Elias: California housing costs worse for homeowners than renters

Tenants could actually benefit from an increase in mortgage holders becoming landlords to make ends meet

According to a recent UC Berkeley study, home buyers in California now pay twice as much as apartment dwellers in monthly rent.

That’s right: it costs twice as much money for a new homeowner to live in this state as it does for a renter in a comparable property. After a year of research, Dwellsy, a Los Altos-based online platform that frequently assists renters in finding houses, townhomes, condominiums, and apartments, came to the same conclusion.

Despite today’s high rents in California, this is a new reality, fueled in part by steadily rising mortgage interest rates. It means that fewer people can afford to buy than ever before, which helps to explain California’s relatively new reality, in which renters account for well over half of the population.

Dwellsy CEO Jonas Bordo believes that most people can still afford fairly financially comfortable living, despite the fact that home prices and rents have resumed rising after a pause — or, in the case of owner-occupied homes, a slight slowdown — due to uncertainty about the national debt ceiling. Rents and home prices, to be sure, have not been major contributors to the severe inflation that has afflicted most of America this year, particularly California.

“The normal seasonal rent cycle typically has prices increasing from April through October, so the bump right now is not unexpected,” Bordo said. “When you look at the big picture, renters come out on top.”

The national average asking rent for a one-bedroom apartment has decreased by 0.8%, or $11 per month, since April 2022, and by 1.9% since January 2021. According to Dwellsy data, one-bedroom apartment rents increased by only $14 in March and April.

Meanwhile, despite a slight drop in base prices, California house payments have skyrocketed. Typical house payments for recently sold median-priced homes in this state cost around $800,000 and include a $3,000 monthly interest component when buyers obtain loans in the 4.5% range.

The interest alone is greater than the average rent for a one-bedroom apartment in California’s most expensive markets. A typical one-bedroom in San Francisco-Oakland-Hayward, the state’s most expensive area, now costs $2,495 per month. In nearby San Jose-Santa Clara, the price is exactly $100 lower.

In the Los Angeles-Long Beach-Santa Ana area, it’s “only” $2,070. To be comfortable, renters must have a monthly net income of at least $5,000, unless they share the expense with roommates. Even doubling or tripling up, the majority of residents of this state’s urban areas are still out of reach.

They are still far less expensive than first-time home buyers. When real estate agents complain that sales are down this spring and summer, with volume running about 45% lower than last year, this is rarely mentioned.

When new buyers must come up with more than $40,000 in annual mortgage payments, not to mention taxes and insurance, who can blame them for looking for financial assistance in other states? Especially since the majority of employers continue to approve of the remote work ethos imposed on many by the COVID-19 pandemic.

All of this is good news for renters because when current homeowners need money to cover medical and other expenses, some are willing to consider becoming landlords instead of selling in a competitive market. Furthermore, the more homes converted into rental properties, the more appealing that option will appear to homeowners, particularly empty-nesters who may be content downsizing into their own apartment or using rental income from houses to cover the cost of condos.

Furthermore, unless and until the Federal Reserve Board reduces interest rates far below current levels, the new reality of renters paying far less for their quarters than owners with mortgages is unlikely to change significantly.