Stockton: The Last Bastion of Housing Affordability in California

[Wes Blackwell]

After my most recent post on Realtor.com projecting Stockton to be the #4 metro market in the nation in 2018, I've received the same question over and over and over again:

"But WHY Stockton? What's so great about it? Are there great schools? Major employers in the area? I just can't see why people would move there..."

After answering this question a million times, I thought I would write a post about it to explain thoroughly WHY Stockton will be the #4 metro market in the nation for 2018, even if it doesn't have all the cool stuff that bigger and fancier towns do.

Put simply: Stockton is the last bastion of housing affordability in Northern California. Period. 

Let's imagine a hypothetical scenario... (which isn't so hypothetical when you realize it's happening by the thousands).

Let's say you're a millennial in your late twenties living in your parent's basement in the Bay Area... and your girlfriend gets pregnant. 

Think that basement is gonna fly with baby momma? NOPE!

"When Pregnant Women Attack"

So, you want to get a home so you can provide a safe haven for your family... but only 25% of homes in the Bay Area are priced less than $500k and they're in the ghetto... and you only qualify for $250k anyways.

Sooooooooo... Where Do You Move To?

Sacramento? Well, Sacramento's median home price is $350k so you're not getting much there... it's doable, but you'll have limited options. Only 15% of homes in the last three months sold for $250k or less.

You can't go Northwest to Napa and the rest of the wine country, you'll pay the same as Bay Area if not more. 

Can't go up to Yuba City... too damn far and it's a little podunk town anyways. Too much of a change from the big city you're used to. And there are only 20 homes currently on the market at $250 or under... so once again, little selection. Also no jobs.

Modesto? Affordable, but not enough jobs either. No job = no move. While Stockton may make the headlines for bad crime, according to NeighborhoodScout.com 97% of communities within California have a lower crime rate. So Baby Momma ain't too keen on Modesto either.

Fresno? Too damn hot and too damn far. It's a 3 hour drive without traffic, and I'm not joking about the heat. On average in the summer it's 25 degrees hotter than San Francisco. Someone who's lived all their lives in the Bay Area is going to head out there and have a heat stroke.

So Stockton it is. 

It's all driven by housing affordability and millennial migration.

People buying their first home don't give a crap about nice schools and hip neighborhoods if they can't afford to live in them. Plus even if you can buy in the Bay Area great schools aren't guaranteed when you go down to enroll your kid and find out the school is overcrowded and you have to send them somewhere else.

I know they'd much rather stay where they are, but most simply can't afford to. It's just not an option.

"Those with the gold get to choose." And yes, they will choose to remain, or head to Oakland as the last resort. 

But many, can't. Plain and simple.

Happy Wife = Happy Life

And I'm not kidding about new families having a MAJOR impact on housing trends and migration. 

Here's two examples from previous clients to give you an idea of what I'm talking about.

#1) Young couple from San Jose. Late twenties. Engaged. 10 month old daughter. When they're visiting the grandparents in San Jose, they're staying with his parents. When they're visiting the Grandparents in Elk Grove so they can see the baby they're staying with her parents. Now tell me how long you could do that before one of you goes insane.

#2) Well-to-do married couple living in San Francisco. Early 30's. Both work in tech. Happy renting in a one bedroom apartment in the city core for $3,300/mo. But guess what? Bun is in the oven. Suddenly a swanky Bay Area apartment doesn't seem as a appealing when you throw a baby in the mix. Lifestyle change = living situation change. 

And that's happening all over the Bay Area as more and more millennials are finally swiping right on Tinder and matching with their soulmate :-P They shack up, sleep in the same bed, one thing leads to another and presto... you've got children.

When that happens, baby momma wants a home to nest in, and doesn't care about being in the city core close to the hip Thai-Mexican fusion restaurant. She wants a home. She wants a safe neighborhood. And all for her first-born child.

But oh whaddaya know that costs over a million dollars in the Bay Area so good luck finding that when your generation got screwed right outta college with the worst recession in years and you got a late start in life which is why you're still living in your parent's home in the first place.

Lifestyle Change = Living Situation Change

And so... they look for more affordable pastures: 

In the Bay Area (Oakland) if they can afford it, in Sacramento if they can afford it, and in Stockton if it's all that's left.

And for many, that's the case.

So for all you investors, don't assume that the average person making the move is someone with a bunch of options like you. 

ln Alameda and Contra Costa counties, $80k per year for a family of four is considered low income. While that's nearly double the median household income in Stockton. 

If that family can find a job, or find a way to commute, they're moving.

They don't give a crap about Stockton's reputation... they don't give a crap what school district they land in... 

All the Mrs. cares about is finding a nice home in relatively safe neighborhood so she can protect her child.

Or they don't, and Mr. Husband gets to be the bane of holiday dinners and family get-togethers where her old school grandma tells everybody he's a dead-beat loser and that she should find someone better who can provide a home for her newborn child :-)

"Get a job you deadbeat!"

(Last Christmas one of my cousins was playing kissy face in the corner with her high school boyfriend and my grandma rolled over in her wheelchair, smacked her on the leg, and told her to have more respect for herself and stop being such a hussy! LOL you can always count on Grandma to tell it to you straight!)

Living in your parent's basement or sharing a flat with 3 roommates might have been cool when you were single, but it's certainly not cool when you're pregnant.

I know, this all seems like "Baby, baby, baby ohhhhhh" but you should realize that a woman's brain actually undergoes physical changes after having children and those changes last for at least 2 years after giving birth.

The average age women have their first child is 28... and the biggest section of millennials turns 30 in 2020 (over 4.6 million, with over 4 million per year till then)...

Soooo, based on my calculations, we're due for another Bay Area Millennial pregnancy right about... now?

[Tristan Escove]

As a Realtor based in Stockton, and a resident of Stockton for 28 of my 32 years of living, I can provide some good insight to the whole Stockton situation.  Stockton's housing market is booming! There isn't a ton of inventory of homes in Stockton compared to the number of buyers spilling over from the bay area into the central valley. . As a result homes are selling fast, and selling at or over ask much more often than not.   Roughly 80% of buyers I represented last year came from the bay area, and about the same percentage of buyers of my listings came from the bay as well.  Barring any sudden turn to the countries economic situation, this trend does not look to be slowing down.  

Management of the city itself is still an issue that does not appear to be going away. However, as a long time resident of Stockton, I know where the good areas are, and it's not too difficult to stay clear of violent crime, but it's also easy to find if you're looking for trouble.  With that said, overall crime is still just as large of an issue in Stockton as it was during the significant police layoffs that occurred during Stockton's bankruptcy.  New ideas are being implemented by the current mayor/ city counsel, and only time will tell if the new policies will yield a positive impact.

Back to the efficacy of investing in Stockton.  Stockton has many different investment plays available.  Fix and flip opportunities are just around many corners of Stockton, but of course the best opportunities are found before those fixers hit the market.  So if you are a street sweeping, door knocking, owner tracking hustler, you can really find fantastic off market opportunities, fix and sell quickly in this market with low inventory and plenty of buyers to leverage against each other.  These same hustlers also make great wholesale deals as well as there are plenty of fix and flip investors starving for opportunities to swing their hammers.  Skyrocketing rental rates are also rampant in the central valley, with Stockton being no exception, making for solid rental cash cow opportunities.  Combine this with income properties that have been neglected by both tenants and owners (fairly common in Stockton) and you can find deals with instant equity and solid cash flow.  All of this is much easier to type than actually execute, but it is all possible, and is being done.  

As for the downtown area of Stockton...... I absolutely love much of the architecture of the older buildings there, but..... There are multiple issues to deal with downtown.  Along with crime, the homeless situation is just as prevalent as ever, and is something businesses downtown will have to work with.  Another issue currently being brought to Northern California's attention is an aggressive code enforcement department which is actually a part of the police department in Stockton.  Code enforcement should be an entity present to help ensure the safety of the public, but many investors will attest that the enforcement of this department seems to be highly selective on who receives their attention, and let's be honest, what building erected in the early 1900's isn't going to have some code violations today?  Furthermore, once you do receive their attention, you may just have to get used to their presence for a long long time.  I personally had two nice commercial transactions in prime locations downtown between the movie theater, city hall, the new ballpark and arena killed by the City of Stockton.  These were properties built in the 1920's and hadn't been renovated/ maintained much if at all since their completion (conditions fairly easily found downtown.)  Naturally, these properties had a litany of code violations, and the city was applying great pressure on the owners to sell, going so far as taking the owners to court for maintaining a nuisance, and having the owners enter into a plea agreement to transfer ownership to new owners within 90 days.  After successfully finding a buyer who was offering a fair price for the challenges they would face upon purchasing these properties, the city ultimately killed the transactions by simply refusing to provide the payoff amount for the code violations fines that accrued on the properties to the title company.  Without payoff amounts for these code violations fines, the title company could not close escrow.  Instead the city elected to hire attorneys from Irvine to represent the city in an attempt to seize control of the properties through a legal mechanism called "receivership," or have our buyer enter into an agreement with the city to completely rehab these dilapidated properties, within 30 days, and to lose control of the properties if they fail to complete the total rehab within said 30 day period.  What a joke..... Sadly, this was what happened.

With that said, there are plenty of opportunities to make money on real estate in Stockton.  Fix and flip, wholesale, buy and hold, and cash flow can all be found in Stockton. There are nice areas of Stockton to even move to and live in.  Simply find someone who can help show you around.  I absolutely love the wide variety of cultural restaurants we have, and am currently enjoying dance lessons with incredibly fun people who were complete strangers just a couple months ago.  Our downtown movie theater is up to date, and there are lots of fun community events throughout the year, that can be found on social media platforms.  Some gems of Lincoln Center, Miracle Mile, UOP, boat access marinas to the delta, golf courses, country clubs, and more. Stockton has a lot to offer, and it is too bad that all anyone hears about it is negative.