Can the Middle Class Really Afford Homeownership in California?

Since the price run-ups of early 2013, affordability has been a major hamper for the real estate market nationwide – inhibiting the ability of would-be buyers to afford new homes regardless of city, state or region. Of course some markets have been hit harder than others, and in the same respect some markets have bounced back faster than others, but where does California land in the mix? A new study suggests that middle class buyers would be better off elsewhere.

affordable housing

According to the recent study from Trulia, six of the seven least affordable markets for the middle class are found throughout the Golden State – an astonishing figure considering that California is the only state to have multiple markets among the top 10.

No surprise — San Francisco took the first spot in least affordable markets for the middle class nationwide, where only 15% of for-sale homes are affordable for middle class residents. San Francisco was followed closely by Los Angeles, San Diego, Orange County, San Jose and Ventura County, where middle class residents were able to afford 22%, 25%, 26%, 30% and 33% of for-sale homes respectively.

For this study, middle class was defined separately for each market based on local median household income, and a home was considered “affordable” when the total monthly payments – mortgage, insurance and taxes – were equal to or less than 31% the median income.

It’s truly no surprise that affordability has hit California hard though. Throughout 2013 prices jumped by record breaking numbers – increasing roughly one-third across Southern California in the past two years – and when paired with the low income growth of recent years, many would-be buyers simply cannot afford a new home.

Unfortunately, the problem may continue to worsen. According to Trulia’s chief economist Jed Kolko, “Unless incomes increase substantially, homeownership will slip further beyond the reach of many households.”

Aside from a higher median income, what else can help these struggling buyers?

What are your thoughts? We’d like to hear from you!

  • RE_Insider

    Here is an insightful comment that we received via email from one of our readers:

    Hello Editors,

    I’ve been a Realtor in Southern California since 1987. When I started, people with ordinary jobs, plumbers, firefighters, salespeople, small business owners, could and did buy single family homes. It was always expensive. But they did it.

    As far as I can see, two things have changed. First, the “middle” class is less well off than it used to be. Income stagnation and inflation have taken care of that. Globalization will keep pushing down incomes. A good thing for folks in China and Latin America, less good for American workers. Job insecurity is now the norm, whatever the state of the Dow. Second, the financial institutions we outsourced our fiscal and monetary policies to have driven us through a series of liquidity crises, each time wringing more wealth from the system. The only winners were those institutions themselves. “Sorry we wrecked the economy again. Give us more money right away so we can fix it. Nobody else knows how.” Today, those financial institutions are immensely powerful and regarded as sacrosanct by both political parties. So far all political and regulatory attempts to bend their behavior to more economically democratic policies have been shrugged off. Savers get 1%, and financial institutions get between 4% and 25%. It must be a natural law.

    What happens next? Well, you can see the shape of it in the editorials of the Wall Street Journal – sober-seeming reflections on how home ownership is not for everyone. Makes sense. Concentrating ownership into a few hands… well… not actual hands…hedge funds don’t have hands…is what Wall Street does. Over and over again. Why are we surprised when we allow it to happen? Seems to me that unless we have a serious popular grassroots political conversation about home ownership and why it is good for everybody, we will become a rental society. If you trust banks and politicians to initiate the conversation, start saving for that security deposit.

    David Silver-Westrick
    Operating Partner, Keller Williams OC Coastal Realty, Past President Orange County Association of Realtors