The Most Expensive County in California Examined – How San Francisco County Became the Most Over Priced Real Estate in California. 26% of Those Who Own Their San Francisco Home Would not be Able to Afford Their own Place if they Bought Today.
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Only two counties in California have the honor of having a median price of over $600,000. Sure, we have areas like Beverly Hills with a median price of millions of dollars but this is still part of Los Angeles County. But to have a county like San Francisco with a current median price of $627,500 even after all the California housing turmoil boggles the mind. It is hard to grasp because the county income dynamics do not support that price level. Not even close. It’s as if the correction in the state was passed over in San Francisco. But make no mistake, this county has always been expensive. Even in 2000 the median price in the county was up to $477,000 mostly because of the tech bubble secondary push.
Let us look at the current data and try to figure out what is going on:
The latest data shows San Francisco still holding at a very high median price. But San Francisco County only accounts for 6% of all Bay Area home sales. It should be obvious that price is one of those reasons keeping people from buying in the city. Yet the reasons don’t seem so obvious when we dig deeper into the data:
The median household income for San Francisco County is $73,000. So with a current median price of $627,500 we are looking at a household income to home price ratio of over 8. This is enormous since even looking at historical data a ratio of 3 to 4 seems to be more standard. Looking at this data tells us that SF County is definitely still in a housing bubble. As other areas have corrected, this area is still being propped up and it is certainly not because of higher than expected incomes. In fact, if we look at distress inventory for SF we find that many households are now unable to pay their mortgages:
Distress inventory trumps the actual MLS data viewable to the public. This is very common throughout many counties in California. But you would logically think that the most expensive county would have people that are able to pay their mortgages at a higher percentage than other areas. That is not the case if we are to look at the above.
San Francisco is an interesting case study. The county is made up of 359,000 households. But when we look at the housing dynamics we can see why the median income is much lower:
Housing occupied units: 323,000
Renter-occupied: 195,000 (60%)
60% of those living in San Francisco County rent. The obvious reason is that many people don’t have the income to support those current prices. There is no way a $73,000 income can buy a $625,000 home. So let us look at the above income chart again. In order to “afford” a $625,000 a household income will need at least an income of $200,000. Of those living in San Francisco only 14% make that amount. Yet 40% occupy their home (i.e., own their place). So we have a 26% gap of those living in their home that if they were to buy today, would not be able to do so. We see this when homes were purchased in California:
And for San Francisco, about 40% bought before 2000. It is interesting to see these numbers because it shows us that many counties in California are still in bubbles. Given the distress inventory, we would expect more correcting in these areas. In fact, you’ll notice that the Bay Area is up 20% for the year in price while San Francisco County is down 2%. This is a long way from making sense but it is heading in the right direction.