Are homes affordable across California?

Editor’s note: Zillow has provided a special blog for Keep Your Home California, detailing the financial challenges of owning a home in California.

By Satinder Haer

California’s real estate scene has received a lot of attention over the last few years. While prices skyrocketed in San Francisco, 10.2 percent of homeowners in Riverside are facing underwater mortgages. For many individuals, rising home prices coupled with stagnant wages in the last decade have caused concerns about the affordability of homes across California.

Check out these five markets where Zillow calculated whether a median priced home would be affordable for a family earning the median income for that city.

Aerial Southern CA

Los Angeles

Los Angeles boasts a median home value of $586,000 as of February 2016. A simple mortgage calculator shows that a median-priced L.A. home with a traditional 20 percent down payment and 3.5 percent mortgage rate would result in a $2,760 monthly payment, including taxes and insurance.

Assuming that an individual is making the median income for an L.A. household, $49,682, a median-priced home in L.A. would not be affordable. One of the factors that lenders look at during the mortgage approval process is your debt-to-income ratio (DTI)—the total of your housing expenses and other monthly loans (including credit card, student loan and car loan debts) divided by your gross monthly income. For a conventional loan, you need a DTI of 36 or less. With an annual salary of $49,682 and zero existing debts, a DTI of 36 would allow you to qualify for maximum mortgage payment of $1,489 according to a DTI calculator.

Using the general rule for affordability—that a buyer’s mortgage, taxes and insurance should not exceed 25 to 28 percent of his or her gross monthly income—a median income earner in L.A. should spend no more than $1,035 to $1,159 on housing costs. Regardless of which calculation method is used, the monthly payment of a median priced Los Angeles home, $2,760, would far exceed what these calculations show is considered affordable on a salary of $49,682.

San Diego

Home prices in San Diego are slightly lower than Los Angeles with a median home value of $531,000.* The median income however, is higher in San Diego, at $65,759. While a lower median home value and higher median income is generally a sign that homes are more likely to be affordable in that area, a median-priced home in San Diego still isn’t quiet affordable on a median salary.

Based on a DTI of 36, you could qualify for a maximum mortgage payment of $1,973 with a salary of $65,759. However, the monthly mortgage on a $531,000 home, assuming 20 percent down and a 3.5 percent mortgage rate, would run you $2,508. The general rule of affordability paints an even worse picture. On a median San Diego income, you would want to spend no more than $1,369 to $1,534 on your monthly housing costs. The average San Diego earner would have to increase their income in order to afford a median-priced home or consider less conventional financing options that allow for a DTI ratio higher than 36.


Homes in Sacramento are priced significantly lower than other major California metros while the median income is comparable to those other metros. The median home in Sacramento will cost you $259,600* while the median household income sits at $50,013.

Using the same calculation, the monthly mortgage for a $259,600 home with 20 percent down and a 3.5 percent mortgage rate, would be $1,260. The DTI calculator indicates that you could afford to spend $1,500 on your mortgage if you had an income of $50,013 and no other debts. According to these calculations, a median earner in Sacramento could actually afford a home priced above the median home value in Sacramento.

The general rule of affordability does not generate exactly the same positive outlook. On a $50,013 salary, the rule suggests you’d want to spend between $1,041 and $1,166 on your housing costs each month. While this rule indicates you’d be spending more than 25 to 28 percent of your income to afford the $1,260 payment on a median priced Sacramento home, you’d be just outside the suggested percentage for housing costs. Overall, the median earner in Sacramento could likely afford the median priced home.

San Jose

Both the median home price and median income are higher in San Jose than most other California markets. A median San Jose home will cost you a whopping $817,000* while the median earner can expect to bring home $83,787. Affordability may be a serious concern in San Jose, even for those bringing home $83,787 annually, as they would not be able to afford a median-priced home.

With a DTI of 36 and zero debts, an individual earning $83,787 can expect to qualify for a maximum monthly mortgage of $2,514. Using the general affordability rule, that same individual should expect to spend $1,745 to $1,955 if they want to spend 25 to 28 percent of their gross monthly income on housing. However, the mortgage for a median-priced home in San Jose would be $3,822 each month. Both calculations indicate that you’d have to be earning well over the median in San Jose.


Oakland, once known as San Francisco’s less expensive neighbor, is also now seeing steadily rising housing prices. The median Oakland home now goes for $586,800* while Oakland residents make a median household income of $52,962.

The DTI calculation suggests that with a DTI of 36 and the salary of a median Oakland household, the maximum mortgage payment an individual could qualify for is $1,598. However, the monthly mortgage payment on a median-priced Oakland home with a traditional 20 percent down payment and a 3.5 percent mortgage rate would cost $2,764—unaffordable on the median Oakland salary. The general affordability rule also indicates the median home in Oakland would be unaffordable for a median earner with a suggested monthly housing cost of only $1,103 and $1,235.

While the high prices in some California markets are discouraging to potential homebuyers – and shed light on affordability issues for homeowners who are struggling to stay in their homes – the numbers vary significantly by market. Affordable areas exist, but there are certainly a lot of areas where low to moderate income Californians face homeownership challenges.

*Median home prices are reflective of market data from February 29th, 2016 on Zillow’s Home Value Index.

If you are dealing with an unaffordable mortgage, please consider Keep Your Home California, a free mortgage-assistance program that offers as much as $100,000 in principal reduction. You can call the counseling center at 888-954-5337 or find more information at counseling center is open 7 a.m. to 7 p.m. weekdays and 9 a.m. to 3 p.m. Saturdays.



One Comment on “Are homes affordable across California?”

  1. Sabrina says:

    Reblogged this on The Real Estate Beat and commented:
    An interesting read – thought I would share it…

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