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Zillow: California’s expensive housing market even prices out the rich

Californians typically spend more than 30% of their income on housing

California’s housing market is so large that it now accounts for a third of the nation’s housing market value.

In fact, since February 2012, California’s housing value has climbed a whopping $3.7 trillion, ushering millions of homeowners into its rich market.

But as affordability concerns impact metros across the country, new data from Zillow suggests that not even high-income households can keep up with the Golden State’s outrageous home prices.

“Even if they were to theoretically put no money down to purchase the median-valued home, a homebuyer in 22 of the country’s 35 largest metro areas could still make their monthly mortgage payments without spending more than 30% of their income on housing. But not in California,” Zillow writes.

According to the company’s analysis, 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% down payment.

Furthermore, to make ends meet on their monthly mortgage, the average California household would either need to spend far more than 30% of their income on housing or exceed the standard 20%.

“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,” Zillow writes. “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.”

Zillow notes that even after a homebuyer puts 20% down, the $4,900 monthly payment in San Jose and $3,760 payment in San Francisco still ends up consuming more than 30% of the typical household’s income.

“To bring that monthly payment in San Jose down to $3,108 per month – within the 30% threshold – a homebuyer making the median income in the San Jose metro would need to make a ludicrous down payment of almost 50%, or $614,100, on the median-valued home,” Zillow writes. “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.”

Notably, even Silicon Valley homebuyers are priced out, as affording the typical entry-level home in San Jose is nearly out of reach for a median-earning household.

In fact, the largest loan Silicon Valley homebuyers could afford without crossing the 30% barrier would be $631,700, which is 80% of the typical entry level home value of $791,500, and still requires a substantial 20% down payment of $159,800 up front, according to Zillow. 

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