In Sonoma County, it’s the decade of the renter

A wave of foreclosures has passed and home prices have largely rebounded, but other measures suggest that Sonoma County and the nation have yet to shake off the pain done to homeowners, renters and the economy from a historic housing market crash.

New census data support what experts today note about the housing sector: more single-family homes are being used as rentals, and plenty of renters have postponed buying a place of their own.

Census estimates released last week place the county’s homeownership rate last year at 59.5 percent. That compares to a similar 58.4 percent in 2014.

In contrast, an estimated 64 percent of county households owned their homes in 2005, a period when real estate prices reached record levels and homes often were purchased with little money down.

Even though homeownership increased slightly in the county last year, so did the number of single-family homes being used as rentals.

The county’s rate of rented single-family homes is the highest in the Bay Area at 28.5 percent, according to census research compiled by real estate website Zillow. The rate climbed from 28 percent in 2014 and from 21.8 percent in 2005.

Aaron Terrazas, a senior economist at Zillow, said the nation’s rate of rented single-family homes remains considerably higher than it was in the 1980s and 1990s. That trend is tied to what he called the changing face of renters.

“The renter in America today is often a middle-class family with kids,” he said.

The nation will look back on the early 2000s as “the decade of the bubble,” while 2010 spawned “the decade of the renter,” said Brian Burke, CEO of Praxis Capital, a Santa Rosa real estate investment firm.

Burke observed the changing market six years ago while purchasing more than 100 single-family homes as rental properties in Solano, Sacramento and Sonoma counties. Values had fallen so far on distressed houses that some were selling for the recorded prices paid for the same properties in the mid-1980s.

“We turned the clock back 20 years,” said Burke.

The nation’s downturn in homeownership has been unprecedented, according to Harvard University’s Joint Center for Housing Studies. So too was the housing market meltdown that precipitated it.

Before the crash, the county’s single-family home values soared over a 10-year-period ending in 2005. That year the annual median price reached a record $595,000.

But risky lending standards, including the rise of subprime and interest-only mortgages, led to a plunge in the nation’s home values, a world financial crisis and ultimately a jarring recession that began in late 2007.

Amidst the turmoil, county home prices sank by 2011 to an annual median of $325,000. The median since has steadily risen. For the first eight months of 2016, it climbed to $575,000.

As home prices fell, foreclosures soared. From 2007 to 2013, more than 15,000 county homeowners lost homes to foreclosures or short sales, the latter referring to the sale of a home for less than the amount owed on the mortgage.

In the crash, younger families were among the hardest-hit homeowners.

Daniel McCue, a senior research associate for Harvard’s Joint Center, said younger adults often were among the first to lose their jobs in the recession and also “the first to lose all the equity in their homes.”

Zillow’s Terrazas said the financial turmoil that such families endured prevented many from having the wherewithal to buy homes when prices hit bottom. Similarly, many today can’t afford to buy now that prices have rebounded.

In that sense, Terrazas said, “it’s a story about widening inequality in America.”

The drop in the county’s homeownership rate mirrors that of the nation’s. The U.S. rate fell to 63.7 percent last year from 68.9 percent in 2005, according to census estimates compiled by UC Berkeley’s Terner Center for Housing Innovation.

The homeownership rate matters, both for the impact on the economy and for the improvement to the owners’ net worth.

“Homeowners spend money,” said Madeline Schnapp, director of economic research at PropertyRadar, a Truckee company that tracks real estate data. “Ownership is a really important part of solid economic growth, and if that isn’t happening, that is a headwind to improving economic growth.”

Also, the benefits of homeownership, including the “forced savings” of monthly mortgage payments, historically have given a significant financial boost to owners, said McCue.

“That’s a huge part of the wealth building that happens with homeownership, that doesn’t happen with renting,” he said.

Even so, many who lived through the housing crisis said the way the U.S. raised the homeownership rate 15 years ago was destined to end badly.

“Nobody had any skin in the game,” said Keith Becker, the president of DeDe’s Rentals, a property management company in Santa Rosa. That includes not only those buying homes with virtually no money down but also the mortgage companies that agreed to make the loans and the financial institutions that took and packaged the mortgages into securities of dubious value.

After the crash came, the places with large numbers of foreclosures saw a big jump in rentals among their housing stock.

Among those was Solano County, which Schnapp of PropertyRadar said was “one of the hardest areas hit” in the Bay Area. Solano’s rate of rented single-family homes jumped to 25.9 percent in 2014 from 14.7 percent in 2005.

That increase of 11.2 percentage points ranked fourth highest among the nation’s metro areas, according to a report released this summer by Zillow. Solano’s rate of rented houses since declined to 25.5 percent for 2015.

Sonoma County, which saw a 6.2 percentage point increase in the Zillow study, has a significantly higher rate of single family rentals than the more urban communities in the Bay Area. The county’s 2015 rate of 28.5 percent compares with 22 percent for the San Francisco metro area, which includes Alameda and Marin counties, and 21.8 percent for San Jose.

Even Napa County was slightly lower than Sonoma at 28.3 percent.

The factors that affect such rates among communities include home values, wage growth and the mix of single-family and multi-family properties, Terrazas said. While the economic strength of San Francisco and Silicon Valley help explain their lower rates, the Central Valley has many communities with higher rates of rented houses than Sonoma, including Modesto, where 32.9 percent of houses are rented.

“I think Sonoma is a little bit of a middle ground,” he said.

Regardless, those who watch the county’s housing market have noted the growth in rentals as investors bought up distressed properties.

At DeDe’s Rentals, the company’s caseload has increased 36 percent over the last six years, said Becker. It now handles more than 500 units. Nearly six in 10 are houses or condominiums, with the rest being duplexes or apartments with fewer than 16 units.

Along with falling ownership rates, the housing crash is blamed for two related woes: A lack of new home construction and a tight rental market.

Home construction is expected to improve over the next decade, but since the crash it has remained near historic lows. Homebuilding and other investments in residential property have accounted for just 2.8 percent of the nation’s gross domestic product, compared to 4.3 percent in the 1980s and 1990s, according to Harvard’s Joint Center.

The lackluster growth in new houses has contributed not only to an increase in the median home price but also to a sharp rise in monthly rents. The county’s average apartment rents for $1,792 a month, a jump of ?48 percent in five years, according to Real Answers, a Novato company that tracks data from large apartment complexes. The average price for a two-bedroom, two-bath unit is $2,080, an increase of 46 percent over five years.

The house rental market has seen similar jumps in rent, Becker said. A typical three-bedroom home in northwest Santa Rosa now rents for $2,500 a month.

DeDe’s Rentals is essentially operating at full occupancy and sees little relief in sight for renters, Becker said. For outsiders considering job offers in the county, he gave this advice: “Don’t say ‘yes’ until you look at the classifieds for what rents are.”

Despite all the turmoil that surrounded the housing crash, large numbers of younger adults still seek to one day own a home, McCue said. Some will get the chance in the coming years as homebuilding and household incomes increase.

But for now, he said, “people are remaining renters longer.”

Researcher Janet Balicki contributed to this report. You can reach Staff Writer Robert Digitale at 707-521-5285 or robert.digitale@pressdemocrat.com. On Twitter @rdigit