This article was published on: 10/3/2006

San Jose ranks high in percentage of owner-occupied homes
FREMONT, REDWOOD CITY ALSO HAVE HIGH PERCENTAGES
By Sue McAllister and Mike Swift
Mercury News

Despite facing some of the highest home prices in the country, more San Jose residents own their homes than do people in almost any other large American city.

In 2005, 61 percent of households in San Jose were owner-occupied, according to data scheduled for release today by the U.S. Census Bureau.

That's a higher portion than in places like Dallas, Philadelphia or Phoenix, cities where median home values last year ranged from $100,000 to $184,000 -- a fraction of what buyers paid last year for basic three-bedroom ranch-style houses in San Jose.

But even in San Diego, which had a hefty median home value of $567,000, just 52 percent of residents own their homes, according to the census bureau's annual American Community Survey, which solicited responses from about 3 million households and covers cities with at least 65,000 residents. Nationally, the home ownership rate last year was 66.9 percent.

With a basic home in San Jose worth $625,400 last year, according to the new data, how did San Jose become such a relative bastion of home ownership?

''It's almost an accident of boundaries,'' said Hans Johnson, a demographer and housing expert at the Public Policy Institute of California. The city of San Jose includes wide swaths of suburban neighborhoods, Johnson explained, where development of single-family tract homes was prevalent in the years the city was expanding. More often than not, homes in those neighborhoods tend to be occupied by owners, not renters.

By contrast, some of the other large cities on the list, like San Francisco, Chicago and Detroit, have greater concentrations of apartments -- and therefore renters -- within their boundaries.

The other factor driving up home ownership here: San Jose's median household income in 2005 was $70,921, higher than any other large city in the country, according to the survey.

High incomes are associated with home ownership, Johnson said, and that factor combined with the suburban nature of the city ''together make San Jose stand out even more'' in terms of home ownership, Johnson said.

Still, homeowners here are paying plenty for the privilege of owning their chunk of the American dream.

San Jose homeowners who had mortgages paid a median of $2,409 a month to own their homes last year, up 9.7 percent from the year 2000. The amount includes costs for mortgage payments, insurance, property taxes and any home equity loan payments. Among owners in large cities, only San Franciscans had higher costs, at $2,558 a month. That was a 19.6 percent increase from 2000.

The survey showed that from 2000 to 2005, when adjusted for inflation, median home values in San Jose rose 46.9 percent, to $625,400 last year. In San Francisco, last year's median home value was $726,700, up 51.7 percent in five years when adjusted for inflation.

During that time, however, the rent that San Jose residents paid dropped 9.4 percent, to a median $1,153 a month. The drop in rents was consistent with the faltering Silicon Valley economy during much of that time, Johnson said.

''This was a period in California and in San Jose when a lot of people were trying to get into home ownership,'' he said, which both helped drive down rents -- as did significant job losses -- and bolstered home ownership. Afraid that low interest rates wouldn't last and rising prices would push ownership forever out of reach, record numbers of residents bought homes. Some real estate experts theorize that the 2006 real estate market feels so slow because so many people bought ''ahead of schedule'' in 2004 and 2005 when borrowing rates were exceptionally cheap.

Only two large U.S. cities beat San Jose for home ownership rates. In Jacksonville, Fla., 64.2 percent of residents owned their homes, and the median home value was $144,600. And Indianapolis squeaked past San Jose with a figure of 61.6 percent home ownership -- and a median home value of about $118,000.

Among smaller, local cities represented in the survey, Fremont had 67.1 percent owner-occupied households in 2005, while Sunnyvale had 49.1 percent and Redwood City had 54.7 percent such households.

The American Community Survey data provides a fresh, comprehensive look at what has happened in hundreds of the nation's housing markets since 2002. Though the housing market has cooled in 2006, the new figures put the tremendous run-up in prices in California over the past five years in context with the rest of the nation.

Adjusted for inflation, median prices in that period grew in the United States by 32 percent compared with 112 percent in California.

The census data is based on a national survey of what people estimate as the value of their own homes, so it differs from data on actual sales that is regularly reported to local governments or the real estate industry.

Demographers and economists say housing prices are not only a measure of economic success but a powerful social force as well. Costs lead people to commute ever longer distances in search of affordable housing and quality of life. But they also contribute to migration out of California, experts say, as people cash out equity and move to lower-priced states.

Sean Randolph, president of the Bay Area Economic Forum, said that in a highly educated, high-technology economy like the Bay Area's, soaring housing prices can drive away the most talented scientists, engineers and executives.

''A couple of years ago, if Stanford or Berkeley made you an offer, it was a no-brainer. Now they lose faculty to much less prestigious places that cost less to live in,'' he said.

Meanwhile, affordable housing advocates point out that higher apartment and home prices prompt moderate-income workers to migrate to the Central Valley or double-up in a home with another family to afford Bay Area rents.

Buying a home? ''It's not even an option anymore'' for many moderate-income families, said Lynn Martinez, a housing attorney in the Bay Area offices of the Western Center on Law and Poverty. Home ownership ``is no longer the American dream for most low-income families.''