San Francisco

Bay Area In-Migrants Are Younger and Earn More Than Out-Migrants

  • Between 2005 and 2016, people moving to the Bay Area earned almost $13,000 more per year than those leaving.
  • Bay Area in-migrants are about two years younger than out-migrants, as many Americans find the region a difficult place in which to start a family.
  • Roughly 10 percent more people migrating to the Bay Area had four-year college degrees or higher than those moving away.

Young couple in moving truckOver the past decade, expensive coastal metropolitan areas with thriving economies and limited housing stock have attracted younger, more educated, and higher-paid Americans, pushing other residents out and keeping home prices elevated.

That’s according to a new analysis by BuildZoom Chief Economist Issi Romem, which examines a trend he calls “positive income sorting.” This pattern indicates that income differences between people moving into pricey U.S. coastal cities and those moving away is more pronounced than in other areas of the country.

As the nation’s most expensive place to call home, Romem says that the Bay Area serves as an extreme example of positive income sorting. Between 2005 and 2016, households moving to the San Jose-San Francisco-Oakland metro area earned median annual incomes of $70,015, which is $12,640 more than those who left the region. Other high-priced coastal metro areas such as Los Angeles and New York display similar trends.

People migrating to the Bay Area are also slightly younger than those who are moving away. During the aforementioned 12-year period, those moving to the region had an average age of 38.6, compared with out-migrants, who were almost 41 years old.

Similarly, Americans who are moving to the Bay Area to take advantage of the region’s booming economy are more likely to be educated than those who can no longer afford to live here. Sixty-percent of in-migrants who were head of a household had a four-year college degree or higher, while slightly less than half of those leaving had the same.

Romem says that positive-income-sorting trends suggest that Americans move to high-priced coastal cities when they are young, then flee to less expensive areas of the country once they are ready to start families. He told The Mercury News that the Bay Area’s extreme cost of living makes it “almost impossible for many families to put down roots.”

Positive income sorting helps sustain home price growth in coastal job centers, but it could also jeopardize those cities’ economies by forcing employers to keep only the most productive positions that pay well enough to compensate for the high cost of living. The answer, Romem says, is of course to build more housing in these areas, a process that can unfortunately can be quite difficult in California according to recent research from John Burns Real Estate Consulting.

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Most Homeowners Are Planning a Remodeling Project in 2018

  • Fifty-eight percent of homeowners will funnel money into a home-improvement project this year, according to a recent poll.
  • For the fifth straight year, outdoor renovations are the most popular with homeowners in 2018.
  • Twice as many homeowners are improving their properties so that they can age in place than those who are renovating in advance of a sale.

Nearly six in 10 U.S. homeowners are planning to spend money improving their properties this year, and an even larger amount will do at least some of the work themselves.

LightStream’s 2018 Home Improvement Survey found that 58 percent of homeowners will spend some amount of money to better their properties this year. Almost half are expecting to spend $5,000 or more on renovations, an all-time survey high, while the number of owners who will shell out $35,000 or more doubled from last year.

For the first time ever, LightStream asked respondents about “sweat equity,” meaning adding value to one’s home by making improvements via personal physical work. Nearly two-thirds of owners planning a renovation will do some of the work themselves, and 35 percent will complete the entire job without professional assistance.

LightStream says that outdoor renovation projects — such as decks, patios, and landscaping — are the most popular for the fifth straight year, cited by 43 percent of homeowners. A bathroom remodel was the second most common renovation (31 percent), followed by general repairs (28 percent) and kitchen overhauls (26 percent).

Here in the Bay Area, homeowners thinking of remodeling their kitchens or bathrooms should be prepared to dig deep. Two separate Houzz studies published within the past six months found that San Francisco homeowners can expect to incur the largest bills in the nation to complete bathroom and kitchen remodels.

Speaking of funding home-renovation projects, LightStream found that 62 percent of respondents plan to use their savings accounts to improve their homes. Thirty percent will use credit cards, 13 percent will tap into their home’s equity, and 10 percent will take out a loan.

One final finding from the survey: The desire to remodel a home is not necessarily driven by plans to put it on the market. Just 7 percent of those polled are renovating because of an upcoming sale, while twice that amount — across all age groups — are bettering their home so that they can age in place.

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Bay Area, California Homebuyers Lead the Nation for Down-Payment Size

  • Four of the five U.S. housing markets where buyers make the largest down payments are in California.
  • Buyers in the San Jose and San Francisco metropolitan areas make average down payments of more than $200,000.
  • Although saving for a down payment can be a daunting obstacle for younger homebuyers, they are still quite active, both nationwide and in the Bay Area.

Jar of cashIf you’re planning to shop for a home in the Bay Area this spring, you would do well to have more than $200,000 in the bank for a down payment.

That’s according to a study, which analyzed the 50 largest U.S. housing markets to determine where buyers will need the most (and least) up-front money to seal a deal. Though a 20 percent down payment has long been considered the gold standard with lenders, home shoppers in the high-priced Bay Area should consider trying to exceed that number.

Buyers in the San Jose metropolitan area are currently shelling out the largest down payments in America, an average of 23.9 percent. As the country’s most expensive housing market, with a median list price of $1.2 million, San Jose homebuyers are placing down payments of $257,000.

In San Francisco, the average down payment is only slightly lower — 22.6 percent. That translates to a $212,000 down payment to purchase the median-priced $899,000 home. Two other California housing markets placed in the top five nationwide for largest down payments: Los Angeles (No. 3, 17.9 percent) and San Diego (No. 5, 15.9 percent).

The report echoes findings from ATTOM Data Solutions, which also says that down payments in San Jose, San Francisco, and Los Angeles were the three highest in the nation in the fourth quarter. That study puts those California markets among the one-dozen in the U.S. where the average down payment was higher than $50,000.

According to Director of Economic Research Javier Vivas, saving for a down payment is one of the biggest obstacles to homeownership, particularly for younger homebuyers.

“It’s really challenging for younger buyers who don’t have deep pockets and haven’t had time to build up that big financial lump sum,” he said.

Even with the barriers that millennials and other young Americans face on the path to homeownership, they are the most active group of buyers for the fifth straight year. And that’s true even in the high-dollar Bay Area, where buyers under the age of 35 accounted for more than one-third of recent Pacific Union transactions in San Francisco and Silicon Valley, according to a February analysis by company Chief Economist Selma Hepp. Even more recently, MarketWatch reported that San Jose was one of the most popular housing market for Generation Z, defined as those age 23 and younger.

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Risk of Bubble for California, Bay Area Housing Markets Is Minimal, Report Says

  • Analysts at Arch MI do not believe that home prices are overvalued, nor do they foresee a looming bubble.
  • The chances of home prices declining in California over the next two years is 3 percent, making it a minimal-risk market.
  • All 12 California metropolitan areas that the report tracks have minimal risk of price depreciation by the end of the decade.

Although home prices should continue to increase for the rest of the decade, a bubble does not appear imminent nationwide, in California, or in the Bay Area.

That’s according to Arch MI’s latest Housing and Mortgage Market Review report, in which company analysts wrote “Home prices in the U.S. currently do not appear to be overvalued based on the historical relationship between home prices and incomes.” Before the housing crisis, U.S. home prices were 22 percent overvalued, then fell to levels that were 12 percent undervalued in 2012. Currently, Arch MI estimates that home prices are now 10 percent to 15 percent undervalued because of mortgage rates that remain near record lows.

The company does not foresee a housing bubble on the horizon across the U.S. or most cities. Warning signs of a housing-market bust — including too much buyer debt, inferior-quality loans, and overly rapid price appreciation — do not currently exist. The forecast echoes findings from a Freddie Mac report published last fall that also downplayed the possibility of another bubble.

Using data from the third quarter of last year, Arch MI’s Risk Index puts only three states at moderate risk for price deprecation by the end of 2019: Alaska, North Dakota, and Wyoming. California is one of 41 states that the company’s metric rates as minimal risk, with just a 3 percent chance of prices falling over the next two years. Golden State home prices increased by 7.9 percent year over year in the third quarter of 2017.

All 12 twelve California metropolitan areas for which Arch MI estimates risk are rated as minimal. The chances of price deceleration in San Jose, Oakland, and Los Angeles is 2 percent, while the likelihood of a decline in San Francisco is 3 percent. Year over year, third-quarter home prices grew by 8.5 percent in Oakland and Los Angeles, 6.8 percent in San Jose, and 6.4 percent in San Francisco.

Nationwide, the company expects home price appreciation of 2 percent to 6 percent over the next couple of years due to buyer demand that will continue to exceed tight supply conditions. Strong job growth and the aforementioned low mortgage rates should also fuel price gains.

Other housing predictions found in Arch MI’s report: the recent tax changes will impact high-priced markets like California the most; affordability will continue to deteriorate due to rising interest rates and home prices; and fewer homeowners will decide to move.

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Millennial Homebuyer Activity Climbs to Record High

  • For the fifth straight year, millennials are the most active U.S. homebuyers, accounting for 36 percent of sales.
  • More than half of millennials bought a home in a suburban community, and 85 percent opted for a single-family structure.
  • Nearly half of millennials carry student loans, with a median debt of $27,000.

Millennials remain the most active U.S. homebuyers, though tight inventory conditions, strong price growth, student debt, and higher costs of living remain challenges to ownership for that generation.

The National Association of Realtors’ annual 2018 Home Buyer and Seller Generational Trends study says that millennials accounted for 36 percent of purchases over the past year, a slight uptick from the previous survey and an all-time high. Defined as Americans under the age of 37, millennials have been the most active group of U.S. homebuyers for five straight years.

Millennial homebuyer activity in Bay Area job centers mirrors the national trend. According to a February analysis of Pacific Union data by Chief Economist Selma Hepp, buyers under the age of 35 accounted for 37 percent of transactions in San Francisco between August 2017 and January 2018, while millennials were responsible for 35 percent of purchases in Silicon Valley.

As millennials increasingly start families, they are gravitating toward more affordable suburban communities, which allow them to purchase larger homes. Fifty-two percent of millennials chose a home in the suburbs, and 85 percent of them bought single-family homes. Only 15 percent of millennials bought homes in urban areas, while an even smaller number (2 percent) opted for a condominium.

“While there is an overall trend among households young and old to migrate towards urban areas, the very low production of new condos means there are few affordable options for buyers – especially millennials,” NAR Chief Economist Lawrence Yun said.

Besides a lack of affordable starter homes, millennials must grapple with rising home prices and student-loan debt. NAR found that almost half of millennials are paying off student debt and carrying a median amount of $27,000. About one-quarter of Americans under the age of 37 said that saving for a down payment was the most difficult part of the homebuying process, and of those, 53 percent said that student loans delayed the savings process.

Millennials also face higher living costs than the generation before them, while wage growth for the demographic has been stagnant. According to a Freddie Mac analysis, between 2000 and 2016, young Americans’ expenditures increased by 36 percent. During that time period, home prices grew by 29 percent, while millennial per-capita incomes inched up by 1 percent.

A final finding from NAR’s report: When millennials are ready to purchase a home, 90 percent of them employ the services of a real estate professional, with help understanding the process cited as the primary benefit.

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San Francisco Is the No. 1 U.S. Housing Market for Millionaire Buyers

  • Households that earn $1 million-plus per year bought more homes in the San Francisco metropolitan area than anywhere else in America in 2016, accounting for nearly 2 percent of transactions.
  • San Rafael ranks as the third most-popular U.S. housing market for millionaires, who purchased 1.34 percent of homes in the region.
  • Other top housing markets for $1 million-plus earners include Los Angeles, Anaheim, Salinas, San Jose, Santa Barbara, Oxnard, and San Diego.

More than one-third of the 25 most popular U.S. real estate markets for households with seven-figure annual earnings can be found in the Golden State, with San Francisco — perhaps not surprisingly — topping the list.

That’s according to a new report by SmartAsset, which ranks the top 25 cities where households earning at least $999,000 purchased homes in 2016. Millionaire homebuyers assume roughly three-to-four times smaller mortgage obligations than the average homebuyer.

Coastal California’s big-ticket home prices dictate that millionaires here are more active real estate buyers than they are in other parts of the country. According to a separate analysis published by SmartAsset earlier this year, as the most populous U.S. state, California is home to more than 72,000 millionaires, though four East Coast states (plus Washington, D.C.) have a larger percentage of tax refunds filed by households who pull in $1 million-plus each year.

The San Francisco-Redwood City-South San Francisco metropolitan area had the highest ratio of million-dollar-earning homebuyers in 2016 — 1.75 percent of all purchases, representing 158 properties. According to the latest data from the California Association of Realtors, San Mateo and San Francisco counties are the state’s two most expensive counties, with respective January median single-family home prices of $1,437,500 and $1,330,000.

San Rafael had the third largest concentration of millionaire homebuyers two years ago, where they accounted for 1.34 percent of activity. Wealthy households in the Marin County seat picked up 27 of the more than 2,000 properties sold that year.

California cities accounted for nine of the 25 American real estate markets with the most million-dollar earners. The rest of the pack by percentage of high-net-worth homebuyers includes No. 5 Los Angeles (0.90 percent), No. 6 Anaheim (0.76 percent), No. 10 Salinas (0.53 percent), No. 12 San Jose (a tie at 0.49 percent), No. 14 Santa Barbara (0.47 percent), No. 19 Oxnard (0.33 percent), and No. 23 San Diego (tied with two Texas cities at 0.27 percent).

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