San Francisco home prices: affordable to a fraction of households?
We know that the market is tough, but data recently reported by Paragon – and profiled in the San Francisco Chronicle – really brings this fact into relief. Paragon’s recent San Francisco Bay Area Housing Affordability Report finds that, despite the first drop in home values since 2011 (as seen at year-end 2015), real estate prices in the city are still hitting record highs. This translates to record lows in terms of affordability – in fact, only 8 percent of households are earning enough to afford these price tags.
The Chron quoted the report thusly: “The California Association of Realtors just released its Housing Affordability Index (HAI) for the 4th quarter of 2015, which measures the percentage of households that can afford to buy the median priced single family dwelling (house) – and San Francisco is now 3 percentage points above its all-time low of 8 percent, last reached in Q3 2007.”
Three factors affect affordability according to the HAI analysis: median house price, mortgage interest rates and household income. The Paragon analysis incorporated local data compared across neighborhood, city, county, and country. The chart that accompanies this post further breaks down in detail the exact affordability across the metro area. It’s a sobering read for many.
But here’s a few important things to consider, as outlined in the Paragon report:
- By definition, half the homes sold were at prices below the median sales price.
- The CAR Housing Affordability Index uses median house prices for its calculations – not condos, which make up a lot of the city’s housing inventory. In fact, in San Francisco, more than half of all home sales are condos, stock co-op apartments and Tenancy-in-Common units, or TICs, and if you include units of less than two bedrooms, they are significantly less pricey than houses.
- Other than large and recent increases in well-paid employment and population, much of the demand for Bay Area housing is underpinned by increases in household wealth, which differs from household income. Wealth includes items such as stock-market gains – and in particular, new wealth seeks to invest in first homes.
- Finally, insofar as San Francisco is concerned, most of its households consist of renters, the majority of whom are under rent control. These housing costs have little to do with market-rate purchase conditions. In addition, between 3 and 5 percent of San Francisco homes are bought by wealthy non-residents and foreign buyers as second homes or investments.
Questions? Get in touch.