of the eight cities, with Los Angeles and Anaheim up about 4%. Starter homes in Oakland dipped 1.7%, the largest drop in the state.
Now, the starter-home market is solid, but far from the pace a few years ago, when bidding wars were common. The average days on the market range from 26 in San Jose to 60 in Riverside.
An abundance of homes available has created a more normal experience for home shoppers and have kept prices from spiking.
Nationwide, starter home prices reached a record $260,508, a 2.2% increase compared to a year ago. Starter home sales improved 3.8%, the 12th-straight month of increases. August sales were the best in three years and much better than mid- and high-priced sales.
Starter home sales, prices are solid in much of California
| City | Price | % price vs. year ago | Sales vs. year ago |
|---|---|---|---|
| Anaheim | $760,279 | +3.7% | +7.8% |
| Los Angeles | $643,468 | +4.3% | +6.9% |
| Oakland | $616,516 | -1.7% | +2.8% |
| Riverside | $428,224 | +2.8% | +10.8% |
| Sacramento | $440,702 | +0.6% | +5.1% |
| San Diego | $646.700 | +0.2% | +3.3% |
| San Francisco | $961,777 | -1.1% | +6.8% |
| San Jose | $961,834 | -0.1% | -5.8% |
Source: Redfin
Five of the 10 least affordable housing markets are in California. ADOBE STOCK
Bigger paychecks, smaller rates fail to boost affordability
Higher prices are offsetting gains from larger paychecks and lower mortgage rates, making affordability a big – and ongoing — challenge for would-be buyers.
The closely watched report throws cold ice on a hot topic – lower rates. While better, they will do little, if anything, to help home shoppers, according to ATTOM Data.
The decline in rates will just “help some buyers keep pace with the rising cost of homes,” said Rob Barber, CEO of ATTOM. “But the more favorable loan rates could also enable prices to keep rising and further extend this two-and-a-half-year streak we’re in of homes being less affordable to the typical resident of an area than they historically have been.”
WE’LL TAKE EVERY DOLLAR, THANK YOU
Buying a home in California is tough. The state has five of the 10 least affordable housing markets nationwide, demanding the average buyer spend every dollar earned – and, in some cases, a few more – to own a home during the third quarter, according to ATTOM.
Santa Cruz and Marin counties were the second- and third-least affordable markets in the U.S., at 112% and 101% of household income, respectively. (Kings County in New York state tops the list at 113%.) The average buyer in Monterey and Orange counties exceeded 90% of income needed mark, with Alameda County at 73%.
Bottom line: These counties, and many others, are too expensive for the everyday household. There are some more affordable markets — Fresno, Sacramento and Bakersfield – that require less than half of household income to purchase, but the homeowners are encouraged to spend less than 30% of their money on the monthly mortgage payment (check affordability for nine counties in California, below).
But before depression dominates, there is a bit of good news in the quarterly report – pay gains are outpacing price increases in the nine regions surveyed, including an 11% bump for employees in Silicon Valley.
Nationwide, almost four of every five counties are considered unaffordable for the average household, with mortgage payments exceeding 28%. The figure is based on a down payment of 20%, which is about the average in California.
Most cities out of reach for average household in third quarter
| City | Median sales price | % of income needed for mortgage |
|---|---|---|
| Bakersfield | $355,500 | 40.7% |
| Fresno | $412,250 | 47.5% |
| Los Angeles | $900,000 | 70.9% |
| Orange County | $1.17 million | 93.7% |
| Riverside | $600,000 | 68.0% |
| Sacramento | $655,000 | 42.7% |
| San Diego | $890,000 | 70.2% |
| San Francisco | $1.3 million | 49.5% |
| San Jose | $1.56 million | 50.4% |
Source: ATTOM Data
More than 16,000 buildings — a majority single-family homes — were damaged or destroyed by the Eaton and Palisades fires in Southern California. ADOBE STOCK
Mortgage help extended to homeowners affected by Palisades, Eaton fires in SoCal
Gov. Gavin Newsom signed a bill that gained little attention but will have a huge impact on the thousands of homeowners affected by the Eaton and Palisades fires in Southern California.
The governor recently signed Assembly Bill 238, which allows borrowers that have experienced a financial hardship from the fires started Jan. 7 to stop making mortgage payments for up to 12 months without late fees or penalties. Previously, the bill was limited 90 days.
More than 400 mortgage lenders had already agreed to an extension for hard-hit homeowners. The law prevents mortgage service for starting the foreclosure process against homeowners during this period.
“Homeowners rebuilding after a disaster need all the support they can get, including grace in light of this incredible hardship,” Newsom said in a statement. “I look forward to additional conversations with lenders in the coming months about how we can continue to support survivors together.”
‘EASE THE FINANCIAL BURDEN’
AB 238 was co-sponsored by Assemblymembers John Harabedian (D-Pasadena) and Jacqui Irwin (D-Thousand Oaks), whose districts include the communities affected by the Eaton and Palisade fires.
“For months since the fires, survivors have been forced to make two housing payments: one for their temporary rental accommodations and another mortgage payment for a house that either doesn’t exist anymore or is uninhabitable due to smoke and ash damage,” Harabedian said. “AB 238 will ease the financial burden that too many families are facing.”
More than 16,000 structures – many of them single-family homes – were damaged or destroyed by the two fires, among the three most destructive fires in California history.
Homeowners affected by the Los Angeles-area wildfires — and almost two-dozen other disasters — could be eligible for the CalAssist program through California Housing Finance Agency. The free program will cover three months of mortgage payments, up to a total of $20,000.
