How Expensive is Housing in California?

Home ownership has long been an American staple for upward mobility. Homeownership is the largest source of wealth accumulation for most households. The economics behind the dream are undeniable.

According to Eric Belsky, the Managing Director of the Joint Center of Housing Studies at Harvard University, there are at least 5 key financial benefits of homeownership. In his paper “The Dream Lives On: the Future of Homeownership in America", the author lists the 5 benefits as follows:

  1. Housing is one of the only assets that can be leveraged. “Few households are interested in borrowing money to buy stocks and bonds and few lenders are willing to lend them the money. As a result, homeownership allows households to amplify any appreciation on the value of their homes by a leverage factor. Even a hefty 20 percent down payment results in a leverage factor of five so that every percentage point rise in the value of the home is a 5 percent return on their equity. With many buyers putting 10 percent or less down, their leverage factor is 10 or more.”
  2. You pay for housing whether you rent or you buy. “Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord.” 
  3. There are tax benefits to owning a home. “Homeowners are able to deduct mortgage interest and property taxes from income...On top of all this, capital gains up to $250,000 are excluded from income for single filers and up to $500,000 for married couples if they sell their homes for a gain.”
  4. Responsible Homeownership is a form of saving. “Since many people have trouble saving and have to make a housing payment one way or the other, owning a home can overcome people’s tendency to defer savings to another day.”
  5. Historically, owning a home has been a hedge against inflation. “Housing costs and rents have tended over most time periods to go up at or higher than the rate of inflation, making owning an attractive proposition.”

Rents are high in the San Francisco Bay Area that we serve. Many people pay more in rent than they would pay for a home of their own if one were available.  Often, would be buyers are priced out of the market due to low inventory of average priced homes and intense competition from investors who often purchase with all cash. In general, a buyer would spend approximately $725 per month per $100,000 borrowed (this payment includes principal, interest, property taxes and fire insurance). It’s hard to rent a room in the East Bay for less than $700 per month, let alone a family home. More inventory of below average priced, quality homes, would save the middle class; it is that simple.