California is home to some of the most expensive markets in the country – we all know that affordability continues to burden buyers across the state – but are the high prices of Southern California forcing the newest generation of homebuyers off the market and potentially out of the state? In our recent article, we discussed how rising home prices are forcing families across the state into poverty, but a new study has found that Millennials are having even more trouble than other generation when it comes to buying a home – especially throughout the Southland. Now, many agents are questioning whether this drop-off in young buyers will burden the market for years to come.
Barely 1 in 4 homes on the market in Los Angeles and Orange counties is affordable to the typical millennial household, according to a new study from real estate website Zillow. Among the 96 largest housing markets in the U.S., only Honolulu had a lower share.
Zillow came up with the number by crunching a trove of listings and income data for households headed by people ages 23 to 34. It calculated monthly payments on those listings and estimated how many the median-earning millennial household could afford — defined as spending 30% of income or less. Nationwide, it found millennials could afford 70% of listings. In L.A., it was just 26%.
There are two main reasons that number is so low in the Southland, said Skylar Olsen, a senior economist at Zillow: high home prices and relatively low incomes.
“L.A. is just one of those areas where income growth has not been very strong and yet housing price growth has been fast,” she said. “L.A. almost always comes in at the top of the list for un-affordability.”
In this case, the Southland fared worse even than several pricier markets, such as San Francisco. That’s in part because incomes are lower in Southern California, but also because there’s less diversity in housing stock, with fewer lower-cost options. Inventory is tight, she said, and most new construction is geared to the high end of the market.
This poses a big challenge for the region’s economy, said Christopher Thornberg, founding partner of Beacon Economics in Santa Monica. If young people can’t afford to buy a house in Southern California, some will leave the area, he said, especially middle-class and working-class families.
“You end up with a situation where you lose the worker of tomorrow,” Thornberg said.
Do you think the challenges Millennials face today will set the market back in years to come? Do Millennials play a major factor in your business? What are your thoughts?
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