Bubble or robust growth in SD housing market?
Housing bubbles have historically occurred when housing prices were above what the population of the same area can afford for a prolonged period of time.
The ARAMCO Group, in an effort to give context to other recent reports of increases in home sales and home prices, currently estimates that more than 1.8 million people cannot afford a median-priced home ($500,000 in May 2015 according to Zillow) in San Diego County.
The ARAMCO Group based its calculations on US Census data, and it assumed 20 percent down payment, 45 percent debt-to-income ratio, and 3.875 percent on a 30-year fixed mortgage, including insurance and taxes. The company also assumed a potential borrower will nominally have $500 per month of other obligations (e.g. monthly credit card debt, etc.).
A potential borrower in this case would need to make $78,000 per year or 23.8 percent more than the San Diego area’s median household income of approximately $63,000. According to US Census data, 56.9 Percent of the local population—or 1.8 million people—makes less than $75,000 per year.
Therefore it is important that economists consider both income growth and home price growth into the future as ongoing disparities would signal a looming price correction.
or more information on a home purchase, refinance, or a reverse mortgage, visit our website at Aramco.Biz or call me at (877) 700-0942. This is Mehran Aram with today's ARAMCO Report.