Do we have any cheap housing? Even SLO County’s smallest, farthest places are out of reach

Where has all the cheap — or at least cheaper — housing gone?

That’s the question at the top of the minds of buyers and renters alike in San Luis Obispo County — including parts of the county historically considered to be less expensive.

Communities such as San Miguel, Shandon, Oceano, Grover Beach, Atascadero, Nipomo and Los Osos — which were considered relatively affordable to young families prior to the COVID-19 pandemic — have been subject to the same price hikes as the rest of the county, even exceeding rates of increase in San Luis Obispo and Paso Robles, the county’s two largest cities.

Michael Massey, an RE/MAX Realtor based in Templeton and founder of the pro-housing group Generation Build, said prices in most of San Luis Obispo county’s smaller communities have risen by around 40% since the start of 2019.

With prices creeping out of range for many buyers, Massey said the group likely to be hit hardest is young families looking to get into their first homes, as many of the county’s smaller communities have historically been hotspots for families taking their first step into home-ownership.

Though sellers will be just fine even in a market with inflation above 8%, “it’ll be tougher to get into for those first-time homebuyers, and the average age will continue to go up,” Massey said.

What happened to home prices?

Simply put, prior to the rise of interest rates in late 2022, most San Luis Obispo County home markets experienced a massive spike in transactions in 2021 and 2022, Massey said.

The initial years of the COVID-19 pandemic saw some of the highest year-over-year price gains in most markets, as potential buyers living in lockdown with more time and money on their hands seized the chance to get a change of scenery, Massey said.

“We’re seeing people just being priced out of these markets,” Massey said. “San Miguel has always been kind of a first-time homebuyer market — you could get three-bedroom or four-bedroom, two-bath place there historically for $350,000 or $425,000 or so just a few years ago, and now those homes are going to be $525,000, $550,000 or $600,000.”

Higher-income earners who left behind urban hubs such as the Bay Area can easily out-compete local workers and salaries, Massey said, leaving local first-time homebuyers with few options.

“In 2022, my average client was either retiring young, was cashing out in the Bay Area or L.A. and was cashing out big time,” Massey said. “About a third of the deals I did in 2021 were second homes, Airbnbs or vacation homes. People just had a ton of money.”

Signs of rising inflation started last year in March, when 30-year fixed-rate mortgages climbed north of 4% and then began to pump the brakes on the red-hot post-pandemic housing market in the fall when rates passed 6%.

In 2023, that trend has largely persisted, with interest rates at or above 7% becoming the norm, Massey said.

As a result, high-income buyers are some of the only people willing to foray into the financially tight housing market that has persisted since late 2022, Massey said.

The buyers who can push through the high monthly payments must make a minimum of $220,400 a year to afford a median-priced house in the county at $880,000, according to the California Association of Realtors’ most recent quarterly home affordability report.

To put that in perspective, the median household income in San Luis Obispo County is around $82,514, according to the 2020 U.S. Census.

Across the county, just 11% of San Luis Obispo County residents could afford a median-priced home in the second quarter of 2023, according to CAR’s report, which indexes a county’s median annual income against the median price of a home.

Where has median price grown most in the past 5 years?

Atascadero and Paso Robles, which historically have both been cheaper than most other incorporated San Luis Obispo County cities, saw large median price spikes between the first financial quarters of January 2018 and 2023.

The median home price in Atascadero reached $781,100 in the first quarter of 2023 — a 47% increase over the first quarter of 2018’s median price of $531,700.

The median price in Paso Robles, the least expensive incorporated city in the county, grew to a lesser extent over that time frame, rising 34% to $658,000.

The county’s largest population hub, San Luis Obispo, saw the median price rise 30% over that time, from $782,000 to $1.02 million.

However, no incorporated city’s median home price grew more in the past five years than Grover Beach, where prices rose 50% from $510,000 in the first quarter of 2018 to $710,870 in the first quarter of 2023.

In unincorporated communities, the story was different, with median price increases ranging from Cayucos’ moderate 12% increase over the past five years to Cambria’s 84% price spike over that time.

The median price in Cambria paced all San Luis Obispo County communities, jumping from $587,000 in the first quarter of 2018 to $1.08 million in the first quarter of 2023.

Prices in San Miguel rose almost as much, though on a smaller scale, spiking from $370,000 over that time frame to $675,000, or an increase of 82%.

The North County’s southernmost community, Santa Margarita, saw its median price perform similarly, rising by 77% from $465,000 to $825,000 over that time.

Shandon, another historically less expensive place to find a home, experienced a 59% increase in median price over the past five years, from $305,000 to $485,000, while in Nipomo, home prices rose by 59%, from $650,000 to $1.03 million.

Rents becoming unattainable in SLO County

Anthony Aurignac, vice president of ERA Management, said rents across the county also are being pushed upwards by rising home prices and low inventory.

When residential inventory runs out, prospective buyers are forced to rent, he said.

“It’s a bit of a catch-22 — if you want to be a homeowner, you either have to bite the bullet or leverage yourself in order to purchase a home, or you have to go into the rental market, which is very tough,” Aurignac said. “There’s not a lot of options, so you start to see a ton of applications rolling in the door.”

Over the past three years, Aurignac said nearly every city and unincorporated community in San Luis Obispo County has experienced a rent increase of around 10% each year.

That compounded 30% rent increase over the past three years has made renting an even more daunting prospect than before, he said.

If a household is supposed to spend no more than 30% of its income on rent, that means a household making median income in San Luis Obispo County should spend no more than $2,062.

Just one place in San Luis Obispo County — Shandon, with a median rent of $2,000 — fits the bill of the “30% rule” for median-income households, according to Zillow.

For context, California’s median rent price of $2,920 falls somewhere in the middle of San Luis Obispo County’s median rent, ranking above Santa Margarita, Templeton, Paso Robles, Atascadero, Grover Beach, Oceano and Shandon, according to Zillow median price data.

“I tell people, ‘Oh, you’re having trouble buying a home? It’s even harder to find a rental right now,’” Massey said. “The rule of thumb is always a third, so if you’re spending $2,500 for a studio or one-bedroom, you’re ideally making $75,000 a year, and there aren’t a lot of jobs (here) that pay a lot of people $75,000 a year.”

Where are homebuyers going?

Massey said the county’s largest and most desirable cities, including San Luis Obispo, Paso Robles and Pismo Beach, were among some of the first to be affected by the influx of new buyers.

Once the most well-known destination cities hit their capacity and inventory dried up, smaller cities and unincorporated communities began to fill as buyers who couldn’t get into their goal city opted for the lower prices and higher availability found elsewhere in the county, he said.

An increase in a community’s average age over time is one result of this buying frenzy, driven by a recent spike in families moving away from San Luis Obispo County in recent years, Massey said.

Idaho, Texas, Florida and Tennessee were some of the most popular destinations among young families looking to sell their homes in 2021, at the peak of the large population declines throughout California.

In 2023, the city of San Luis Obispo was the only place in the county that gained population, rising by 1.1% from 2022 to 47,788 people.

The county lost 0.5% of its population from Jan. 1, 2021, to Jan. 1, 2023 — or 1,403 people — primarily from unincorporated communities, which lost a total of 925 residents.

Massey said considering the historical underbuilding in the county, it’ll be harder for local buyers and renters alike to stay competitive in the housing market.

“(In terms of) the health of the market, for sellers it’ll always be healthy, but for buyers it’ll be getting tougher and tougher,” Massey said. “The demand will be there for buyers. The supply won’t.”