Southern Californians need to make $200,800 to buy a home

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Southern Californians need twice the annual income of a U.S. homebuyer to qualify for a typical house.

A $200,800 income is required to buy the region’s $785,000 median-priced, existing single-family home in the first quarter, according to affordability stats from the California Association of Realtors.

My trusty spreadsheet found this mortgage-qualifying standard has grown by $54,800, or 38%, since 2022’s first quarter. That’s when the Federal Reserve started its war on inflation with rate hikes.

Contrast that required bounty to the $99,600 that house hunters require nationally. Yup, Southern California’s threshold is 101% higher.

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The national requirement has grown, too, up $26,400, or 36%, in two years to buy a $389,400 median-priced US house.

This translates to an incredibly high financial bar for the locals, escpecially when you note that Southern California household incomes are just 16% higher than the nation – $86,000 vs. $74,000.

So Realtor math tells us that only 15% of Southern Californians had the financial muscle to pull off a purchase in early 2024, shrinking from 24% in 2022’s first quarter.

Nationwide, affordability ran at 37% to start this year, down from 47% in 2022.

How’d we get here?

Consider what’s changed recently in a local house hunter’s budget.

The average 30-year mortgage rate fell to record lows when pandemic stimulus was required – averaging 3.8% in 2022’s first quarter. Then, when inflation became the major concern, rates rose to 6.8% in 2024’s first quarter.

So over two years, a borrower’s purchasing power was slashed by 28%. That loss was also compounded by Southern California home prices, which rose 7% in the same period.

Combine rising rates and prices, and you see a typical Southern California homebuyer paying $5,020 monthly, including taxes and insurance, in 2024’s first quarter. That’s up $1,370 since 2022 or 38%.

Oh, and the Realtor math assumes a buyer spends only 30% of their income on house payments – and puts 20% down as part of the purchase. This means a house hunter also must find $157,000 for the down payment.

Who can afford this?

Southern California’s affordability problem translates to shockingly few home sales.

Ponder the lethargic pace of completed local transactions for houses, townhomes and condos, existing and new, as tracked by CoreLogic. In 2024’s first quarter, 37,211 residences were sold in the region’s six counties.

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That’s 37% below the sales activity seen two years earlier when the Fed began hiking rates.

It’s also the third-slowest-selling quarter in data reaching back to 1988.

And it’s 44% below the 36-year sales average.

Locally speaking

Here’s how the Realtor affordability math plays out across the region, ranked by the county’s required income, plus a snapshot of the sales drop vs. history …

Orange: $349,200 to qualify in the first quarter – 3.5 times what a typical American needs. It’s up $99,200, or 40%, in two years. The median-priced house was $1.37 million. Only 11% can afford to buy vs. 13% in 2022. Home sales in the quarter ran 48% below the 36-year average.

San Diego: $251,200 to qualify – 2.5 times US – up $71,600 or 40% for $981,000 house. That’s 11% affordability vs. 19% in 2022. Sales 46% below average.

Ventura: $227,600 to qualify – 2.2 times US – up $52,800 or 30% for $889,000 house. That’s 15% affordability vs. 21% in 2022. Sales 57% below average.

Los Angeles: $210,400 to qualify – 2.1 times US – up $53,200 or 34% for $823,000 house. That’s 14% affordability vs. 20% in 2022. Sales 51% below average.

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Riverside: $161,200 to qualify – 60% above US – up $40,800 or 34% for $630,000 house. That’s 20% affordability vs. 28% in 2022. Sales 26% below average.

San Bernardino: $124,800 to qualify – 25% above US – up $33,600 or 37% for $488,000 house. That’s 27% affordability vs. 39% in 2022. Sales 39% below average.

Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com