How much you need to earn to afford a $500K house in SoCal
It's probably more than you think, once you factor in student loans, car payments and credit card debt, as well as property tax and insurance.
Anyone who's in the market for a house knows it's expensive. But it's pricier now than it's ever been, according to a new report from the real estate data firm CoreLogic.
The median price of a house in Southern California is now $507,500, a new record for the area. To find out what kind of income is needed to afford a house at that price, what sorts of jobs here pay that much, and what factors are driving home prices to new heights, Take Two's A Martinez spoke with Robert Kleinhenz of Beacon Economics.
What the $507,500 median price says about the So Cal housing market
It’s been a long-awaited increase to the point where we surpassed the last peak almost a dozen years ago. It’s come at a time with the economy has shown steady improvement. We’ve got one of the longest expansions on record both locally and nationally, so the rise in the home price is in part a response to an economy that’s doing fairly well.
How much a person needs to earn to afford a $507,500 house
You need over $100,000 to afford that home, but the median household income in the region is about $68,000.
So Cal's housing market affordability will worsen in 2018
It's anything but normal. The fact that we’ve hit a new record high is actually worth noting because it means affordability is eroding and has been coming down for some time. Interest rates are decent but on the rise, so looking ahead at 2018, we expect affordability will get worse. A supply constraint is driving home prices up on the demand side.
$100,000 minimum income presumes a 20% down payment, which is also about $100,000
This assumes if you’re going to be buying a house, you’re doing so with a 20% down payment and no more than 30% of your monthly income will go to housing. This is the minimum qualifying income. If you have heavier debt load, then your qualifying income is going to have to be somewhat higher.
More than half of So Cal households spend more than 30% of income on housing
The share of households that spend at least 30% of their income on mortgages, based on American community survey data for LA County, is 50.4%. A first-time home-buying household will end up spending more than 30% because the logic is you try to get the most house you can get with your income and all your other financial factors. So for a period of time, a household is likely to spend more than that 30% on their mortgage. It’s not just the mortgage, it’s also insurance and taxes. The idea is that over time with appreciation in their home, they’ll be better off and that share will go down, because if it’s a fixed mortgage rate and fixed monthly payment, that won’t go up over time -- only property tax and insurance. And if your income goes up, that monthly payment becomes a smaller amount.
So Cal housing is twice expensive as the national average
So Cal is one of the most expensive markets in the county. The median price across the U.S. is $254,000. Our housing market is about twice that except for the Inland Empire, where home prices are much lower, but along the coast you’ve got to have at least $100,000 to have a somewhat comfortable living and it’s tough to do here.
So Cal jobs that pay enough to be able to afford a house
Tech jobs and a lot of other professional jobs in business, in management. In the medical field, it’s not just physicians who can take home six figures. Managers on up, they’re probably in the ballpark of $100,000 per year or more.
California is only building half as many homes per year as needed
Another thing to keep in mind with high home prices, we're just not building enough,. That would stablilize home prices. … It’s going to become ever more expensive to live here, and going one step further, if it’s hard to land a home here, then employers are going to have a hard time hiring people, so it limits our potential to grow as fast as we can here. We should be building 200,000 annually statewide, but we’re building 100,000. This is not a new problem here in So Cal. We had this problem prioer to the recession and in the ‘80s. Supply of homes lagging the demand for homes has been a chronic problem for the state and it drives home prices up even faster.
What high housing prices mean for the California economy as a whole
If we’re not building enough homes to meet the needs not just of entry-level but middle-income buyers, it limits our abilty to grow as an economy. We know there’s been out migration from California to other states offset only by international in-migration to the state, and part of that is due to the fact that it's too expensive.