Wage Growth Slightly Boosts Housing Affordability in Three Bay Area Counties

Income gains helped keep California’s housing affordability in check in the fourth quarter and even resulted in some modest improvements in the Bay Area, though only one-quarter of the region’s residents can afford to purchase a home.

In its fourth-quarter 2016 Housing Affordability Index, the California Association of Realtors says that 31 percent of the state’s residents could afford to buy the median-priced $511,360 single-family home, unchanged from the third quarter. Along with seasonable home price softening, wage growth kept the state’s affordability from further deteriorating. The average California household needs to earn a minimum of $100,800 per year in order to make the $2,520 monthly mortgage payment, assuming a 30-year, fixed-rate mortgage at 3.91 percent and including taxes and insurance.

Across the entire nine-county Bay Area affordability slightly worsened, with 25 percent of residents able to afford the median-priced $797,170 home, down from 26 percent in the third quarter. Bay Area households need to pull down $157,140 per month to cover monthly mortgage payments that average nearly $4,000.

Three Bay Area counties were the only ones in California to enjoy affordability improvements — albeit very modest ones — also thanks to higher wages. Contra Costa County‘s affordability grew to 39 percent of the population, up from 37 percent in the third quarter of 2016. Napa and Marin counties saw affordability improve to a respective 26 percent and 20 percent, both 1 percent increases from the previous quarter.

Affordability conditions mirrored state trends by holding steady quarter over quarter in Solano (45 percent), Santa Clara and Alameda (22 percent), and San Mateo (15 percent) counties. The number of residents who could afford a mortgage dropped by 1 percentage point in Sonoma (26 percent) and San Francisco (13 percent) counties.

San Francisco and San Mateo are California’s least affordable counties, followed by Santa Cruz at 17 percent. San Francisco and San Mateo had the state’s highest median home prices at around $1.3 million, making them the only California counties where borrowers could expect monthly mortgage payments in excess of $6,000.

With mortgage rates projected to rise in 2017 and over the next few years, affordability will continue to erode, as we explained in November’s Pacifiic Union’s Real Estate and Economic Forecast to 2019. Freddie Mac puts 30-year, fixed-rated mortgages at 4.19 percent for the week ended Feb. 9, up from 3.65 percent at the same time last year.

(Photo: Flickr/401(K) 2012)

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