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Housing prices have enjoyed substantial, double-digit growth over the past year, leading to affordability issues in some major metro markets that could cap prospects for future growth. From a renter’s perspective, San Diego might be even less affordable than San Francisco, which famously boasts the nation’s most expensive real estate.
Prices in San Diego shot up 19.4% year over year in January, according to the latest data available from the S&P/Case-Shiller home price indexes. With prices so high, real estate agents said first-time homebuyers need to adjust their expectations.
Young renters can only make the leap to homeownership in San Diego with help from a government down-payment assistance program or their families, said Leslie Kilpatrick, president of the Greater San Diego Association of Realtors.
“I think we’re seeing more and more of that,” Kilpatrick told SNL. “This generation of parents is realizing the difficulties their children are facing in buying a home.”
A recent study by HSH, a provider of mortgage interest rate data, details how much income a household needs to afford the typical home in a given market. HSH calculated the minimum income needed to purchase a median-priced home in a given market. The study assumed a 28% front-end debt-to-income ratio and a 20% down payment and only covered principal and interest.
The results of this study raise an interesting question: How many renters in each market could afford to buy the typical home?
While it may not be possible to come up with a definitive answer, SNL explored the question using the HSH study, recently released U.S. Census Bureau data detailing renter incomes and corresponding Census data on housing units.
By one measure, San Diego had the lowest ratio of income-eligible renters — meaning they earned enough to buy a median-priced home — to housing units among 25 major metropolitan areas.
In San Diego, real estate agents think the market might be stabilizing, but prices are so high that first-time buyers are struggling to find entry. But that does not necessarily mean the market is in a bubble again.
Rich Toscano, a financial adviser with Pacific Capital Associates in San Diego, launched a blog in 2004 presciently predicting a housing crash based on overvaluation. He maintains a graph that compares home prices to a blended value of rent and per capita income. The index is now at the peaks seen in 1979 and 1990, but it is still well-below the most recent bubble.
“People say to me, ‘Are you worried about it?’ And I think, ‘It’s expensive, but it’s always been that way,’” Toscano told SNL. At the same time, he does not think there is much more room for prices to sustainably rise.
“I wouldn’t say there couldn’t be more upside, but what I would say is that whatever upside there is, I would expect to be given back eventually, at least in relative terms,” he said.
Real estate agents in the San Diego metro area seem to agree with Toscano that prices are starting to stabilize and that the days of double-digit annual growth have likely passed. Still, for buyers interested in the lower end of the market where homes are more affordable, bidding wars remain fairly common.
“Most people miss a few before they understand that when they see something they like, they have to act boldly and put in a strong offer,” said Kilpatrick, president of the local association.
Jim Klinge, a real estate broker in the metro area, similarly told SNL via email that the most recent low-end buyers he represented lost several bidding wars before nabbing a home. On Klinge’s blog, which gained national fame during the housing crisis for its candor and brash style, the agent reports hyper-local statistics on supply and demand. For now, the fundamentals suggest San Diego’s housing market is strong. “What really matters is wondering if/when we will run out of rich people,” Klinge wrote.
This is a bit disheartening as I plan my move to North County San Diego =[
Are San Diego residents in more debt than residents of the other cities? How else can this happen, considering the similarity of median income levels and the disparity in housing costs? How do San Diego residents stay afloat?
Do they skimp on retirement, do they assume more consumer debt, etc? Are there studies/statistics for these parameters?
Something like 50 percent of houses bought in San Diego are with cash. So they don't have mortgages. Some made it rich elsewhere, others bought a house years ago and made a lot of money by selling it.
People don't like to admit it, but many people in San Diego can't afford to live here. So there might pack 4-6 people into a 2 bedroom apartment. Go to many beaches and you see this all the time. And it's not just 24 year olds.
Other times people are in over their heads. They make decent money, but wind up qualifying for a mortgage they really can't afford. But the bank says they did and they liked the house, so they jump on it. A lot of people did that a few years back and got burned. I'm sure many people will fall into that fall out again.
There are also many Foreign Buyers in places like California. People from China pay cash for homes and drive up the costs. Sometimes it's just an investment home, other times they move into it. How long will that last? Well China has some issues going forward, so who knows.
Something like 50 percent of houses bought in San Diego are with cash. So they don't have mortgages. Some made it rich elsewhere, others bought a house years ago and made a lot of money by selling it.
People don't like to admit it, but many people in San Diego can't afford to live here. So there might pack 4-6 people into a 2 bedroom apartment. Go to many beaches and you see this all the time. And it's not just 24 year olds.
Other times people are in over their heads. They make decent money, but wind up qualifying for a mortgage they really can't afford. But the bank says they did and they liked the house, so they jump on it. A lot of people did that a few years back and got burned. I'm sure many people will fall into that fall out again.
There are also many Foreign Buyers in places like California. People from China pay cash for homes and drive up the costs. Sometimes it's just an investment home, other times they move into it. How long will that last? Well China has some issues going forward, so who knows.
THIS ^
My household makes decent money. I don't think we've dropped below 100k a year since we've been together in the early 90s. Anyway, if we hadn't bought back then for 150-ish we would be hard pressed to buy now. That is, in any hood I'd feel comfortable in. I know endless friends who bought 10 years ago and I thought, wow, how do they do it? Now I know why, they couldn't. So many just walked away from their upside down homes and either bought cheaper when it became that or are renting.
We thought about selling and renting for a while but after seeing rents and comparing to our mortgage, forget it. If/when we bug out of SD we'll just cash out then.
Let's just say 100k a year goes a long ways, just not here. Not even close. We don't buy new anything unless it makes sense. We don't hire anyone unless I absolutely don't know how to do it or don't have the time. Example, after getting quotes for sidewalks I'm going to do it myself and save 5 grand. I'll hate every second of it but when it's done (almost done now) I'll be ahead.
Let's just say 100k a year goes a long ways, just not here. Not even close.
1. Are you saying a $100k salary does not go far for an individual, couple, or a household/family? This makes a big difference.
2. When you say $100k "does not go a long way", are you saying it only covers bare necessities and very limited saving/fun money each month (for this individual, couple, household/family)? I am trying to get a better grasp of the circumstances you are implying with this statement.
This is a bit disheartening as I plan my move to North County San Diego =[
Are San Diego residents in more debt than residents of the other cities? How else can this happen, considering the similarity of median income levels and the disparity in housing costs? How do San Diego residents stay afloat?
Do they skimp on retirement, do they assume more consumer debt, etc? Are there studies/statistics for these parameters?
I dont think there are hard stats on it, but PLENTY of stories via housing blogs and news articles.
What makes SD unique is that we are a black and white economy based on tourism jobs/industry at the bottom and a very niche tech industry at the top. If you bought over 10 years ago at the very least, its likely you have are in the winners circle as far as COL goes and the monthly nut.
The real win for homeowners here is EXACTLY like 1AngryTaxPAyer says in his post. He bought at the right time for him and in an area he was comfortable with. But buying today would be a challenge given the relatively modest lifestyle he has.
That basically equates to compromises being made even back then. Not everyone in San Diego are millionaires because of earned income necessarily. So much of it is tied to real estate value. Its not a bad thing at all, but I have seen examples where HELOCs are still very popular to fund particular lifestyles and when its time to sell or pay the piper, there is no way these same people would be able to afford that house.
As an example, my spouse and I are very very fortunate to have the careers based here in tech. We earn well over six figures with no kids and live very modestly and within our means. We are the type of folks that set aside money for home maintenance, emergency funds, IRAs, 401ks etc.
Based on our income and looking at other white collars that live in areas that 3x more expensive than where we live AND have kids! I scratch my head when I see the new Audis or BMWs they are driving.
I dont have the numbers, but definitely saw a stat that showed that at a certain price point in homes and neighborhoods, dual incomes are far more common. I dont know if both parents are working to stay afloat financially or working by choice. But any new parent I know, would DEFINITELY prefer to be home with the kid(s) than sending them to child care for the day. I think many parents manage just fine, but the illustration here is that what compromises have to be made if you are accustomed to a particular lifestyle i another city. Folks do it here without flinching because their friends do it too, so its normal. But to an outsider that doesnt do that as a the norm, it could be perceived as very weird.
Quote:
Originally Posted by lyner
1. Are you saying a $100k salary does not go far for an individual, couple, or a household/family? This makes a big difference.
We dont have kids and as a couple 100k is ok given you have no debt. I think in terms of the money that goes out and having money for vacations, savings etc. I honestly believe vacations and savings are a compromised factor in owning a home here if you are past your housing budget. Its pretty simple really. You can either afford it or you cant. The numbers dont lie.
2. When you say $100k "does not go a long way", are you saying it only covers bare necessities and very limited saving/fun money each month (for this individual, couple, household/family)? I am trying to get a better grasp of the circumstances you are implying with this statement.
See above.
This has been said in many many other threads for people looking to move here and buy a home without any clue about areas in SD or what their plans are for staying here because housing costs are the single biggest factor, then job stability, but this cant be predicted necessarily.
If you are able to get into the SD housing market at the right time when you are ready and it makes sense, I dont care what zip code you live in, its a great place for the long haul. But I have never seen a housing market that plays more like the NADSAQ than San Diego without any real ties to any major multi billion dollar industries to offset the COL.
There are tons of other cities in the US where there is a more predictable rate of appreciation in RE. Cities where folks dont think of their home as a financial investment in the ATM sense. Here in SD it can be a lot more than just a roof over your head when it comes to buying.
I think owning property here for the long term is still great no matter which you spin it so long as you can truly afford it
If you are able to get into the SD housing market at the right time when you are ready and it makes sense, I dont care what zip code you live in, its a great place for the long haul. But I have never seen a housing market that plays more like the NADSAQ than San Diego without any real ties to any major multi billion dollar industries to offset the COL.
There are tons of other cities in the US where there is a more predictable rate of appreciation in RE. Cities where folks dont think of their home as a financial investment in the ATM sense. Here in SD it can be a lot more than just a roof over your head when it comes to buying.
I think owning property here for the long term is still great no matter which you spin it so long as you can truly afford it
The other challenge is somebody having a home worth a Million dollars now, but no other real estate to move into. So they sell their house in Carmel Valley, make a great profit, but soon realize, they need to spend a million bucks or more to move into another house.
The House being worth millions only works out if they bought another property cheap years ago or they plan on moving out of state to a cheaper location. Otherwise they sold a home for a million and need to spend a million for a new home. Worse if they bought high and sold low. Or bought low and re-financed for years as the value went up.
1. Are you saying a $100k salary does not go far for an individual, couple, or a household/family? This makes a big difference.
2. When you say $100k "does not go a long way", are you saying it only covers bare necessities and very limited saving/fun money each month (for this individual, couple, household/family)? I am trying to get a better grasp of the circumstances you are implying with this statement.
Two edged sword here. For me it is a family of four but that is not the biggest event, that would be simply buying real estate. People here spend WAY more of their budget on a home than most of the Country. Let's put it this way, we were saving for a trip to Hawaii for a year. Guess what, car repairs. We sat down and talked about it. Did we rationalize going on a trip to come back to this big bill? Of course not. We payed the bill and spent that time goofing at the beach on the cheap.
If you are single and net 50K a year and have a 3500 a month mortgage? If you are married with kids, more $ (if both working) but way more expenses.
Add to that the sunshine tax for most job markets and you'll have a lot less $ at the end of the month than most places.
I kinda always laugh to myself at the Threads that pop up here in this fourm.
Example: My DH/DW is taking a job in San Diego. We have a budget of 800k,what places in la jolla can we afford?
First thing I think of is, where are these 150-200k job DH/DW is taking on ?
I don't think people really understand that a 5-6k mortgage can eat you alive in this town!
The many of threads that pop up like This, does not equate to how many 150k-200k jobs just falling out of the Sky here in San Diego.
Our House income is just shy of 150k And i would still classify us as lower Middle Class here in San Diego.
Only Reason why we are ahead in this Town is Because of some really Damn good Luck! We bought a condo in the mid 90's and sold at the top of the market at the end of 04. Sat on the money and reentered the market at the end of 05, when the housing market really started to take a beating(at lease in La mesa).
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