Los Angeles and Orange counties are the least-affordable housing market in the country. And it's likely to only get worse.
That's according to new figures due out Thursday from real estate website Zillow, which found that renters here need to pay more of their income to afford a place to live than anywhere else in the country.
Adding to the affordability woes, Zillow is predicting that home prices here will climb 5.7% in the next year, outpacing likely growth in most people's paychecks.
The real estate website crunched for-sale and rent prices and incomes across 35 housing markets in the U.S. It found that a family earning the median household income of $59,424 in metro Los Angeles — defined as L.A. and Orange counties — would need to spend 47.9% of its income to afford a median-priced rental apartment, and 42.6% to afford a median-priced house. Both were the highest share in the U.S., though L.A. tied with San Francisco in for-sale housing.
Prices here have grown much faster than incomes in the last few years, said Svenja Gudell, Zillow's senior director of economic research. That's pushing L.A. housing out of reach for many.
"For people who aren't on the high end of income distribution — teachers, police officers — it becomes a real issue," she said.
Zillow's figures echo a recent study by UCLA's Ziman Center for Real Estate, which also pegged Los Angeles County as the least-affordable market in the country, and said that the rent crunch here has spread up the income ladder, to affect more middle-class households.
It's a twofold problem, economists say.
Housing prices here are high, though not as high as in the Bay Area, and comparable to New York, Washington and Boston. Those places score better on affordability measures, though, because people there tend to earn more than the average Southland resident. Median household income in the San Francisco area in the second quarter was $76,239, according to Zillow; in the L.A.-O.C. area it was $59,424.
"Los Angeles has a lower median household income than comparable cities such as New York or San Francisco but only a small difference in median rents," the UCLA report said.
Even for professionals with good incomes, buying a house in Southern California is a heavy lift, as Natalie Lohrenz sees every day.
As the director of counseling at the Consumer Credit Counseling Service of Orange County, she works regularly with first-time buyers trying to purchase a home in a place where the median house cost $600,000 in July, according to CoreLogic DataQuick. Last week, Lohrenz said, she met a registered nurse with a six-figure income who was struggling to buy a two-bedroom townhouse in Irvine.
"In the majority of the country, she'd have no problem at all," Lohrenz said.
One reason California is so unaffordable, said Gudell, may ironically be that it got hit harder in the housing bust than high-cost East Coast markets. Prices crashed. Investors scooped up homes cheap. Then as the market recovered, the price of what was left surged.
"They almost overshot," Gudell said. "These California markets have these extremely high home values now, but incomes haven't kept up."
If there's good news, it's that those price gains are slowing down. Zillow projects — based on supply, income growth and other factors — that prices here will climb 5.7% in the next year, more than twice the national average. But that's barely half the pace they grew over the last year, and down sharply from the 8.7% annual jump the firm projected a month ago. Slow income growth is clearly putting a damper on demand, Gudell said.
And the places where rents are climbing fastest tend to be places with strong job growth. Zillow said rents are up nearly 20% in the last year in Santa Monica and Venice, where tech jobs have surged. Rents have fallen in more remote areas such as Lancaster and Palmdale.
That trend probably will continue, Gudell said, as the housing rebound fades and growth becomes driven more by jobs and income.
"It wasn't as much of a jobs story six months ago," she said. "Now we have a healthy job market and that's really what's driving home values."
In the long run, that's a healthy thing, said Keith Gumbinger, vice president of mortgage-tracking firm HSH.com. Price growth based on market fundamentals is a lot more sustainable than growth generated by market swings. Still, he said, it'll take awhile to work out the damage of the last few years.
"We're falling back to typical dynamics, and that should be healthier overall," he said. "But income growth, wage growth, has been pretty weak. They've got a ways to catch up."