Some people don't have the option to fill every room in their house with a tenant, or want to put up with having to live with their tenants (if it's their first home).
I actually do think places like Stockton, Sacramento, Las Vegas, and Atlanta have had prices come down far enough that they have hit rental parity even with less than 20% down. That doesn't mean there isn't some downside risk to losing what little equity someone might have with only 3.5% down, but if the property is at rental parity, then I guess it softens the blow somewhat.
Also add to the fact that none of those locations are prime locations for RE, and it shows in their prices as well. West LA, South OC, and Santa Clara County are for the most part far, far away from Sacramento price wise.
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