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Housing affordability in LA is at a 10-year low, says new report

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Homes haven’t been this hard to pay for since the recession

House seen from the curb
Mortgage payments and slow wage growth are keeping houses out of reach for many Angelenos.
Tupungato / Shutterstock

In Los Angeles County, where home prices are at an all-time high, buying a home is now less affordable than it has been since the collapse of the housing bubble in 2008.

Data gathered in a new report from real estate analyst Attom Data Solutions shows that in the third quarter of 2018 (which ended last week), it was harder for LA residents to afford a home than at any point in the last 10 years.

The report examines the relative affordability of home prices in urban areas around the U.S., assigning each market an affordability score based on historical averages. Scores under 100 indicate that housing prices are less affordable than usual.

In the third quarter of 2018, LA County’s score was 87, down from 88 in the previous quarter. The last time homes were this unaffordable was in the second quarter of 2008, just before real estate prices began to plummet.

The nationwide affordability score was 92, the lowest it has been since the third quarter of 2008.

The report measures affordability based on buyers’ ability to make payments on a typical home. In Los Angeles, to afford a median-priced home (which costs $610,000), buyers would need to earn more than $170,000 per year, or spend more than the recommended 28 percent of their income on housing.

Unfortunately, the report finds that a typical LA household brings in just over $63,000 per year, meaning that median buyers would need to spend over 75 percent of their income to afford a median-priced home.

One reason that housing is so difficult for typical buyers to afford: Wages in LA County haven’t been keeping up with home prices. Just in the past year, the median home price has grown 6 percent, while wages have climbed 4 percent.

Another culprit is rising mortgage interest rates, which have significantly raised monthly costs for buyers. In a recent report from CoreLogic, analyst Andrew LePage finds that, with interest rates factored in, median mortgage payments are up 16 percent since last year.

LendingTree economist Tendayi Kapfidze notes in the Attom report that homebuyers are now able to borrow 10 percent less than they could a year ago.

“This means at each price point the number of buyers is falling,” says Kapfidze.

Eventually, that reduction in demand could lead to a drop in prices, as experts have predicted since the beginning of the year.

But as data from the Attom report shows, buying a house in LA could still get much more expensive than it is today. In the second quarter of 2007, when the median sale price in LA County was just 10 percent below where it is today, the county’s affordability score was 62—an all-time low.