Boosted by soaring home prices, California homeowners are now sitting on the richest vein of home equity in the nation, hundreds of thousands of dollars per home in most cases, an analysis shows.
More than 43 percent of Golden State homeowners with mortgages qualify as “equity rich,” meaning those owners’ homes are now worth at least twice their mortgage balance. And fewer than 4 percent are now deeply underwater on their mortgages, far lower than the national 10 percent average.
The message is twofold: California real estate has pulled well beyond the carnage of the 2007 to 2011 housing collapse. And it has done it in a big way compared to the rest of the United States, to the point of being slightly worrisome, some real estate watchers say.
“That’s is great news for homeowners who are becoming equity rich, but it is a sign of that excess we tend to see in the California market,” said Daren Blomquist, a vice president with Attom Data Solutions, an Irvine-based real estate data company that compiled the mortgage data.
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Attom defines equity rich as those whose home is worth twice what they owe on their mortgage. A homeowner with a $200,000 mortgage is equity rich if the home value is $400,000 or more. Conversely, a homeowner is considered seriously underwater if his or her mortgage is 25 percent higher than the home value, such as a home that is worth $100,000, but carries a $125,000 mortgage.
In the Sacramento region, 34 percent of homeowners have hit the “equity rich” mark, not as many as in the state’s booming coastal economies, but easily above national averages. The region’s seriously underwater number is slightly more than 4 percent.
Attom collects the mortgage data from most homes to track the ripple effect of the mass housing recession that hit the nation a decade ago. The company does not collect data from ZIP codes with fewer than 2,500 homes with mortgages. It also does not include homes without a mortgage.
The data show the nation as a whole is recovering from the housing collapse, but the results are uneven.
“The share of seriously underwater properties has dropped well below 10 percent in bellwether housing markets such as California, Washington, Texas, Colorado and New York, but the underwater rate remains stubbornly high in markets where price appreciation has not been as strong during the housing recovery of the last six years,” Blomquist said.
Mid-sized “rust belt” cities that lack jobs or growing populations have the highest underwater numbers, he said.
In some areas of California, the “equity rich” numbers dwarf the national average of 24 percent. Most of the wealthiest are in the Bay Area, including 72 percent in San Jose, the heart of Silicon Valley, and 61 percent in San Francisco.
The best-off homeowners in the Sacramento region are in the city of Davis, where 57 percent are equity rich, followed by South Lake Tahoe, at 42 percent, according to Attom data.
Some lower-income neighborhoods in North Highlands and south Sacramento also made the “equity rich” list. It is not clear whether that is due to longtime homeowners in those older neighborhoods or because investment companies purchased many foreclosed properties there during the housing bust.
Only one ZIP code in the Sacramento region scored worse than the national average for underwater properties. It’s the 95841 ZIP code northwest of American River College where nearly 11 percent of owners are still severely underwater.
California’s equity-rich homeowners likely achieved that position one of two typical ways, Blomquist and other real estate analysts say.
Many bought their homes decades ago, held on through market ups and downs, and refrained from taking large amounts of cash out of their homes to fund other purchases.
Others benefited more recently from good timing, buying a few years ago when the housing crash sent home prices plummeting.
Koji Fujimoto, a Sacramento software company manager, and his wife bought their first home in 2011 in the Vineyard subdivision just when prices had hit bottom. They paid $186,000 for a newly constructed home that is now worth $350,000, an 88 percent value increase in seven years. They took advantage of a down payment assistance program and builder credits, and put down a minimal amount.
“We really, really do feel lucky,” Fujimoto, 29, said. When he tells friends, “their mouth just falls to the floor.”
But California and Sacramento appear to have hit a “where to now?” moment that has homeowners like Fujimoto concerned.
After seven years of huge value increases, the state’s real estate market has slowed in recent months. Median sale prices plateaued statewide in June. In Sacramento, those medians dropped slightly in July.
The California Association of Realtors reported last week that home affordability has hit a 10-year low in much of the state, including Sacramento. Only 26 percent of California households can now afford a median-priced home, the association calculates.
Economists and real estate watchers say it is too early to say whether the state is in for a correction.
The numbers suggest that more homeowners may be sitting on their equity stashes, unwilling to sell their homes, in part because the price of move-up homes has increased even more steeply, in dollar terms, than the value of the house they own.
Others may have low mortgage interest rates that they don’t want to lose now that rates are higher, or they don’t want to tack a higher-rate equity loan onto their monthly bill.
A leading California economist, Chris Thornberg of Beacon Economics, said more stringent bank rules may be keeping some homeowners from pulling money out of their homes, essentially trapping the cash and stifling the economic boost that would create.
But that may be good in a sense, he said, because it keeps people with equity from turning their houses into piggy banks, as happened in some cases catastrophically for homeowners during the boom and bust in the 2000s.
“Maybe we are protecting people from their own worst impulses,” Thornberg said.
Still, Dean Wehrli, a Sacramento real estate analyst with John Burns Real Estate Consulting, said he expects more Californians to tap that equity in the coming years, and he sees some of that happening already in Northern California.
Bay Area buyers are increasingly selling multimillion-dollar homes and buying in the Sacramento region, where homes are much more affordable, he said.
Fujimoto is among those taking advantage of his home’s equity to move up to a more expensive home in Elk Grove near his and his wife’s families.
But it’s giving him the jitters. He no longer will have the comfort of feeling equity rich. He wonders if his new home will increase in value like his first one did, or whether its value might drop.
“Is this the right time to sell, and right time to buy?” he asks. “They are like opposing forces. I felt trepidation, pulled in two directions.
“This isn’t our first rodeo, but it feels like it is.”