Study says you need to earn $258K a year to buy a San Diego home

A new study suggests a San Diego household must earn $258,926 a year to afford a local home.

The Realtor.com study said the required income to buy a home in the San Diego metropolitan area has increased 73% since 2019, and is the fourth-most expensive market in the U.S. The San Jose metro area, home to Silicon Valley, topped the list with $370,069 in required annual income.

Economists at the website based their study on the assumption a buyer would get a 30-year, fixed-rate mortgage, put 20% down and spend no more than 30% of their gross monthly income on housing. Those caveats may seem a bit outdated, with average down payments trending downward and buyers unlikely to spend so little on monthly payments in expensive markets.

“It may be unrealistic in San Diego,” said Alan Gin, economist at the University of San Diego, of the 30% gross monthly income factor. “Also, San Diegans entering the home market are likely to contribute less than 20% because our median income is nowhere near ($258,926).”

As of April, the area median income in San Diego County was $130,800, said data from the U.S. Department of Housing and Urban Development, or HUD.

Still, no matter how much you cut the data, San Diego County is an expensive place to live and there are impacts on the local economy, Gin said. He noted the classic definition of housing affordability from HUD —  when a person spends no more than 30% of income on housing — is a good one for personal finance and a regional economy.

“The 30% comes from the idea you need 70% of your income to meet all your needs,” Gin said. “If you are spending more than 30% of your income on housing then you have less to spend on our local economy: restaurants, retailers, entertainment, etc.”

An April Bankrate study said the median down payment in the U.S. was 15% as of January. It also varied a lot by age. The median down payment for buyers 26 to 34 years old was 10% but 38% for homebuyers 79 to 99 years old.

Samantha O’Brien, a San Diego real estate agent, said most of her first-time buyers put down 5% to 10% but second-time buyers are almost always at 20%. She said San Diegans buying their second, or third, home often have enough equity in their current property to reach 20%.

“It’s all about the monthly payment,” O’Brien said about calculations buyers consider before pulling the trigger.

San Diego County’s median home price was $886,500 in February, said Attom Data Solutions. A 20% down payment would be around $177,330, and the monthly payment would be $4,979 (based on a 6.76% average mortgage rate in the last week of February).

Realtor.com said Americans, on average, need to earn $114,000 a year to afford a home, a 70% rise in five years. Yet there are some markets where the required income is much less: Detroit at $67,031, Indianapolis at $87,025 and Houston at $97,781.

Danielle Hale, chief economist at Realtor.com, wrote that there may be relief for buyers in coming months as home inventory has increased. She wrote that even with affordability hurdles, buyers are likely to see flexibility on listing prices.

There were 5,276 homes for sale in San Diego County over the past four weeks, said the Redfin Data Center. That’s up 26% from the same time last year, and near the high point of the past four years of nearly 6,000 in summer 2022.

“The number of homes for sale is rising in many markets, giving shoppers more choices than they’ve had in years,” Hale wrote. “Sellers are becoming more flexible on pricing, underscored by the price reductions we’re seeing, and while higher mortgage rates are certainly weighing on demand, the silver lining is that the market is starting to rebalance. This could create opportunities for buyers who are prepared.”

Markets with the highest required incomes to afford a home

Figure assumes 30-year fixed mortgage, a 20% down payment, and no more than 30% of gross monthly income spent on housing

1. San Jose-Sunnyvale-Santa Clara: $370,069 required annual income, 54.3% increase since 2019

2. San Francisco-Oakland-Fremont: $263,023, 30.5% increase

3. Los Angeles-Long Beach-Anaheim: $315,892, 86.0% increase

4. San Diego-Chula Vista-Carlsbad: $258,926, 73.4% increase

5. Seattle-Tacoma-Bellevue, Wash.: $206,777, 54.9% increase

Source: Realtor.com