California Home Values Rise Sharply Across Most Counties, Less So in Major Metros

California’s home prices are soaring, fueled chiefly by low interest rates and pent-up demand. But the growth has been geographically uneven. Many real estate analysts have proposed that, over the course of the COVID-19 pandemic, homebuyers’ preferences have shifted away from high-density urban living in favor of lower-density cities and suburbs. If true, which counties have seen the largest shifts in demand?

To answer this question, RDN analyzed the latest available county-level data for the Zillow Home Value Index (ZHVI), which  tracks changes in the value of a typical home over time across a given region and housing type. Increases in real home values indicate demand for homes is increasing relative to the supply of housing put up for sale. The ZHVI data show that, while home sales and values fell sharply at the outset of the pandemic in the first quarter of 2020, the market quickly recovered. Prices have since surged to new all-time highs.

But this growth is marked by regional differences. To illustrate, RDN calculated where the change in existing single-family home values from 2020 to 2021 April-to-April show the greatest deviation from their historical average annual growth rate (AAGR) for the same period in the five years prior to the pandemic (2015 to 2020). The resulting “percentage point difference” indicates which counties grew the fastest or slowest relative to their recent historical trend. The map below shades California counties by the size of these differences. Statewide, home values in California increased by an average of 11.5% between April 2020 and April 2021, compared to an average of 4.9% per year between April 2015 and April 2020, for a net deviation of +6.6 percentage points.

Demand Is Shifting From Urban Centers to Surrounding Areas

(Click county to see respective percentage point difference; Note: Tuolumne County data only goes back to 2017)

In Northern California, Mendocino and Lake Counties north of the Bay Area and in the East Bay out towards Lake Tahoe show growth rates in home values that are over 10 percentage points higher than their recent historical trends. In contrast, Santa Clara, San Mateo, and San Francisco counties all grew at lower rates in 2020 than they did between 2015 and 2020. Home values even decreased slightly in San Francisco. These data support the idea that households are moving out of the high-density (and high-priced) areas to buy more suburban or rural, and often cheaper, properties in outlying areas. This is especially true for areas with easy access to outdoors activities, such as Tahoe and Big Bear. According to the 2020 Annual Housing Market Survey by the California Association of Realtors (CAR, 2020), “quality of life” is now the main factor affecting homebuyers’ housing choices, even ahead of affordability. With work-from-home policies making commuting less of a concern, buyers are opting for single-family homes with more space, more rooms, and easier access to the outdoors (CAR, 2020).

We see similar though less extreme difference in Southern California. Densely populated Los Angeles and Orange County only outperformed their previous five-year average growth rates by about 5.0 to 7.5 percentage points, whereas the surrounding counties did so by at least 7.5 percentage points. Here too, households appear to be opting for larger, cheaper homes.

An increase in demand, supply shortages, increased investment activity, and low interest rates have contributed to a property value boom across California through the last three quarters of 2020 and the first quarter of 2021. The pandemic made this value increase especially pronounced for those counties that are still in the general vicinity of major urban centers, but offer lower prices, more space, and more nature. A shift to working from home has made those locations more attractive and reasonable to live in. Even a longer commute to the office is bearable, if it only is required one or two times a week.

If the digital and physical infrastructure can sustain such a development, we might see a continued shift towards less urban counties. More generous zoning laws and lower construction costs might also indicate a future surge in building activity in those counties, and thus an increase in supply. Such a development might lead to a relaxation of property values in urban areas, as demand decreases due to the emigration from urban to more rural counties.

(See our interactive table below to explore home value development for all California counties)

Development of Home Values Across All California Counties

(*Note: Tuolumne County data only goes back to 2017)