California home prices rise but lag other states

The “Looking Glass” ponders economic and real estate trends through two distinct lenses: the optimist’s “glass half-full” and the pessimist’s “glass half-empty.”

BUZZ » Last year’s wild surge in the value of California homes trailed eye-popping gains elsewhere in the nation.

SOURCE » Zillow calculated rising home values in states and the nation’s 50 largest metropolitan areas — including six in California. This math includes all homes, not just those that sold, plus appreciation and the addition of newly constructed residences. The data stretches from last year’s pandemicfired feeding frenzy back to 2011, the early days of the Great Recession’s recovery.

DEBATE » Home values are a metric that often depends on the viewpoint. Homeowners, especially home sellers, naturally see rising home value as good news. But house hunters, often lured to ownership by the profit potential, have a far different view. Housing inflation makes financing such a purchase even more challenging.

Glass half-full

Homeowners were the winners in 2021. In California, values grew by $1.38 trillion to $9.24 trillion. Note: This 17.6% jump trailed the U.S. gain of 19.6% and ranked 22nd among the states.

Three of six California markets ranked in the top half of the nation’s big 50 metro areas when looking at 2021’s percentage gains in home values:

SAN DIEGO » Up $196 billion to $910 billion, a gain of 27% — the seventh-biggest surge of the 50.

INLAND EMPIRE » Up $134 billion to $700 billion, a gain of 24% — No. 14. SACRAMENTO » Up $85 billion to $469 billion, a gain of 22% — No. 17.

SAN JOSE » Up $121 billion to

$867 billion, a gain of 16% — the No. 32 ranked surge. LOS ANGELES-ORANGE COUNTY >> Up $431 billion to $3.27 trillion, a gain of 15% — the No. 38 ranked surge.

SAN FRANCISCO >> Up $228 billion to $1.95 trillion, a gain of 13% — the No. 44 ranked surge.

Glass half-empty

But over the previous nine years, California gains were smaller but ranked far higher on the national scoreboard.

California values averaged $460 billion in annual increases between 2011-2020, growth equal to 8.7% a year and the nation’s eighth-fastest surge.

And every California metro area was in the top half of the national rankings:

SACRAMENTO >> $25 billion average gains from 2011-2020, an annualized growth rate of 10.3% — the fifth-biggest surge of the 50.

SAN JOSE >> $47 billion a year, No. 9 growth of 9.9%. SAN FRANCISCO >> $108 billion a year, No. 11 growth of 9.7%.

INLAND EMPIRE >> $35 billion a year, No. 13 growth of 9.3%.

SAN DIEGO >> $43 billion a year, No. 20 growth of 9%. LOS ANGELES-ORANGE COUNTY >> $160 billion a year, No. 23 growth of 8.1%.

Another view

California home prices were 5% to 9% too high in the third quarter, Fitch Ratings says.

Overvaluation means prices are slightly above what the Fitch formula sees as supportable in terms of demand, jobs and pay. That risk assessment declined from California’s 10% to 14% overvaluation in the previous quarter, but it’s up from a “sustainable” level — between 4% too high and 4% too low — in the third quarters of 2020 and 2019.

U.S. prices were seen by Fitch as overvalued by 10.6%.

Bottom line

California housing gains being outpaced by many

U.S. markets last year modestly narrows the affordability gaps between regions. But is this “underperformance” — that assumes rising values are good — a sign of California economic stress or falling desirability of the state as a place to be a homeowner?