California Home Prices Are So High, Even High-Income Households Can't Keep Up

Even if they were to theoretically put no money down to purchase the median-valued home, a home buyer in 22 of the country's 35 largest metro areas could still make their monthly mortgage payments without spending more than 30 percent of their income (the rule of thumb) on housing.

But not in California.

The cost of housing in most major California metros has risen so high that the median household cannot reasonably afford a median-priced house, even with a 20 percent down payment.[1] To make ends meet on their monthly mortgage, typical California households either need to spend far more than 30 percent of their incomes on housing, or make a much larger down payment than the standard 20 percent.

Median annual household incomes in the pricey San Jose and San Francisco metros sit far above most areas: $124,300 and $107,600, respectively, compared to the national median of $63,300 per year. But that extra income is not enough to compensate for incredibly high local home values – the median home in San Jose has a value of $1.25 million, and in San Francisco it's worth $957,400. Even after putting 20 percent down, the $4,900 monthly payment in San Jose and $3,760 payment in San Francisco on those homes would still consume more than 30 percent of the typical household's income.[2]

To bring that monthly payment in San Jose down to $3,108 per month – within the 30 percent threshold – a home buyer making the median income in the San Jose metro would need to make a ludicrous down payment of almost 50 percent, or $614,100, on the median-valued home. To put that in perspective, the required down payment alone is more than the combined values of a high-priced home in Kansas City ($336,200) and Pittsburgh ($266,800) – to say nothing of the entry-level or even median home in those areas.

And for Silicon Valley home buyers willing to cut their budget and seek out one of the area's less-expensive homes, even affording a typical entry-level home in San Jose is nearly out of reach for a median-earning household. The largest loan they could afford without crossing the 30 percent barrier would be $631,700 — only 80 percent of that typical entry level home's value of $791,500, and still requiring a substantial 20 percent down payment of $159,800 up front.

Fortunately, the typical home nationwide remains largely affordable. The median U.S. home is valued at $225,300 and is well within the affordable range regardless of the down payment size. Even the typical renting household, which earns 18 percent less than the median U.S. household ($51,800/year), could still afford payments on the median U.S. home, regardless of how much money they put down. This is good news for savings-strapped renters who need to scrape together a down payment without the benefit of having proceeds from a prior sale.

But again, the picture for renters isn't so pretty in California, where median home values in all six major metros are so stratospheric that they're affordable only to renters who can make down payments between 30 percent (Sacramento) and 68 percent (San Jose). In those same six metros, to afford even a less expensive/starter home would depend on a median-earning renter having the savings for a hefty down payment.

Metro Area	Median Household Income	Median Value of Expensive Home	Median Value of Mid-Range Home	Median Value of Starter Home
United States	$63,300	$388,100	$225,300	$129,400
New York, NY	$79,400	$756,900	$438,300	$265,800
Los Angeles-Long Beach-Anaheim, CA	$73,600	$1,125,200	$652,300	$449,900
Chicago, IL	$71,500	$384,600	$224,800	$126,300
Dallas-Fort Worth, TX	$70,400	$405,800	$242,600	$152,600
Philadelphia, PA	$71,600	$404,000	$232,700	$119,800
Houston, TX	$66,100	$364,500	$205,500	$132,200
Washington, DC	$103,600	$700,900	$406,200	$251,700
Miami-Fort Lauderdale, FL	$56,500	$488,300	$283,800	$149,600
Atlanta, GA	$68,000	$404,400	$217,500	$131,300
Boston, MA	$90,100	$768,500	$467,000	$304,100
San Francisco, CA	$107,600	$1,638,200	$957,400	$557,900
Detroit, MI	$61,000	$314,900	$160,000	$45,900
Riverside, CA	$65,300	$531,500	$367,100	$246,500
Phoenix, AZ	$64,700	$436,200	$264,900	$183,900
Seattle, WA	$86,100	$845,100	$489,700	$317,300
Minneapolis-St Paul, MN	$79,900	$410,600	$268,100	$190,400
San Diego, CA	$80,600	$925,100	$591,400	$424,600
St. Louis, MO	$64,300	$305,900	$167,000	$72,300
Tampa, FL	$54,100	$359,800	$213,600	$128,400
Baltimore, MD	$79,700	$471,000	$267,900	$134,500
Denver, CO	$80,500	$604,300	$405,300	$299,900
Pittsburgh, PA	$61,300	$266,800	$143,900	$65,200
Portland, OR	$75,900	$575,400	$397,300	$301,900
Charlotte, NC	$63,700	$374,100	$206,200	$119,200
Sacramento, CA	$71,000	$606,800	$408,700	$290,600
San Antonio, TX	$58,600	$334,200	$192,800	$120,600
Orlando, FL	$57,200	$362,600	$237,100	$151,000
Cincinnati, OH	$64,300	$295,500	$168,900	$97,100
Cleveland, OH	$54,200	$265,900	$145,600	$71,400
Kansas City, MO	$65,900	$336,200	$191,600	$95,600
Las Vegas, NV	$60,100	$407,500	$277,900	$192,000
Columbus, OH	$66,800	$333,000	$189,900	$105,600
Indianapolis, IN	$62,000	$285,800	$163,900	$85,300
San Jose, CA	$124,300	$2,178,000	$1,245,800	$791,500
Austin, TX	$76,800	$502,000	$308,200	$213,100

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[1] Savings and retirement funds make up a majority of down payment funding according to the 2018 Zillow Group Consumer Housing Trends Report https://www.zillow.com/report/2018/

[2] Principal and interest only, plus mortgage insurance for down payments under 20 percent. Otherwise, does not include taxes or insurance costs, which will add to the monthly total.

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