California Too Unaffordable

(Yes, we all know that California is an expensive place to live.)

Anchored by three of the nation’s top metropolitan areas; San Diego, Los Angeles and San Francisco, along with some of the country’s most breathtaking coastlines, why wouldn’t it be expensive to live there?

While this may be justified, how expensive is too expensive? One would think that if real estate is higher in California, then minimum wage and other jobs should pay more, which they do. But the extra dollar or two per hour Californians earn appears to not be enough to support its growing unaffordable real estate market.

The article, “Indianapolis, Los Angeles represent extremes in home affordability” posted November 21, 2006 on Inman News, explains how California real estate is taking the term “unaffordable” to another level.

“California is home to nine of the 10 least affordable U.S. metro areas in the third quarter [2006], according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index released this week.”

The Los Angeles, Calif. metropolitan area which includes Long Beach and Glendale in its statistics, ranked as the least affordable housing market in the United States, with a mere 1.8 percent of homes in the area being affordable for households with median incomes.

“Bay City, Mich., ranked as the most affordable U.S. metro area in the third quarter, with 90 percent of homes affordable for median-income households, and Indianapolis, Ind., ranked as the most affordable large metro area, with 85.9 percent of homes affordable to median-income households.”

Astoundingly, 25 of the top 30 least affordable metropolitan markets in the U.S. reside in California.

“Ranked behind Los Angeles for least affordability is Salinas, Calif., followed by Santa Ana-Anaheim-Irvine; Modesto; Merced; Stockton; Madera; San Diego-Carlsbad-San Marcos; and Napa metro areas.”

The affordability index is a calculation of the percentage of homes sold in a particular area that are affordable to families earning that area’s median income during a specific quarter.

“The index indicates that 40.4 percent of all new and existing homes that were sold during the third quarter were affordable to families earning the median U.S. income of $59,600. That compares with 43.2 percent of homes that were affordable to median-income families in third-quarter 2005 – the index was 50.4 percent in third-quarter 2004 and 61.5 percent in third-quarter 2001.”

The unaffordable California housing market is not shocking considering the golden state leads the U.S. in sales declines. Prices have been falling as of late, but the 2000 to 2005 real estate boom shot prices to an unfathomable height that it would take several years of price correction for the homes to become affordable comparable to the rest of the country.

“California’s home-ownership rate is 57 percent, Robert Rivinius, California Building Industry Association (CBIA) president and CEO said, which is 13 points below the rest of the nation. ‘California's at risk for losing its college graduates and young families,’ he also stated. ‘If they can't hope to buy a home here, more and more of our best and brightest leaders of tomorrow will leave California for communities in other parts of the country where home ownership is still a realistic possibility.’”

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