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.
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