The question, “Is L.A. affordable for homebuyers?” will elicit everything from groans to guffaws depending on whom you ask. Paying a premium to live in the most gorgeous area in the world, with a backdrop of beaches and bluffs and beautiful people is what many of us just accept. It quite literally comes with the territory.
We may complain a lot about rising prices, but that doesn’t mean we’re about to pack up the car and move to the Midwest. For many of us, it’s L.A. or bust—a fact that showcases our civic pride but also leaves many buyers on the outside.
Renters Getting Squeezed
High prices that have pushed the affordability index to unreasonable levels means people are pushing the far outer limits of the acceptable debt-to-income ratio. Or they’re buying way outside of their preferred area. Or they’re just not buying at all, and dealing with rents that are also way out of reach for many people—and show no signs of capping. In fact, L.A.-area rents are some of the highest in the nation. According to the California Housing Partnership (SCPR), “You need to earn at least $33 an hour—$68,640 a year—to be able to afford the average apartment in Los Angeles County. The $33 an hour figure is based on the average L.A. County apartment rental price of $1,716 a month, from USC’s 2014 Casden Multifamily Forecast.”
Their data qualifies an apartment as affordable when “you spend no more than 30 percent of your paycheck on rent.” But L.A. residents are at 47 percent, “which is the highest percentage in the nation, according to UCLA’s Ziman Center for Real Estate.”
Forty-seven percent? Yikes.
When you look at buying, there’s an even greater disparity, given the median home price in Los Angeles of $570,500, according to Trulia, and the median income in Los Angeles is “about half” of what is needed to buy, at $49,497, according to census numbers from 2009-2013, according to the SCPR.
Yep, that’s the price you pay to live near the sand. Or Sunset. Or 90210.
Millennials Feeling The Pinch
Not surprising, the group being most strongly impacted by the L.A. price crunch is millennials.
According to new data released by Zillow, “L.A. is the second-worst American city ‘Where Millennials Can Actually Afford to Buy a Home,’ said L.A. Weekly. The site says that in, Los Angeles, “Just 26 percent of homes are affordable for millennials, the smallest of any California metro and just shy of the lowest share in the nation.”
So who did we lose to? Honolulu.
Aloha-eh? San Diego was next in the un-affordability parade, just FYI.
“If you’re a 20- or early 30-something and want to buy a house in Southern California, well, good luck,” said the L.A. Times. “Nationwide, it found millennials could afford 70 percent of listings. In L.A., it was just 26 percent. In regions such as Pittsburgh, St. Louis and Buffalo, N.Y., the figure tops 80 percent. Closer to home, 53 percent of listings in the Inland Empire are affordable, twice the share in coastal Los Angeles and Orange counties.”
The study found a disparity between L.A. salaries and L.A. home prices—one that isn’t necessarily replicated in areas like San Francisco, which you might expect to rank above L.A. in terms of unaffordability—especially given the area’s home prices (San Francisco and San Jose were both near the top of Forbes’ list of Most Overprice Cities last year and San Francisco also tops their recent list of Worst Cities For Renters).
So what does that mean for buyers? It means that the cash-carrying millennials who are snapping up million-dollar homes in some of the hottest—and most quickly gentrifying—areas in L.A. are the ones who are sitting prettiest. Except, perhaps, those who are celebrating their all-cash purchase at a Honolulu luau instead of at Mozza.
Tripp Jones Real Estate for Santa Clarita and San Fernando Valleys, Call 661-733-4555 or 818-527-6292