Which Cities Are On Top for Home Sellers in California?

Robin Fenchel February 22, 2012

In an article in Monday, April 7th’s Forbes.com, written by Matt Woolsey, the author outlines the best cities in the country for home sellers. At first glance it was surprising to find that the top two cities named in the article are in California, considering all the doom and gloom the media has been reporting about in the housing sector: however, San Jose, CA, and San Francisco, CA were named #1 and #2, respectively, for home sellers.
The reasons outlined were as follows:

“San Jose’s tough regulatory measures make it difficult to overbuild. In addition, new home construction dropped 63% last year, while jobs grew by 1.2%. Home vacancies, which were already low at 1.6%, fell to a national bottom at 0.8%, helping make San Jose one of the country’s tightest markets.”

San Francisco Photo
“Farther north, San Francisco’s conforming loan limit jumped from $417,000 to the maximum $729,750, which makes getting credit a simpler affair for many of the city’s home buyers. In 2006, the market felt a softening that pushed vacancy rates up to 2.4%, but a 56% cut in construction has cut vacancy rates in half. The increased access to credit, thanks to the new Fannie Mae and Freddie Mac limits, and the lack of available properties plays to sellers’ interests.”

The top 40 friendly seller cities on the list were analyzed and “ranked by its 2007 unsold vacancy rate, calculated by the U.S. Census American Housing Survey, and how much the market had tightened or loosened when compared with 2006 conditions.”

Next the construction starts were reviewed as tracked by the National Association of Home Builders in order to see if building starts would “compound or alleviate vacancy woes.” In addition, the Bureau of Labor Statistics was reviewed for job creation as a “way to measure the local economy’s ability to absorb or offset housing losses.”

Lastly, the degree to which new conforming loan limits from Freddie Mac and Fannie Mae will improve each market’s lending conditions was factored into the mix. “When Freddie and Fannie get more involved, lenders get the implicit backing of the Federal Government, something that softens the risks that have slowed lending elsewhere, as jumbo, or nonconforming loans, can be expensive losses.”

San Jose and San Francisco came out on top because they fit the profile of a sellers’ market–low inventory rates that were still shrinking, good job creation, a large scale cutback in new home construction and a boost in the credit market from new Fannie and Freddie loan limits.

On the other hand, in an article written on April 8th, in the Los Angeles Times, entitled Southern California Beach House Prices Remaining Afloat, Ronald White outlines the reasons why homes in the beach cities of the South Bay have faired far better than those located in the inland empire counties of Riverside and San Bernardino.

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Moreover, Elaine Carlson, in her article entitled, Now You’re Talking…remarks that the areas of Malibu, Palos Verdes, and Newport Beach are doing even better than the 18 beach side zip codes that were included in the study by the Times for their relative affordability.

Fewer sub-prime loans were made in the coastal areas, where the buyers tended to have less trouble qualifying for good fixed-rate loans, said Stuart Gabriel, a finance professor and director of the Ziman Center for Real Estate at UCLA.

“The sub-prime problems are focused on lower-income and lower-credit borrowers who were stretching to afford homes. Those areas are very visibly and geographically concentrated in the interior parts of the state,” Gabriel said.

Again demand for homes in the beach cities are high, while availability of inventory remains low. Those areas of the inland empire that have seen the steepest declines in the price of houses (losses of almost half the value from the highs) are those areas in which there was unbridled building and development, and risky lending to those buyers who were lower-income and lower-credit borrowers who were stretching to afford homes.

On the other hand, “The individuals who had the income and wealth to own in the beach areas have not seen any significant decline in their situations.”

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