72 percent of LA residents can’t afford that
In Los Angeles County, where home prices have now eclipsed the inflated levels reached just prior to the Recession, most residents don’t earn enough to afford a typical home, according to a new report from the California Association of Realtors.
The analysis finds that the median price of a home in LA County was $545,540 in the first three months of 2018. That calculation may be on the conservative side; a recent report from real estate tracker CoreLogic found the median price to be $585,000.
Even given the smaller number, though, it would take an income of $112,930 to comfortably afford the monthly payments of $2,820 that come with a median-priced home. The association finds that only 28 percent of residents earn that much, meaning that homeownership simply isn’t an option for many Angelenos.
In this case, the calculation assumes that buyers are able to put no more than 30 percent of their income toward housing—a common standard for affordability. Some eager home shoppers may be willing to pay more than that, but, of course, the more income monthly payments are likely to eat up, the less likely those buyers will be to obtain a loan.
The affordability estimate also assumes that those in the market for a home can afford to make a 20 percent down payment when purchasing one. Given a median price of $545,540, that’s nearly $110,000 of cash up front.
Since many buyers don’t have that kind of money lying around, they’ll need to make a smaller down payment. That can in turn raise monthly costs—partly because the amount owed on the loan is higher and partly because those buyers will have to pay for private mortgage insurance.
Because of that, the number of LA residents able to comfortably afford a median-priced home may be even less than the report suggests. But it’s not all bad news. The percentage of homeowners able to make those monthly payments has actually risen a bit since the final months of 2017, when median homes were affordable to just a quarter of Angelenos.
Los Angeles is also markedly more affordable than other parts of California, like San Francisco, where only 15 percent of residents earn enough to buy a median-priced ($1.61 million) home. Statewide, typical homes are affordable to 31 percent of residents.