Dramatic changes can be needed to repair California's home affordability mess.
My trusty spreadsheet compared housing price appreciation to income growth for ten major California metro areas using housing indexes from ICE, a mortgage technology company, and salary statistics from the U.S. Bureau of Economic Analysis.
First, consider the estimated median home payment for these California metro areas.
In 2018, payments for the everyday $509,400 home purchase were $2,020 per thirty days with a mean mortgage rate of 4.3% and a down payment of 20%.
That was 22% of a typical house hunter's income of $109,100, including dual earners.
Then think in regards to the payment for today's median-priced home of $759,500. The payment doubled to $4,000 per thirty days with an rate of interest of 6.9%.
The mortgage now eats up 32% of the $148,500 income, which has increased 36% in six years.
So what wouldn’t it take to bring this payment burden back to pre-Corona levels?
Interest rates would should fall to three.5%. Incomes would should increase by 50%. Or prices would should fall by 33%. Or a mixture of the three.
This lack of affordability is why a 3rd fewer homes are being sold in California this 12 months than in 2018.
How did we get here?
Remember, the housing market was upended throughout the pandemic by several things: demand for more housing, mortgage rates below 3%, and stimulus packages that boosted incomes.
Now let's have a look at how six years of home value appreciation through October contrasts with rising per capita incomes within the six years to 2023.
In eight of those ten Californian metropolises, real estate prices rose faster than incomes. Here's how they ranked by distance…
Bakersfield: 63% increase in home value in comparison with 29% growth in income.
Domestic Empire: 65% home equity gain versus 37% income growth.
San Diego: 66% home ownership gain versus 39% income growth.
Fresno: 60% home equity gain versus 33% income growth.
Ventura County: 51% home ownership gain versus 36% income growth.
LA-OC: 50% home equity gain versus 39% income growth.
Sacramento: 46% home equity gain versus 35% income growth.
Stockton: 50% home equity gain vs. 45% income growth.
And in two California metropolitan areas, incomes exceeded housing prices…
San Jose: 34% home gains, exceeded by 54% income growth.
San Francisco: 26% home gains, exceeded by 46% income growth.
Glimmer of hope
A bit of fine news for home buyers: appreciation is decreasing.
Price increases within the 12 months to October were significantly lower in all but certainly one of the ten metropolises than the pace of appreciation over the past five years.
San Diego experienced the most important decline, with prices rising 3.2% last 12 months, in comparison with an annual average increase of 9.9% between 2018 and 2023. That represents a decline of 6.7 percentage points.
San Jose was the one place with out a decline in appreciation. The 5.1% annual increase was barely higher than the 5% annual increase in 2018-23.
Here's how the nine other metropolitan areas fared, in line with ICE Math, sorted by appreciation chill…
Domestic Empire: Annual gain of three.5% versus average annual increases of 9.8% in 2018-23 – 6.3 points cooler.
Sacramento: 1.7% annual gain versus 7.5% annual gain in 2018-23 – 5.8 points cooler.
Bakersfield: Annual gain of 4.1% versus annual gain of 9.4% in 2018-23 – 5.3 points cooler.
Stockton: Annual gain of two.9% versus annual increase of seven.9% in 2018-23 – 5 points cooler.
Ventura County: 3.3% annual gain versus a 7.9% rise in 2018-23 – 4.7 points cooler.
Fresno: Annual gain of 4.2% versus annual gain of 8.9% in 2018-23 – 4.7 points cooler.
Los Angeles-Orange County: Annual gain of three.9% versus annual increase of seven.7% in 2018-23 – 3.7 points cooler.
San Francisco: Annual gain of 1.3% versus annual gain of 4.4% in 2018-23 – 3.1 points cooler.
But lower home price increases are in no way a cure, because “affordability” actually means lowering prices.
Originally published:
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