Quote:
Originally Posted by Charles
Is this in the ballpark for other cities, states?
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I'm sure it probably is for places like New York and San Francisco, but not most. The rule of thumb is 3x gross income.
The reason for the skewness in the pricier areas of the country is that you have 1) much larger populations and density, and hence demand, and 2) a higher number of well-to-do people. The well-to-do are typically the homeowners, so they push the prices up. The median Joe is the majority of the population, so Joe determines the median income, but he can only afford to rent. What you get is a skewed distribution, higher prices relative to the median. And I would assume far fewer homeowners versus renters than the average city. This is one of the reasons current rent rates do not support current housing prices. Median Joe can't afford to spend $3,000+ per month for a place to live. I know the median has fallen a lot, but it is still well out of reach for the median earning family.
What the data will show is that the median income in Calfornia is not much higher than the nationwide median. But housing prices are multiples higher, particularly when you consider higher prices per square foot, physically less appealing properties, little to no yard, and things like that.
There is a premium for living here, for many reasons, and people are willing to spend more of their income to live here. They are willing to double up, where they might have lived by themselves before. Or to rent a room in a house. Or to buy a house but then rent out rooms to pay the mortgage. Things like that. You don't find much of that in most parts of the country.
Just as an example, a friend of mine works in the Dallas area. They live in McKinney or something like that, which is north of Dallas. It's a newer, fast growing area. They built a house there a couple of years ago for $174,000. She herself makes close to six-figures. And then whatever her husband makes. And they live in a nice area. Their incomes would indicate they could spend significantly more on housing. But why do it when you don't have to?
Why is the price so low? More land. Less density. Less overall demand. But the incomes are roughly equivalent to LA. Income-wise it is a much better standard of living. But you don't get all that LA has to offer. Some feel the trade-off is worth it. Others don't.
One thing to remember about real estate is that the cost to build a house doesn't vary much. A 2x4 is a 2x4. Sure, wages are a bit higher here and the building codes are different and such, but it doesn't cost three times as much to build a house in California than it does anywhere else in the country.
The way I look at it is, say you are buying a $500,000 house in California, what you are really buying is a $400,000 piece of land and a $100,000 house. Where as my friend in Dallas, she probably bought a $75,000 piece of land and a $100,000 house. Simple example of course.
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or that it is just going to stagnate. 
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