Elias: California housing costs worse for homeowners than renters

A recent UC Berkeley study concluded that home buyers in California now pay double each month what apartment dwellers shell out for rent.

That’s right: It takes twice as much ready cash to live in this state as a new homeowner than it takes as a renter for a comparable property. That’s also the conclusion of a year-long study by Dwellsy, a Los Altos-based online platform that often helps renters find houses, townhomes, condominiums and apartments.

Despite the high levels of today’s California rents, this is a new reality spurred in part by the steadily rising interest rates on today’s mortgages. It means that fewer folks than ever can afford to buy, and helps explain the relatively new California reality which sees renters making up well over half the population.

Dwellsy CEO Jonas Bordo believes that most folks can still afford fairly financially comfortable living, though, even as home prices and rents are rising again after a pause — or for owner-occupied homes, a bit of a slowdown over the last few months of uncertainty about the national debt ceiling. For sure, neither rents nor home prices have been major contributors to the severe inflation that has afflicted most of America and especially California this year.

“The normal seasonal rent cycle typically has prices increasing from April through October, so the bump right now is not unexpected,” said Bordo. “When you take the long view, renters are coming out on top.”

Since April 2022, asking rent nationally for one-bedroom apartments has decreased 0.8%, or $11 per month, and 1.9% since January 2021. Overall, rents for one-bedrooms were up just $14 in March and April, the most recent months measured by Dwellsy.

Meanwhile, house payments skyrocketed in California, even as base prices were down a bit. Typical house payments for just-sold median-priced homes that in this state carry price tags around $800,000 include a $3,000 monthly interest component when buyers get loans in the 4.5% range.

The interest alone is more than typical renters pay in California’s priciest markets for one-bedroom apartments. In the state’s most expensive area, San Francisco-Oakland-Hayward, the typical one-bedroom now goes for $2,495 a month. In nearby San Jose-Santa Clara, the price is exactly $100 less.

In the Los Angeles-Long Beach-Santa Ana area, it’s “only” $2,070. That still means renters must have a monthly net income topping $5,000 to be comfortable unless they are roommates sharing the expense. So without doubling or tripling up, things are still not affordable for most residents of this state’s urban areas.

They’re still a bunch less pricey than if they were new home buyers, though. This is rarely mentioned when real estate agents gripe that sales have been down this spring and summer, running about 45% below last year’s volume.

When new buyers must come up with more than $40,000 in yearly mortgage payments, though, and then add taxes and insurance into the mix, who can be surprised when some look to other states as financial solutions? Especially since most employers remain comfortable with the remote work ethos imposed on many by the COVID-19 pandemic.

All this is good news for renters because when current homeowners need to raise money to cover medical and other expenses, some are willing to consider becoming landlords rather than selling in a tight market. Also, the more homes become rental properties, the more acceptable that alternative will look to homeowners, especially if they are empty-nesters who might be comfortable downsizing into an apartment of their own or using rental income from houses to cover the cost of condos.

What’s more, the new reality of renters paying far less for their quarters than owners with mortgages will likely not change much until or unless the Federal Reserve board drops interest rates far below present levels.

Email Thomas Elias at tdelias@aol.com, and read more of his columns online at californiafocus.net.