So a proven 100 year old housing affordability ratio (price x average wages) is no longer accurate because we have a new dynamic called renters and low earners to contend with?
If you chop off the bottom 1/3 won’t you logically chop off the top 1/3 as well? SD especially has lots of millionaires and even billionaires that throw the average way up.
Millionaires and billionaires are not players in the housing reality we live in but their houses and incomes are included in ratios.
Those apartment dwellers and renters are future first time buyers, a group housing cannot survive without. You can’t move up if others below are not moving up. So they most certainly are to be considered in housing affordability.
So Cal has gotten around historical affordability ratios with housing bubbles. No more though.
2.5-3 times earnings is a historically proven AFFORDABILITY gage. Meaning people can actually make their payments at those ratios.
SD average wage of $61k is probably high and even if not; wage deflation will probably bring it into the $50ks. Even 3x earnings at $55k aver. earnings is $165k for SD housing. So the HIGH end of affordability will probably be $165k.
Unbelievable? In 2006 how people would have thought you could buy a 2500 sq’ house in Temecula for $220k in 2009? Not many, and most would have thought the idea completely absurd. That rushed cut in prices was just the quick fall to “regular” prices. Now the discounts begin.
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The 2.5-3x median household income to median price is a national average and has NEVER been true in So Cal (at least not since the WW II era) – and it’s not because of bubbles – it’s because this is one of the most desirable areas in the U.S. to live.
It’s also the reason why there are so many renters in So Cal – and always have been – this isn’t a new trend, this is a multidecade trend again going back as long as records continue. It’s EXPENSIVE to buy in So Cal and always has been – bubble years or not. Instead of only about 2/3 of people being able to affordably buy a house (like in much of the U.S.), historically only a little over 55% of the people in So Cal can afford to buy a house. Only Hawaii and New York have a lower homeownership rate compared to California. Check this table out:
The HIGHEST homeownership percentage ever reached in CA was at 58%, in the 1960 Census. And this is for all of CA.
It’s simply a case of supply and demand – all other things being equal, more people would want to live here than in, say, Louisville. So all other things aren’t equal – the desirability of So Cal pushes the prices up. Detroit suffers from the exact opposite – relatively few people would consider Detroit a desirable city to live in, and so their ratio is much LOWER than the national average.
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Rt. 66 seems to be ignoring all the historical data that Rich produced to initiate this Blog.
For those who haven’t been around here too long, check out the primer :
