If mortgage rates fell to zero, the typical home in Los Angeles and Orange counties would remain out of reach to a house hunter.
My trusty spreadsheet peeked at a study by the real estate investment site Ziffy.ai that considered a monthly house payment at May’s median listing price – with no interest charged – in 364 U.S. metro areas, including 24 in California. A community was deemed to be “unaffordable” if this estimated house payment exceeded 30% of the local median household income, assuming a hypothetical buyer made a 20% down payment and paid 1.6% of the purchase price for property taxes and insurance.
Consider how that translated to the median-priced L.A.-Orange County residence at $1.1 million.
A potential buyer faced a $3,911 monthly payment with a zero-percent mortgage, plus property taxes and insurance. That would eat up 49% of the metro’s median household income, failing the 30% affordability maximum.
This kind of deep affordability hurdle is a key reason why only 85,300 L.A.-Orange County homes sold in the year ended in April. This represented a 25% drop below the average pace since 2005. It was also slower sales than any time during the Great Recession’s housing crash.
Big burdens
To be fair, this is not just some L.A.-Orange County oddity as 41 other U.S. metros – including 10 in California – would not have met this 30% affordability standard in May if the lender didn’t charge interest.
In fact, the six most unaffordable spots in the nation were from the Golden State, by this math. L.A.-Orange County had the nation’s fourth-worst bite of incomes by its estimated mortgage payments.
For L.A.-Orange County house hunters seeking a bargain, this report suggests eyeballing the Inland Empire.
Its $2,116 house payment – that’s a $595,000 home with a 0% mortgage – would be considered affordable, by this math. This burden gobbles up just 28% of the I.E. median income and is “only” the 55th worst slice in the nation.
Other California crushes
At the top of the nation’s cost-burdened list was the Santa Maria-Santa Barbara housing market. Its $1.75 million median listing price would generate a $6,212 monthly payment with at 0%. This huge financial crush would eat up 78% of the metro area’s median household income.
Here are the nine other Golden State metro areas that fail the affordability test at 0%:
– Salinas: $1.24 million median price would cost $4,396 monthly at 0%. That’s 57% of income. This was the No. 2 worst nationally.
– Santa Cruz: $1.3 million median costs $4,600, 51% of income, No. 3 worst nationally.
– Napa: $1.4 million median costs $4,967, 49% of income, No. 5 worst.
– San Luis Obispo: $1.08 million costs $3,822, 46% of income, No. 6 nationally.
– Santa Rosa: $972,500 median costs $3,458, 39% of income, No. 14 worst.
– Ventura County: $984,735 median costs $3,501, 37% of income, No. 15 worst.
– San Diego County: $929,000 median costs $3,303, 36% of income, No. 18 worst.
– San Jose: $1.4 million median costs $4,924, 36% of income, No. 20 worst.
– San Francisco: $996,500 median costs $3,543, 31% of income, No. 31 worst.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com