Silicon Valley

Which California Neighborhoods Are Millennials Flocking To?

  • Downtown Los Angeles’ Historic Core neighborhood saw its millennial population nearly double between 2011 and 2016, the highest rate of growth in the U.S.
  • In San Francisco, The Castro and Glen Park are among the top 20 neighborhoods in America to experience the largest millennial population growth.
  • More than 30,000 millennials live in Los Angeles’ South Park neighborhood and San Francisco’s Mission Bay.

Millennials walking in a cityThe Golden State is home to the nation’s largest share of millennials, and they are gravitating toward Downtown Los Angeles and neighborhoods in southeastern San Francisco.

Between 2011 and 2016, Los Angeles’ 90014 ZIP code, also known as the Historic Core, saw its millennial population increase by 91.4 percent, the most of any area in the 30 largest U.S. cities included in an analysis by RentCafe. During that time period, 3,300 millennials — defined here as those born between 1977 and 1996 — moved to that part of Downtown Los Angeles, which the company identifies as America’s fastest-gentrifying neighborhood since the turn of the century.

Millennials are also beginning to gentrify Los Angeles’ 90013 ZIP code, otherwise known as Skid Row. That neighborhood had the nation’s second-largest increase in millennial residents in the five-year period — 60.0 percent, which translates to 4,700 people.

Two San Francisco ZIP codes rank in the top 20 for millennial population growth: 94114 (The Castro) and 94131 (Glen Park). The former enclave saw 37.4 percent (12,500 people) more millennials set up shop, while the latter posted a 35.5 percent increase (9,000 people).

San Francisco’s booming Mission Bay neighborhood ranks among the top 20 U.S. neighborhoods with the largest share of millennials, where 3,800 residents of that age group comprise nearly two-thirds of the population. Millennials who call Mission Bay’s 94158 ZIP code home are almost certainly earning handsome paychecks; according to a separate RentCafe analysis, it’s the second most expensive neighborhood in the Bay Area for renters, with monthly payments averaging $4,336.

New York and Chicago ZIP codes dominate the rankings of the 20 U.S. places where the most millennials live, but two Golden State neighborhoods make the list. In Los Angeles, 33,500 millennials reside in the 90011 ZIP code (South Park, just south of Downtown), while 30,500 live in 94110 in San Francisco’s Inner Mission.

Despite the Bay Area’s sky-high home prices, millennials have gained a surprisingly large foothold in the real estate market. According to a February analysis of Pacific Union data by Chief Economist Selma Hepp, homebuyers aged 35 and younger accounted for more than one-third of purchases in San Francisco and Silicon Valley between August 2017 and January 2018.

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First-Time Buyers Score Nearly 1 Million Homes in 2018

  • New buyers purchased 985,000 homes in the first six months of 2018, the highest such activity since 2005.
  • First-time homebuyers accounted for 2.1 million home sales in 2017, higher than the historical annual average of 1.8 million.
  • Given rising mortgage rates, first-time buyers who entered the market in June 2018 paid 67 percent more for a home than they would have five-and-a-half years ago.

Though first-time homebuyers face multiple challenges in today’s housing market — including rising interest rates, strong appreciation, and critically low inventory levels — that group was busier than it has been in 13 years in the first half of this year.

That’s according to a report from Genworth Mortgage Insurance, in which company Chief Economist Tian Liu said that first-time buyers purchased 572,000 U.S. single-family homes in the second quarter, up 1 percent year over year to account for 36 percent of transactions. And while that increase might seem insignificant, first-time home buyers were responsible for 985,000 home purchases in the first six months of this year, the highest such activity since 2005.

First-time homebuyer activity is now slightly above its historical average of 35 percent but quite a bit shy of the 46 percent peak recorded in the mid-1990s. In 2017, new buyers scooped up 2.1 million homes, breaking out of the cyclical depression to move above the historical annual average of 1.8 million. That buyer pool is getting a boost from the nation’s thriving economy, with the unemployment rate for 25-to-44-year-olds at 3.5 percent in the second quarter, the lowest in more than 17 years.

A shortage of homes for sale — particularly those priced at the lower end of the market between $150,000 and $300,000 — continues to prevent more first-time buyers from getting in the game. The nation’s inventory crunch helped push up home prices by 6.5 percent in the second quarter on an annual basis, putting a dent in affordability for potential new buyers.

Further hindering affordability for first-time buyers is the impact of rising mortgage rates. That segment of the market took out 30-year mortgages that averaged 4.77 percent in the second quarter, meaning that first-timers paid an average of 12.6 percent more each month than they would have at the same time in 2017. A longer view presents an even more telling picture of the effect of higher rates, with June 2018 first-time buyers spending a staggering 67 percent more than they would have in January 2013.

Despite the Bay Area’s well-documented housing affordability issues, first-time buyer activity in the region appears to be in line with the national average. In a February analysis of Pacific Union transaction data, company Chief Economist Selma Hepp found that buyers age 35 and under were responsible for about one-third of transactions in Alameda and San Francisco counties and Silicon Valley over the preceding six months.

While Liu calls the uptick in first-time homebuyer activity “remarkable” given difficult market conditions, he notes that such buyers have historically depended on obtaining mortgages with less than the conventional 20 percent down payment. In the second quarter, new homebuyers took out two-thirds of low down-payment loans.

“When policymakers, lenders, and housing advocates discuss ways of increasing homeownership, down payment affordability should be an important consideration,” he wrote.

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Bay Area Cities Rank as Best in the World for Future Momentum

  • Half of the world’s top 30 cities that are best prepared for the future are in North America.
  • San Francisco and Silicon Valley rank a respective No. 1 and No. 2 on the list of “future-proofed” metropolitan areas.
  • Los Angeles and San Diego also rank among the world’s top 10 future-proofed cities.

The Bay Area’s real estate market and high-performance economy are currently running at full steam and appear poised to carry that momentum over the long term.

Jones Lang LaSalle’s fifth annual City Momentum Index ranks 131 global cities based on potential for long-term socio-economic and commercial real estate market success, a term it calls “future-proofing.” Factors used to gauge a metropolitan area’s chance for future momentum include innovation capacity, quality of universities and colleges, number of startups, and public infrastructure and environment quality.

North America accounts for half of the world’s top 30 future-proofed metro areas. Six of the top 10 future-proofed cities are in the U.S., and four of those are in California.

San Francisco takes the top spot on the rankings, followed by Silicon Valley at No. 2, both due largely to the Bay Area’s global position as a technology powerhouse. Those two Bay Area regions have the planet’s largest number of startups and have also created the most tech unicorns — private startups valued at more than $1 billion — over the past 15 years.

In Southern California, Los Angeles and San Diego rank a respective No. 6 and No. 10 on the future-proofed cities list. Jones Lang LaSalle points to Southern California’s excellent higher-education institutions, which produce plenty of highly skilled technology workers. Both cities employ more computer and mathematics workers than any other job market on the West Coast, and both rank in the top five for the most international patent applications.

So why is future-proofing an important measure of a real estate market’s potential to thrive? Investors use the metric to determine whether technology innovations will result in a market’s ability to hold its value and appreciate over time. For developers, the concept of future-proofing allows for understanding a city’s capacity for economic growth, thereby allowing them to plan and build sustainable communities.

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Labor Shortages, Materials Costs Increases to Drive Up Home-Remodeling Costs

  • A recent survey found that remodeling firms expect labor shortages to worsen this year, while worker and materials costs will increase.
  • More than nine in 10 remodeling businesses report a shortage of carpenters.
  • About 70 percent of home-improvement companies will pass increased labor and materials costs on to customers.

While most American homeowners and prospective buyers probably do not ponder the construction sector on a regular basis, current trends in that industry could affect their wallets in the coming months.

Houzz’s new State of the Industry 2018 report, which coincides with National Home Improvement Month, found that respondents from all seven construction and remodeling subsectors it tracks expect the availability of skilled workers to tighten this year. General contractors, designers, and builders are projected to be the most in-demand types of workers, with about half of those polled expecting the labor market to get tighter.

All seven subsectors also project that labor costs will increase, again led by general contractors (56 percent) and designers and builders (57 percent). About half of architects and specialty renovators and landscapers think that the aforementioned lack of skilled workers will cause job costs to rise in 2018.

That trend again persists when it comes to the cost of remodeling and building materials, which are expected to increase across the board. The number of remodeling professionals who believe that materials costs will be higher this year than last ranges from 60 percent of general contractors to 47 percent of landscaping firms.

Houzz’s survey dovetails with research published earlier this week by the National Association of Home Builders, in which more than 90 percent of home renovators reported a shortage of carpenters, with about half calling the situation serious. Other types of remodeling professionals that are in the highest demand include framers, bricklayers, drywall installers, and concrete workers.

About three-quarters of remodeling businesses told NAHB that a lack of skilled workers is leading them to pay higher wages. The impact on homeowners is nearly the same, with 71 percent of firms reporting that they pass their increased costs along to clients.

Bay Area homeowners who are considering a home-improvement project should check out Remodeling’s 2018 Cost Versus Value report, which estimates average costs for 21 popular jobs in 149 U.S. metropolitan areas, including San Francisco, San Jose, and Santa Rosa. The report also offers information on home-renovation returns, which are particularly sunny in Silicon Valley, with 18 of the 21 tracked jobs expected to turn a profit this year.

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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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