Bay Area Housing Affordability and Trumpian Economics

Bay Area Housing Affordability: Not Much Relief Yet

We talk about updates in housing affordability across the Bay Area and my thoughts on how the election of Trump effects the housing market.

median-sales-price-bay-area

A lack of affordable homes continues to present one of the largest challenges to buyers in California, so it comes as welcome news that more residents — if only slightly more — can make the mortgage payments on the average Bay Area property.

The state’s housing-affordability situation is hovering near its all-time 2008 low, when only 29 percent of residents could qualify for a mortgage. That’s it – just 3 out of 10 of people. The average state household now needs to earn just over $100,000 to afford the median-priced $515,940 single-family home.

Nationwide, nearly 60 percent of U.S. households could afford to purchase the median-priced $240,900 home.

Affordability increased in seven of nine Bay Area counties in the most recently completed quarter. That said, improvements were minimal, ranging from 1 to 3 percentage points across the region. But does a 1 to 3 percent increase in affordability really make a difference in SF or Silicon Valley? It does not.

Solano and Contra Costa are the only Bay Area counties that rank as more affordable than the state-wide average, at a respective 45 and 35 percent. Contra Costa residents need to earn $116,000 to buy a home in 2016.

For the 16th consecutive quarter, the San Francisco-Redwood City metro area was the nation’s toughest for prospective homebuyers, with just 9.7 percent of residents able to afford a $1,100,000 home on the median annual income.

Households in this area need to earn in excess of $250,000 per year to afford monthly mortgage payments of about $6,300. Think about that….

Folks need to earn $250,000+ just to buy a home, and these markets were on fire for a few years. That’s a lot of households who earn big bucks (I really need to learn how to code!).

California’s other two million-dollar-plus housing markets — Marin and Santa Clara counties — had respective affordability ratings of 19 and 22 percent.

So, now that you know what it takes to buy a home, it’s time to go out double or triple your income!

Trumpian Economics

In an analysis of how the Trump administration might affect housing markets, Pacific Union Chief Economist Selma Hepp explained that a lack of new construction in California and the resulting affordability problems may actually pose the biggest threat to the state.

But I will also add in rising interest rates due to the election (check for yourself), and the Fed signaling rate increases in the near future.

Where Trump might help home-buyers is with bank deregulation. He campaigned on the notion that Washington’s ties to Wall St. were too close and that a President should not be a puppet of the banks. Darn that Crooked Hillary! Well, guess what? Wall St. is celebrating “the Dawn of the Trump Era.” Shocker.

Refill the Swamp? Former Goldman Sachs banker Steven Mnuchin has been seen at Trump Tower amid rumors that he’s the leading candidate for Treasury secretary. | AP Photo
Refill the Swamp? Former Goldman Sachs banker Steven Mnuchin has been seen at Trump Tower amid rumors that he’s the leading candidate for Treasury secretary. | AP Photo

Trump’s plan is to tear apart Dodd-Frank, the legislation that went into place after our entire country’s economy melted down in 2008. You may remember that the “houses for anyone with a pulse” policy was a key piece in destroying our economy. Dodd-Frank ensured that those who were granted credit could actually afford that credit. Nearly the whole U.S. population blamed banks for the Great Recession yet beneath it all was a deregulated financial industry from the Bush era that functioned like the Wild, Wild West.

Ask any real estate professional in 2016 if we’re in a bubble and they will tell you “No, because people who have bought homes in the last 5 to 7 years are people who can actually afford it.” Dodd-Frank does way more good than harm, and limits the risk of future housing market crashes. So, why would Trump want to kill Dodd-Frank? Well, I think you can connect the dots…

 

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