In recent months, Central Valley housing prices have rapidly improved. In particular, Stockton has posted double-digit percentage increases in home prices over last year, better than the national average. However, new research I have done with SCL shows that Stockton’s housing market appears to be heavily driven by investors, the majority of which reside outside of the city.
Over the last six months, 46% of homes sold in Stockton were purchased by investors, while 54% were purchased by owner-occupants. Of investor purchases, 59% list tax addresses in a city other than Stockton. This analysis was conducted by assessing nearly 2,000 residential, one-house lot sales in Stockton between October 2012 and the first week of April, 2013 using data from Metrolist.
The percentage of Stockton homes being acquired by investors is much higher than other cities. In the Bay Area, about a quarter of all homes are purchased by investors, according to the San Francisco Chronicle. In Phoenix, investor purchases have fluctuated between 28% and 36%, according to the USA Today. Nationwide, the average is about 20%. Stockton clearly is an outlier in this regard.
As you can see in the charts provided, the percentage of homes sold to investors has steadily increased since October, rising from 39% to 53% over the last six months. Also, my analysis found that the share of investor purchases falls as home prices increase.
These findings are important because communities with higher percentages of owner-occupants are more stable. Research has shown that homeowners generally take better care of their property, while a higher proportion of renters often translates into poorly maintained houses and lower values for surrounding homes. This issue is particularly salient in Stockton as Councilman Paul Canepa recently commented on the need for Stockton to crack down on absentee landlords. Unfortunately, it looks as if an increasing number of homes are falling into the hands of investors who see our city as little more than a parking lot for their retirement funds.
Over half of these investors reside outside of Stockton, with the majority located in the Bay Area. While some purchases were made from addresses as nearby as Lodi, Lathrop or Tracy, there were several purchases made from all across the country, and even a couple from other countries altogether (see graphic below). Many of these investors include trusts and LLCs purchasing multiple properties.
It is important to note that this data is not exhaustive as not all home sales are listed on Metrolist. For example, homes bought at auction are not included (though these almost certainly would push the investor numbers much higher). Moreover, the data may include an address more than once, as an investor may purchase a property and subsequently flip it to an owner-occupant. Both of these types of transactions are captured in the data. It also should be noted that not all investors have bad intentions. Many investors take great care with the properties they acquire and can contribute to the stabilization of a neighborhood, especially if they are from the area.
While housing prices in Stockton have gone up, it appears that the market may be artificially driven by investor demand. Some experts fear that increased investor activity is leading to another real estate bubble. Locally, several realtors and home buyers I have spoken with over the past few months felt that the market was being driven mostly by investors making cash offers, pushing those with traditional mortgages out of the market. Unfortunately, the data I have looked at seems to confirm this suspicion. Admittedly, this analysis is not a comprehensive search of all available housing data (I would need to dive into tax records to do that). However, the data presented by Mertolist is fairly extensive, and the sample size is big enough for us to confirm that Stockton has an investor problem.