San Diego home affordability analysis by a non-expert

[elchevere]

I'm with Luv and Sass--we are talking Mexico, not Canada. Just don't see the huge growth implications benefitting SD as you do.

[The Flying Dutchman]

Originally Posted by elchevere

I'm with Luv and Sass--we are talking Mexico, not Canada. Just don't see the huge growth implications benefitting SD as you do.

Even the greatest oaks begin as seeds.

[JohnAlt]

We're in a mini bubble. Affordability is a moving target.

[eu4ea]

Originally Posted by Oboe700

San Diego County Median Household Income (2009-2013) = $62,962 (round up to $63,000)

Monthly, this equals $5250

Using some widely accepted rules of thumb ....

• Monthly housing cost should be no more than 25% of your income
• Should target at least 20% for a down payment. Who's got 20%? Not many, so lets go with 10%.

So based on the above assumptions, San Diegans should be spending no more than 25% of $5250 on housing

25% of $5250 = $1312.50

So, what does a monthly house payment of $1312.50 get you, with 10% down .... (heading over to a mortgage calculator ... be right back)

My friends, this breaks down to:

House Price = $225,700
Down Payment = $22,600

Payment break down

• P & I = $919
• Home Ins = $67
• Taxes = $226
• PMI = $100
• (Interest rate = 3.56%)

Unfortunately I think there is a problem with this sort of analysis. Although it is very logical starting point, the trouble is that not all the households will be homeowners, so the median household income in San Diego is not the best number to use to match to median home prices.

Imagine there are just 100 people in San Diego, and their median salary is $63,000. The percent of homeownership is San Diego is about 54% (San Diego County QuickFacts from the US Census Bureau), so we presume 46% percent of those 100 people rent. This is 46 people, so only 54 of the people actually own a house.

Then, the most relevant figure is the median income of those 54 people, which is probably higher than the median of all 100 people. More generally, the best figure to compare to the median home price is probably the median income of the top half of the earners, or something like that.

The reality is in San Diego, people stretch above the guidelines you cited above. According to Living in San Diego is eating up more of your income, whether you own your home or rent an apartment, a new study by Zillow says. | UTSanDiego.com (which cites Zillow), renters pay 42.6% on average of their income to rent, and 33% to buy.

Throw in people moving in with money saved up, foreign buyers coming in, and so on, and it starts to make more sense.

I am not saying that San Diego is cheap now etc. But rather just trying to give some reasons why places like San Diego, San Francisco, Boston etc always seem to have higher home prices than their median income would justify.

[Bluefox]

Originally Posted by eu4ea

Unfortunately I think there is a problem with this sort of analysis. Although it is very logical starting point, the trouble is that not all the households will be homeowners, so the median household income in San Diego is not the best number to use to match to median home prices.

Imagine there are just 100 people in San Diego, and their median salary is $63,000. The percent of homeownership is San Diego is about 54% (San Diego County QuickFacts from the US Census Bureau), so we presume 46% percent of those 100 people rent. This is 46 people, so only 54 of the people actually own a house.

Then, the most relevant figure is the median income of those 54 people, which is probably higher than the median of all 100 people. More generally, the best figure to compare to the median home price is probably the median income of the top half of the earners, or something like that.

The reality is in San Diego, people stretch above the guidelines you cited above. According to Living in San Diego is eating up more of your income, whether you own your home or rent an apartment, a new study by Zillow says. | UTSanDiego.com (which cites Zillow), renters pay 42.6% on average of their income to rent, and 33% to buy.

Throw in people moving in with money saved up, foreign buyers coming in, and so on, and it starts to make more sense.

I am not saying that San Diego is cheap now etc. But rather just trying to give some reasons why places like San Diego, San Francisco, Boston etc always seem to have higher home prices than their median income would justify.

Curious - is that 42.6% of gross income or net? If the former that would indicate people are spending well over half their net income on rent.

[eu4ea]

Originally Posted by Bluefox

Curious - is that 42.6% of gross income or net? If the former that would indicate people are spending well over half their net income on rent.

It seems to be gross....


from Low Housing Supply Squeezes Affordability ‹ Zillow Real Estate Research :

"To calculate mortgage affordability, we first calculate the mortgage payment for the median-valued home in a metropolitan area by using the metro-level Zillow Home Value Index for a given quarter and the 30-year fixed mortgage interest rate during that time period, provided by the Freddie Mac Primary Mortgage Market Survey (based on a 20 percent down payment). Then, we consider what portion of the monthly median household income (U.S. Census) goes toward this monthly mortgage payment. Median household income is available with a lag. For quarters where median income is not available from the U.S. Census Bureau, we calculate future quarters of median household income by estimating it using the Bureau of Labor Statistics’ Employment Cost Index."



source of original report: Despite Rising Home Values, Affordability Remains Largely Intact for Buyers ‹ Zillow Real Estate Research