LOS ANGELES, CA / ACCESSWIRE / November 24, 2018 / This past August, home prices in the Los Angeles area matched a record high. This has created a big problem for those looking to buy a home: how to put together enough money to make a down payment.
According to Neil
Shekhter, it would take in excess of 18 years for someone earning the median Los Angeles area income to accumulate sufficient cash in order to make a down payment on a median-priced home. Shekhter says that the only metropolitan area in the United States where it takes longer to save for a down payment is San Jose.
Shekhter‘ calculations are based on homebuyers seeking a conventional mortgage with a 20% down payment. At the moment, the median price of a home in Los Angeles and Orange counties is a little under $650,000. A conventional mortgage for a home of this price would require a down payment of almost $130,000. However, the median income in the area is only about $70,000, and with a savings rate of 10%, you would have to multiply yearly savings by more than 18 to get to $130,000.
If you adjust the calculations for salary and housing price increases, the numbers are even more daunting. Salaries in Los Angeles over the previous two decades have risen by more than 60%, and if this rate continues into the future, the median yearly income in Los Angeles would be about $110,000 in 2035. But home prices over the past twenty years in Los Angeles have risen by nearly 250%, and if this rate continues, the median home price in Los Angeles would be in excess of $2 million in 2035. This would require a down payment of around $400,000, and it would make saving for a 20% down payment almost impossible for median income earners.
It is possible for Los Angeles homebuyers with good credit to obtain a conventional home mortgage with a down payment as small as 3%. There are also a number of programs that provide first-time homebuyers with inexpensive upfront costs. But this still leaves LA homebuyers with an enormous problem: how to meet their housing payments. Even if with making a 20% down payment, if you add property taxes and insurance to mortgage payments (based on today’s interest rates), monthly housing payments for a median-priced home in LA would be about $3,500. This is more than 50% of what people making the median income take home in a month, which makes home ownership practically unaffordable.
Lowering down payments, of course, only increases monthly payments. For example, a median-priced home bought with a 5% down payment would require an additional $1,000 every month.
This is why Los Angeles is one of the least affordable housing markets in the United States. Neil Shekhter says that across the country it only takes a median earner about 7 years to save enough money to make a down payment on a median-priced home. Salaries outside the Los Angeles area have also more closely followed housing prices there. In the past two decades, U.S. salaries have risen a little more than 50%, while U.S. housing prices during the same time have risen a little under 100%.
NMS has offered quality rentals in the Los Angeles area for nearly three decades. Since 1988, NMS has developed and managed a large portfolio of premier apartment buildings and commercial properties in Santa Monica, West Los Angeles, Brentwood and the San Fernando
SOURCE: NMS Properties, Inc.
By: Jessica Zalban
SOURCE: NMS Properties, Inc.