First-time homebuyers in the Bay Area need to pay between 69% and 110% of their total household income to support a 30-year fixed rate mortgage (FRM) for a starter home, according to a new report by Trulia. Conventional wisdom concerning a balanced economy holds this allocation for shelter ought to be closer to 30% for both tenants and buyers.
Not surprisingly, the report on starter home affordability across the U.S. indicates nine out of the ten worst metropolitan areas for first-time homebuyers are here in California. The report reveals the sharp rise in income needed to purchase a starter home from Q1 2012 to Q1 2016.
The nine California cities with the steepest increases are:
- Oakland, which requires 29% more income today than in 2012;
- Los Angeles, which requires 28.2% more income;
- San Jose, which requires 26.6% more income;
- San Francisco, which requires 24.7 more income;
- Sacramento, which requires 23.3% more income;
- Orange County, which requires 22.6% more income;
- Ventura County, which requires 19.8% more income;
- San Diego, which requires 18.1% more income; and
- Riverside, which requires 16.8% more income.
The only non-California city to weasel into the top ten worst spikes is Miami, Florida with a 19.2% increase in income needed over 2012.
The percentage increase in the specific amount of their household income individual buyers need to purchase a starter home varies. However, it is the most crippling and pronounced in the Bay Area. The top three Bay Area cities require:
- 2% of a buyer’s income to purchase in Oakland;
- 7% of a buyer’s income to purchase in San Jose; and
- 5% of a buyer’s income to purchase in San Francisco.
These cities are closely flanked by Los Angeles and Orange County, which require 88.1% and 78.2% of a buyer’s income, respectively.