Affordability, foreclosures and job cuts are closely watched signs of a sputtering economy – and struggling homeowners.
California has an abundance of communities dealing with the trifecta of trouble, from Eureka at the north end of the state to Riverside, one of the more affordable housing markets in Southern California.
The Golden State has half of the 20 communities with the greatest housing market risk in the nation, according to ATTOM Data. The analysis firm also found 16 of the 50 most at-risk markets nationwide were in California during the third quarter.
MORE FORECLOSURES, FEWER PEOPLE WORKING
Affordability is the biggest concern, with nine of the 10 most at-risk communities requiring homeowners to spend at least half of their income on housing, including 65%-plus in Riverside, Sacramento and Truckee-Grass Valley.
“A lot of attention has, deservedly, gone to affordability concerns stemming from the rising price of homes,” said Rob Barber, CEO of ATTOM. “But what really separated the riskiest markets in our third-quarter assessment were their high rates of foreclosures and unemployment.”
Eight of the 10 most at-risk communities had underwater mortgage rates of at least 2%, with Chico hitting 4%. Already stretched-thin homeowners have enjoyed healthy price gains, but if they bought in the past few years, the equity may have evaporated.
The average homeowner in California lost an estimated $33,000 in equity during the third quarter, compared to a year ago, according to a Cotality report. Los Angeles and San Francisco homeowners experienced a $28,400 and $28,500 decline, respectively, the largest drops in major cities nationwide.
“As the pace of home price growth slows and markets recalibrate from pandemic peaks, we’re seeing a clear shift in equity trends,” said Selma Hepp, chief economist for Cotality in Irvine. “Negative equity is on the rise, driven in part by affordability challenges that have led many first-time and lower-income buyers to over-leverage through piggyback loans or minimal down payments. While the overall home equity remains elevated, recent purchases with smaller down payments may face negative equity.”
If those recent buyers begin to struggle, perhaps losing their job or suffering a health issue, foreclosures will become more likely.
PERSPECTIVE, PLEASE
Now, many homeowners are considered equity rich – with more equity than debt on their home (and mortgage) – but that figure has dipped lower in recent quarters, according to ATTOM Data. And with an abundance of homes on the market, and many sellers willing to accept lower offers or even make concessions to buyers, financially strapped homeowners have significantly fewer options.
Add in job losses, and the risk is soaring. All 10 counties in California in the top 20 nationwide had unemployment rates of at least 5.2% in July, including a hard-to-believe 8.3% in Madera County (about 15 miles north of Fresno) and 7.3% in Stockton.
“If a community is losing jobs, those homeowners will find it harder to pay their monthly mortgage bills,” Barber said. “That means more foreclosures, which can hurt the broader local housing market.”
It’s far from the sky is falling, but there is already an uptick in foreclosures. About 11,200 homeowners in California were dealing with a foreclosure during the third quarter, up 7.3% from a year earlier, according to ATTOM Data. The state’s 7,862 foreclosures during the third period were the third-most in the U.S.
But perspective is needed. More than 1.1 million homes in the state entered foreclosure between 2007 and 2009 during the housing market collapse, or about 30,600 homes per month.
We’re far from those figures.
California’s 10 most at-risk cities (ranked from worst)
| City | % of income needed for mortgage | % of underwater mortgages | Unemployment rate |
|---|---|---|---|
| Chico | 48.6% | 4.0% | 6.8% |
| Eureka | 50.2% | 3.1% | 6.1% |
| Redding | 39.4% | 3.6% | 6.0% |
| Sacramento | 65.8% | 2.6% | 5.4% |
| Fairfield | 52.7% | 2.2% | 5.9% |
| Madera | 49.8% | 2.1% | 8.3% |
| Riverside | 68% | 1.7% | 6.5% |
| Truckee-Grass Valley | 67% | 4.1% | 5.2% |
| SF-Oakland | 59.5% | 2.2% | 5.4% |
| Stockton | 52.9% | 1.8% | 7.3% |
Source: ATTOM Data
Higher loan limits for Fannie, Freddie
Uncle Sam is in a giving mood. Sort of.
The federal government will increase the conforming loan limit by 3.3% to $832,750, allowing more buyers to get Fannie Mae- and Freddie Mac-backed mortgages.
Better, not great. The bump is smaller than the 5%-plus increases during the past two years under the Biden administration.
Now, higher-priced markets – such as the Bay Area and Los Angeles and Orange counties – have a higher limit of $1.25 million, according to the Federal Housing Finance Agency. However, many buyers in higher-priced areas of California use jumbo loans, which are not guaranteed by the federal government.
The bump in the conforming loan limits follow a slight increase in home prices nationwide, including a 4.1% jump in October compared to a year ago in California, according to the California Association of Realtors.
Check the lending limit for each county, from Beach City, Maryland, to Manhattan Beach in Southern California, on the FHFA website.
The higher limits go into effect Jan. 1.
Bay Area rent increases, like this apartment community in Menlo Park, are among the highest in the U.S. SHUTTERSTOCK
Big rent hikes but even bigger paydays for most California renters
The Bay Area is back. Big time.
Bigger paydays, larger rents – and a lot more folks looking to live in San Francisco.
The city’s average rental rate, from pint-sized studios to much-larger single-family homes, was $3,128 per month, a 6% increase compared to a year ago. San Francisco’s rent increase outpaced the average pay raise of 4% for residents, according to Zillow.
However, San Francisco is the only market in the state where rent gains exceeded pay increases (see table).
San Jose at 5% had the second-highest year-over-year rent increase in the nation, followed by San Francisco at 4.6%. Fresno had the eight-largest increase at 3.8%, according to Apartment List. The figures include all apartment sizes.
But analysts say the head-turning rent increases could experience whiplash, as the economy slows and job-growth stalls or even tumbles. The Federal Reserve believes the nation has been losing about 20,000 jobs per month since the spring.
And job losses are bad for housing, whether folks are buying or renting.
Annual pay raises offset rent hikes, except in San Francisco
| City | Wage growth | Rent growth | Median rent |
|---|---|---|---|
| Los Angeles | +4.0% | +2.4% | $2,925 |
| Riverside | 3.9% | 2.0% | $2,521 |
| Sacramento | 4.0% | 1.9% | $2,288 |
| San Diego | 4.2% | 1.8% | $2,987 |
| San Francisco | 4.2% | 6.0% | $3,128 |
| San Jose | 4.8% | 3.8% | $3,449 |
Important note: Median rent includes apartments and single-family homes
Source: Zillow
