Lacking lures found elsewhere, the North State has long viewed itself as distinct. A sort of under-the-radar California. Sure, our surf breaks are behind boats, and we lack movie moguls and high-tech business parks, but we’re not choking on traffic, and most are winning the struggle to keep a roof over their head. Though some of that may be changing.
After a wave of real estate speculation crested then crashed into reality a decade ago, home prices across the North State have largely recovered their pre-crash peaks in recent months. Mostly, these quick-rising home prices are a boon to those who bought earlier and economists say they boost confidence, but they’re also a double-edged sword. And some of the growing pains are starting to hurt.
On a recent Saturday Rikki Lee Burresch was making the rounds of open houses. So far, she’s a bit underwhelmed.
"I feel like I have a really good job, but I can only afford a house that's, you know, that isn't going to be able give me what I need."
“I feel like I have a really good job, but I can only afford a house that’s, you know, that isn’t going to be able give me what I need,” Burresch said.
With a job in Gridley, a husband in law school, three children and two big dogs, Burresch may have to revise her wish list.
“We really would like to have a four-bedroom house, and that’s hard to find in Chico,” she said. “It’s very important to my husband to not live in cookie-cutter houses, and he wants an area with established trees and unique-ness, so finding a four-bedroom in our price range in a neighborhood we like that fits that criteria has been very difficult, but we’re still looking and hoping, and hoping something will come up, but we’re just average people and we don’t have half a million dollars for a house so, we’re just trying to find something that works for us.”
A bedroom shy of ideal for Burresch, the 1,500-squar-foot, early-60s home she toured is offered at $285,000 — that's less than the median-priced home bought in Chico in October, but more than the median for Butte County as a whole. The median-priced home means that half of the homes sold for more and half for less. It’s considered more accurate than an average price which can be influenced by a small number of very pricey or very inexpensive sales.
Several years ago, that $285,000 price tag Burresch was looking at would have bought more house.
There are plenty of reasons fueling a rise in the region’s home prices. The broader economy is growing at a good clip, more people are working, and mortgage rates continue scraping all-time lows.
Experts also point to another trend. Insane Bay Area real estate prices have been pushing businesses and home buyers eastward for decades. Nearly continuous strings of suburbs now line major highways from San Francisco to Stockton and Sacramento.
Ioannis Kazanis is a spokesman for the North State Building Industry Association, the local branch of a national trade group of home-builders.
“A lot of people are looking at Sacramento and saying, ‘You know what? I can get more bang for my buck in Sacramento, so I can sell, perhaps the smaller home that I live in, in the Bay Area and come and get something bigger, with some land attached to it in Sacramento,’” Kazanis said.
That’s having a knock-on effect — pricing more modestly paid families out of Sacramento and its established suburbs like Folsom, Roseville and Elk Grove. Some of those people are now looking north.
While so-called green lines prevent homes from sprouting up in northern Sacramento County, development is leapfrogging. In southern Yuba County an entirely new town — Plumas Lake — has been conjured in recent years as if from nothing. And the demand for affordable housing is reaching even farther north.
Leslie Swaner, a longtime realtor in Willows, says that the last two homes she sold were to young couples planning on commuting to Sacramento. She says traffic is so bad in the capital region that a friend sold in Sacramento County, bought and moved to more affordable Colusa without increasing their commute time.
And Sacramento isn’t the only commuter destination for people buying in the North State. She says a good number of buyers in Glenn County —particularly in Hamilton City and Orland — commute to Chico for work.
Jordan Levine is an economist with the California Association of Realtors. He says the rising prices of homes come with a cost.
“The price growth of double digits in some of these markets is great for those folks who already own homes and own property in those areas, but unfortunately wages are growing nowhere near double digits, and so, again, folks who haven’t got their foot on the property ladder continue to fall farther and farther behind the eight-ball if you will,” he said.
Meanwhile, some people who have done well betting on California real estate as an investment, see opportunity in the North State.
"Folks who do live in some of these very high-priced markets look at prices in places like Chico and up in Shasta and say things are very affordable, so what happens is that you get those high-income earners who come in and also push up prices in the local market."
“Folks who do live in some of these very high-priced markets look at prices in places like Chico and up in Shasta and say things are very affordable, so what happens is that you get those high-income earners who come in and also push up prices in the local market,” Levine said.
But a rising tide can only lift boats so far.
Data from the California Association of Realtors suggests something of a split in terms of real estate prices. Two years ago, the median sales price of existing homes sold in Shasta and Butte counties — the most populous counties in the North State — were just over a thousand dollars apart. Last month, Shasta’s median was $250,000 — rising almost six percent over two years. In Butte County, the median surged 34 percent over the same period. Double digit annual increases also occurred in Nevada and Plumas counties.
“I think you’re seeing some of that two-step there where you’re getting some people who are priced out and places that used to be more outlying areas or quote-unquote bedroom communities and those folks who used to live in those bedroom communities are finding themselves being priced out to being even farther and farther away,” he said.
Though prices appear paramount in terms of affordability, they are only one piece of the puzzle. Supply and demand, interest rates and incomes are just as important.
Builders blame cities and counties for crimping construction, saying impact fees and regulations add delays and costs. Local governments counter that they’re required to identify sites for enough new housing to accommodate growth and in turn point to risk-averse bankers and other market forces.
Interest rates are often hugely important for individual buyers. Along with the size of a down-payment, they determine whether a home is affordable.
Say for example, you had $50,000 available to put 20 percent down on a $250,000 median priced home in Shasta County. You still have to borrow $200,000. At current rates, a bit below four percent, the monthly payment for principal and interest along with a ballpark figure for property taxes and home insurance, and your monthly is just shy of $1,250.
But, if mortgage rates were closer to where they were 15 years ago — seven percent, you’d be looking at nearly $400 more, or $1,630 a month.
Historically, seven percent was considered a great interest rate for 30-year mortgages — the most common type. But rates have been well below seven percent for more than a decade now. Again, those lower rates mean smaller monthly payments on the same amount of borrowed money. While that makes housing more affordable, it also fuels speculation, which can drive up prices if enough people jump on the bandwagon. A certain amount of that happened in Chico recently as housing prices and interest rates bottomed out.
Opportunities for investors remain, but Randy Young, a realtor with Anderson Real Estate Sales, said their strategies have changed.
“I’m not seeing a lot of flipped houses as much anymore, because you’re not getting those sweet deals where you can buy one of these type houses for $175, put $80,000 into it and sell it for close to $3,” he said. “If you want to buy, you can still turn it into a profitable rental.”
Income is of course, the other main component. And it’s one of the big hurdles facing the North State in terms of affordability.
Built on logging, mining and farming, recent decades have been tough on the regional economy. Easily extracted resources are mostly gone. Environmental regulations have placed limitations, while mechanization and automation mean more work is handled by fewer hands.
Ryan Miller is a project manager at Center for Economic Development, and an instructor in the Geography and Planning Department at Chico State.
"We're still looking at kind of the decline of manufacturing, the decline of a lot of the natural resource jobs that might have been contributing to these higher incomes back in the '90s or early 2000s."
“We’re still looking at kind of the decline of manufacturing, the decline of a lot of the natural resource jobs that might have been contributing to these higher incomes back in the ‘90s or early 2000s,” he said, “and if you look at the main, really drivers of the economy today, it’s health care and education, which tend to be fairly stable. So, while there are some higher income jobs in the North State, outside of health care, these aren’t really growing industries.”
While the median household income across the nation is $55,322, in California as a whole it tops $63,783. In the North State, median household incomes range from a high of $54,946 in Colusa down to $35,270 in Trinity County.
When purchasing a house, financial planners routinely suggest limiting your housing costs to under 30 percent of your income. Ideally around a quarter. Spending much more than that can leave you financially vulnerable should you suffer an illness, layoff or even an expensive car repair. That guideline is also well known by financial institutions, which is why you’re credit card has a limit and why mortgage lenders demand so many documents and typically limit what they’re willing to lend out.
But wages are lagging in the nation, state and locally, meaning cobbling together a down-payment large enough to avoid getting stuck with a higher interest rate, private mortgage insurance or resorting to a risky adjustable-rate loan is an obstacle for many would-be buyers. As is reaching that suggested 30 percent income threshold. With home prices mostly on the rise, wages generally stagnant, and interest rates having nowhere to go but up, housing affordability is likely to continue being an issue throughout the North State.
