Just HOW Unaffordable is SF Bay Area Real Estate?

Bay Area house pricesFor decades now, the SF Bay Area has been one of the most expensive regions of the US and even “The World”.  Right now, SF Bay Area home prices are at an all time high.  The median price paid for a home in the 9-county SF Bay Area in June was $735,000.   If you only include the “inner” counties of the SF Bay Area (Marin, San Francisco, San Mateo, Alameda, and Santa Clara), that figure is well over $1,000,0000.

The income needed to buy a median-priced home in the SF Bay Area has more than doubled since 2012.  That striking bit of news comes from a 2nd quarter report by the California Association of Realtors. It shows that a minimum income of $90,370 was required 5 years ago to purchase a median-priced single-family home of $447,970 in the 9-county SF Bay Area. Today, the minimum necessary income has climbed to $179,390 while the median price has ratcheted up to $895,000 for the Bay Area. And while that $179,390 might get you something in Alameda County (where the median home price is $880,000) or Solano County ($412,000), it’s not likely to get you anything in San Francisco ($1,450,000), San Mateo County ($1,469,000) or Santa Clara County ($1,183,440).

Home Price Affordability is at somewhere between 12 and 19% for the inner SF Bay Area counties (12% for San Francisco, 14% for San Mateo, 17% for Santa Clara, 17% for Marin, and 19% for Alameda)   This means, for instance, that only 12% of San Francisco residents can afford to buy a median priced San Francisco home (~1.5M), even with a 20% down payment in hand.  This percentage is calculated based on the median household income for residents of the given county, the minimum qualifying income for a median priced home with 20% down payment, and assuming that no more than 30% of the household income is used for the housing payment.

3 SF Bay Area Counties are among the top 10 least affordable counties in all of the U.S.

This is based on the highest % of an individual’s annual wages needed to buy a median-priced home.  By that measurement, Marin County is actually the #1 least affordable county in all of the U.S. at 126.4% of (average) income required to buy a median priced home!   Santa Cruz County comes in as the #3 least affordable county in all of the U.S. with 112.3 % (of income required to buy a median priced home).  And San Francisco is the #7 least affordable county in the U.S. at 90% (of income required to buy a median priced home).

Thinking of moving out of the SF Bay Area because of this craziness? By comparison, Tennessee, for example, is filled with affordable counties. In RoaneCounty, part of the Knoxville metropolitan area, just 10.1% of one’s annual income will get you into a median-priced house. Average annual wages there are $60,294 and the median-priced home costs just $85,000.   Compare that with MarinCounty, where average annual wages are in the same ballpark — $67,223 — but the median price of a home is a whopping $1,160,000!!

Let’s look at a couple of other out-of-state comparisons:

  • The median household income for a Colorado Springs (CO) resident is $54,228 while the median home price there is $252,800 (~ 4x’s the median income).
  • Looking a little closer to Northern California, the median household income for the Portland-Vancouver-Hillsboro Oregon metro area was a little over $64,000 in 2016, while the median home value in Portland was $419,100 (~6.5 X’s the median income).  –  Bringing it back to the SF Bay Area, the median household income for San Francisco residents is $88,518, while the median home price is now 1.47M (~16.5 times the median income!)

The national average median income in 2015 was $56,516. For San Francisco, it was $88,518—substantially more than the national figure, but a clear indication that most San Franciscans pay over 40% of their income just for a roof over their heads. In fact, the latest figures for San Francisco reveal that the share of income spent on rent is 46%, way up from 31% historically. And the share of income spent on mortgage payments is 41%, up from 39% historically.

In my opinion, the affordability constraint is the main thing holding SF Bay Area homes prices from going up at a sharper rate than they already are.   It will be interesting to see if the massive disparity between income and home prices eventually starts to discourage a lot of tech workers from coming to the SF Bay Area and/or encourages more to move out of the SF Bay Area.  Up and coming metro areas like Portland, OR, Austin, TX, Raleigh, NC, and parts of Colorado have well established technology centers and home prices which leave room for a lifestyle where a majority can actually “own” a house (or Townhouse/Condo) and for renters to at least have a decent amount of money left over from each pay check to save or spend for leisure.

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