Housing Market: San Diego Leads List of Least Affordable U.S. Cities, Study Says

Housing MarketBuying a home these days is a tough decision for many. While mortgage interest rates are indeed much lower than their year-ago levels, the bad thing is that only the best customers with pristine FICO scores typically qualify for these rock-bottom rates. Also, the rapid rise in home prices has benefited existing homeowners in rebuilding equity, but been a bane for would-be buyers who are not able to afford a new home thanks to last year’s prevalent double-digit price appreciation. Then there is the commitment to make monthly payments on one’s mortgage for 15 or 30 years or however long the life of loan is.

However, consumers will find it especially hard to buy a new home in California, as the so-called “Golden State” took all four of the top four spots in Realtor.com’s report on the most expensive metropolitan markets in the United States. Aas usual, the fast pace of home value appreciation and the conversely laggard pace of wage hikes has made it even harder for the average American to afford a new home, especially in San Diego and other major California metros. According to the Realtor.com’s chief economist Jonathan Smoke, pricing in those metros is “forecasted to get worse,” and consumers who can afford a house in those markets “need to act as soon as they can.”

Realtor.com used “simple division” to glean information for the top ten most expensive metros in the U.S., researching data on home prices, income, and other measurables. “Bad ZIP codes” were then isolated – this is how the website defines areas where over half of all households are not able to afford a median-price home, or, in other words, do not have enough money for a mortgage. The site then took the total number of bad ZIP codes and divided that by the number of total ZIP codes in the metro – for example, Miami was tenth place with a 43 percent rating – 80 bad ZIPs and 185 total ZIP codes.

That percentage was actually decent compared to the top-ranked, most expensive metro in the report, San Diego, Calif. In San Diego, the median income last year was $59,846, while the minimum annual income required to qualify for a mortgage was $89,440. With a total of 106 ZIPs, there were 99 where consumers could not afford a median-price home. That translates to 93.3 percent of all ZIPs in the area being bad ZIP codes.

Los Angeles was second with 351 bad ZIPs out of 378, San Francisco third with 157 out of 170, and San Jose fourth with 58 out of 63. New York City broke the streak for California, coming in fifth with 759 ZIP codes out of 912 unable to afford a median-priced home. The top ten, in order from sixth to tenth, also included Boston, Portland, Sacramento, Seattle, and Miami.

Lack of affordability appears to be epidemic in California, and this was corroborated by University of San Diego professor of real estate Norman Miller. “Anytime you’re in areas that have appreciated faster than inflation, you’re going to have this kind of circumstance,” said Miller. “At the same time we have to recognize that people here have gotten wealthy off of some of these houses.”