Income to afford a "starter" home in the San Jose area approaches $300K, Redfin says
The income needed to afford a so-called "starter home" in Silicon Valley is approaching $300,000, another sign of the region's unaffordability, a new analysis finds.
According to real estate company Redfin, homebuyers in July needed an income of $299,414 to afford the median starter home in the San Jose area, which was $970,000. The income to afford a starter home is more than 75% above the area's median household income of $170,034.
The median mortgage payment for such a home was $7,485 a month, assuming a 3.5% down payment and a mortgage rate of 6.85%, which the company said was the average in July.
"Homes in the Bay Area are so expensive that even many high-earning tech employees have been priced out of the area, so they're looking at neighboring cities," Redfin agent Craig Pellegrini said in a statement. "I have one client who wanted to buy in Palo Alto, but they can't afford it anymore so they're looking in Sunnyvale and Santa Clara. That's pricing out a lot of lower earners in those neighboring cities completely."
Pricey real estate in Silicon Valley is nothing new, with many homes going well into the seven-figures. According to the Santa Clara County Association of Realtors, the median price of a single-family home in the county reached $2.29 million in July. The median single-family home price reached the $2 million mark for the first time in April.
Meanwhile in the San Francisco area, the company found the income needed for a starter home was $285,000 for the median priced $950,000 starter home, with the mortgage payment at $7,136. In the Oakland area, the income needed was $194,000 for a $629,000 starter home, with the mortgage payment at $4,850.
While the Bay Area and California have long been the poster child of unaffordable housing, starter homes have increasingly been out of reach for families across the country. Redfin said that in half of the most populous U.S. metros, a family earning the local median income can't afford a starter home.
To perform its analysis, the company defined a starter home as properties that were in the 5th to the 35th percentile in the market. A home was deemed "affordable" if a buyer was not spending no more than 30% of their income on the home payment.