Wanna buy a house? You’ll need an annual salary of $125,000 (and a lot more in Orange and LA counties)

Posted by Irvine Sign Company

Posted by Irvine Business Sign Company

Buying a home remains a difficult financial hill to climb for many Southern Californians, and it became even steeper for some in the third quarter, a new study shows.

The California Association of Realtors’ quarterly affordability report, which stacks incomes across California against the median price of existing homes, found 27 percent of the state’s households could afford a home, up from 26 percent in the second quarter and down 1 percent from a year earlier. Statewide, a buyer would need an income of $125,540 to buy a median-priced home of $588,530.

The prospects for buying a home in Los Angeles County became more challenging. According to the report released Thursday, Nov. 1, just 22 percent of the county’s residents earned the qualifying income to buy a median-priced existing, single-family house.

That’s sharply lower than the 26 percent who could qualify in the second quarter and unchanged from the second quarter of 2017. 

In other Southern California counties, the affordability numbers were fairly static. Orange County, with a 20 percent affordability level, and Riverside County, at 37 percent, were both unchanged from the second quarter.

San Bernardino County’s declined 1 percentage point, to 48 percent.

The median price for an existing home in Los Angeles County was $628,940, and a buyer would need an annual income of $134,160 to qualify. A monthly payment on a 30-year fixed mortgage with an interest rate of 4.77 percent, would require a monthly payment of $3,350.

A shortage of affordable homes is usually a big factor when fewer sales are reported. Earlier this week, Irvine-based real estate tracker CoreLogic reported sharp declines in sales across Southern California; the drops were steeper in coastal counties. The number of home sales in Los Angeles County declined 19.3 percent in September from the same month in 2017, and by 23.6 percent in Orange County.

The Q3 declines in affordability did not surprise Frank Nothaft, chief economist for CoreLogic, who cited increases in both prices and interest rates.

“Interest rates have gone up and houses have gone up. Median sales prices are really high right now,” Nothaft said. “Lower sales are a direct artifact of the affordability pinch.”

Nothaft said a combination of higher prices and interest rates could add as much as 20 percent to the typical household’s monthly payment. “And the average family’s income is not growing by 20 percent a year,” he said.

In Orange County, the median price for an existing home was $830,000 for the third quarter, and the qualifying income was $177,050, according to the CAR report. The monthly payment was estimated at $4,430.

The median home price in Riverside County was $405,000. Buyers would need to earn $86,390 a year to qualify and be able to pay $2,160 per month.

The most affordable county in the region, San Bernardino County, had a median price of $294,900. It would take an income of $62,910 to meet a mortgage obligation of $1,570 per month.

Julian Munoz, an agent with ReMax Empower who works in the San Fernando Valley, said this issue is affecting some potential buyers.

“Buyers are more sensitive to price and affordability,” Munoz said. “But some fear they’re going to be priced out of the market and they move forward. Some think it’s going to swing downward, but I don’t see that in the fundamentals.”

Munoz added that, even if prices do decline, the increases in interest rates could eat up anything they might have saved.

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