Los Angeles County Is Least Affordable Place to Buy a Home in the United States
Last year there was research showing that L.A. County was the least affordable place to rent and this imbalance was leading to rental Armageddon. The research of course highlighted what most of us with reasonable minds already knew and that was based on local household incomes, prices were out of control. Prices were being driven up by outside factors like investors, flippers, foreign money, and those willing to leverage every penny into a 30 year mortgage. A more recent UCLA study continues with this trend showing that L.A. County is now the least affordable place to buy a home as well. Wait, isn’t San Francisco or New York more expensive? Absolutely but households earn more so their ratios aren’t as in insane as in our all hat and no cattle beach paradise. Someone I know that lives a few miles from the beach spent one hour driving to the beach this past weekend and another 30 minutes fighting to find parking. We do have great options here but 10,000,000+ people fighting for the same spots can add some constraints. So now that we know L.A. County is the most unaffordable, what else did the study find?
Rental Armageddon or House Poor
The study is recent and was only released this month. One of the lead researchers basically pointed out what we’ve been talking about for some time:
“(SCPR) Ong said there is a strong relationship between the rental crisis in L.A. County and its low homeownership rates. An earlier UCLA study found that the average renter in the L.A. area devotes 47 percent of his or her paycheck toward housing.”
We did the math in our heads when your typical crap shack is going for $700,000 and a 20 percent down payment amounts to $140,000, it might be tough for a household to save this dough especially paying high rents.
“If you have high rents, and high rent burdens, it makes it hard for people to accumulate the savings to become homeowners,” Ong said.”
Makes sense right? And this is why the homeownership rate has collapsed.
In the end this means more renters. It also has created the boomerang phenomenon of adult kids moving back home with parents. Not only are we the most unaffordable place to rent and buy but we also have the worst traffic congestion:
“The population size of Los Angeles is a major factor contributing to low ownership rates. The region ranks second in population counts among all metropolitan areas. The diseconomies of scale are evident in the region’s traffic congestion. In 2011, Los Angeles was ranked number one in the Texas Transportation Institute’s Travel Time Index, meaning that Los Angeles had the worst peak-time traffic in the country (Lomax, Schrank, and Eisele, 2012).”
Try going to the beach on a weekend and you’ll find out for yourself how many people live in SoCal. Or just take a glimpse at rush hour on the 405 or 10 freeways:
Ironically this study comes from UCLA, a school near the absolute worst traffic in the nation. In all, this simply means more money is siphoned off into housing from other segments of the economy. Take a look at this chart:
In 2000, not too long ago the income-to-price ratio was about a 4. At the peak, it was over 10 in 2005 to 2007. In 2008 to 2010 it dipped to about 8. Today, it is still close to 8 yet the homeownership rate continues to decline. The big jump from 2000 to the peak was driven by toxic mortgages, many that had their origination here in SoCal. The low interest rate factor has meant very little to your typical prospective buyer aside from jacking the price up. As we have noted, the bulk of the movement after the bust has come from the investor crowd. The fact that incomes overall are still relatively weak tells you a lot about the local economy. Many middle class Californians are simply leaving the state. Others are renting and some are simply leveraging up to the hills.
The study also found some massive income inequality in the region which should be no surprise:
Which brings me back to the trips to local hot spots. I know of someone near a SoCal beach hot spot and he commented how ridiculous it is for locals now to enjoy their old stomping grounds. They enjoyed the sleepy days of yonder instead of the Black Friday like atmosphere of people trying to stick umbrellas in the sand and marking their spot for a couple of hours. It is what it is. Try going up to the mountains after the first snow. You think you are the only one that recognized that we have beaches and mountains nearby? Near is relative when you have insane traffic.
Congratulations to L.A. County for now officially becoming the least affordable place in the nation to buy a home.