Tuesday, September 22, 2009

Dig Deep If You Want To Own A Home

The US Census Bureau released 2008 data on Monday that shows that housing is getting less affordable even though the country and the Bay Area have seen home price drop over the last year few years and continued to decline.

The numbers are staggering, with more than 40 million homeowners spent 30% or more of their household income on housing costs, an increase of 600,000 more families from 2007. The survey includes homeowners and renters and it revealed that there was an increase in renters in 2008. That should not be surprising since thousands have lost their homes to foreclosures and they still need a place to live. Many former homeowners have returned to renting this is reflected in a 142,000 drop in home ownership.

In the Bay Area, nearly half the renters and 53 percent of the homeowners spend more than 30 percent of their income on housing. Even with the high cost of housing, the Bay Area income is also higher. Places like California's Central Valley have higher numbers of renters spending a large portion of their household income on rent with Fresno at 57.2% and Modesto at 58.1%. Miami led the country of homeowners that spend 57.2%. Los Angeles followed closely behind at 55%.

According to the book "Housing America in the 1980s" by John S. Adams rent in the West was 22% in 1970 and 28% in 1980 of household income. Homeowners with mortgages in 1980 spent 19-20% of gross monthly income and houses without mortgages 10-15%.

San Francisco-Oakland-Fremont, CA
Renters spending 30% or more -- 49.5%
Homeowners spending 30% or more -- 53.0%
Renters spending 50% or more -- 25.1%
Homeowners spending 50% or more -- 23.4%

According to the USA Today Story that ran this morning:

Nearly two in five homeowners with mortgages and half of renters paid 30% or more of their before-tax income on housing costs, which is the limit the government sets for determining that housing is unaffordable, according to an analysis of Census data done for USA TODAY by the Joint Center for Housing Studies at Harvard University.
The basis for housing costs for homeowners include mortgage payments, taxes, insurance and utilities. Renter costs include rent and utilities, if they are paid separately.

Here in Alameda the August 2009 median home price of $505,500 require the following for a homeowner. (All numbers are estimated)

Down Payment (10%) -- $50,500
Mortgage (30 year) -- $2,442 month; $29,304
Taxes -- (Annual) -- $6,318
Insurance (Annual) -- $1,200
Utilities (Annual) -- $1,800

Total Annual Cost -- $38,622

The net income a household would need to be right at 30 percent level is $128,740. When you account for Federal (33%) and State (9.3%) taxes the gross household income needs to be well over $220,000.

These numbers are nothing new for those that live in California and in Alameda. We all know that it is a struggle to pay for a place to live and if you want to own your little piece of the Island you will have to dig deep into those pockets.


  1. The USA Today story uses before-tax income to calculate the percentages, while your model uses net income. That would put required gross income level for median house in Alameda at 128k. Still high, but much more realistic for many double-income families.

  2. You are correct. The reason I used after tax was because the take home pay would be roughly $54,000 on a $128,000. If you have $38,622 in annual cost, that is 71 percent of take home. That would leave about $1,200 per month for all other expenses. Could be done but it would be very tight for a family to live off.

    My point was to be more realistic than the Census and USA Today on affordablity, but I guess that did not come across clear enough. Most of us only understand what we see at every paycheck.