Kelly Cunningham, NATIONAL UNIVERSITY SYSTEM INSTITUTE FOR POLICY RESEARCH
Thursday, September 19, 2013
As of the 2nd quarter of 2013, the National Association of Home Builders’ (NAHB) ranks San Diego the nation’s 8th least affordable housing market. Affordability is determined by the percentage of homes sold within a metropolitan area that the median household income could afford to buy. Affordability thus takes into account household incomes, housing prices, mortgage rates, and lending standards.
Among the nation’s 225 major metropolitan areas, 69.3 percent of homes sold were affordable to the national median household income of $64,400. In San Diego only 37.1 percent of households could afford to buy a median priced home selling for $400,000 with median household income of $72,300.
This isn’t just a problem for San Diego. Other California metro areas have even greater housing/income distortions. California metros accounted for 13 of the nation’s 15 least affordable housing markets in the latest NAHB ranking.
Another way to measure affordability compares the ratio of home price against household income. Across the U.S. home prices are generally three times median household income. When home prices spiked to income multiples above 4.0 the housing bubble soon collapsed.
In San Diego the price/income multiple bottomed at 3.5 in the mid-90s, before rising to unprecedented highs well above 7.0 times median household income from 2004 to 2006. (The ratio peaked at 8.0 in 2005.) The housing price/income ratio subsequently fell to low of 3.6 in 2009. As the market continues to “recover” the ratio climbed back up to 5.3 as of the 2nd quarter of 2013, a multiple last seen in 2002. Other large California metro areas, including San Francisco, Silicon Valley, Los Angeles, and Orange County have even worse housing/income multiples than San Diego.
Other dynamics of San Diego’s housing market contribute to supply and demand inequalities, including constrained home building, population and demographics. NUSIPR examines these factors for why San Diego’s housing prices are so high in the September 2013 edition of the San Diego Economic Ledger.