Citizens in the state of California have recently been struggling with a home affordability crisis. A new study released by real-estate tech firm Knock found that the city of Sacramento tops the list of places with the least affordable new home markets in the country, tied with Miami, Florida.
The median price of a newly constructed home in Sacramento was found to be 650,000 dollars, which would require a person to have an annual income of 128,000 dollars and be able to place a downpayment of 39,000 dollars to own it.
Sacramento’s median household income is just 76,706 dollars. Values of home in the region have risen by 21 percent over the last year, one of the biggest surges in the country. 80 percent of households in Sacramento are not in a financial position to buy a newly constructed home.
According to Kelly Pleasant, a real estate business owner from Sacramento, the average price for a new home is slightly lower than Knock’s estimate. He estimates the price to be around 500,000 to 550,000 dollars. Of late, the home market in the region has become less competitive, as is expected in the fall season. However, Pleasant believes that Sacramento still suffers from a lack of homes.
“Instead of maybe 10 offers (per listing), you’re seeing five offers… Instead of 50,000 dollars or 60,000 dollars over, maybe you’re getting it at list price or 20,000 dollars over… You can’t keep up with consumption… Builders are behind,” Pleasant said to The Sacramento Bee.
The housing crisis in Sacramento is also worsening due to high-income households from the Bay Area moving into the region in search of cheaper homes.
Last year, California’s population fell by 182,000, which was the first annual decline in the state’s history. Most people who moved out cited two reasons for the decision – high taxes and extreme unaffordability for families.
According to the California Association of Realtors’ Traditional Housing Affordability Index (HAI), only 27 percent of the state’s households could purchase an 817,950-dollar, median-priced, single-family home in the second quarter of 2021. This is down from 27 percent in the first quarter and 33 percent in the second quarter of 2020.
Furthermore, experts do not believe houses will become affordable anytime soon. “Demand for homes will continue to outstrip available supply as the economy improves, resulting in higher home prices and slightly lower sales in 2022,” Jordan Levine, chief economist for the California Association of Realtors, said in a statement.
According to Sean Black, co-founder, and CEO of Knock, several years of undersupply and the current supply shortage of homes are disproportionately affecting lower-income homebuyers. These buyers are trapped, looking for affordable homes in a market where houses are attracting multiple offers and being sold for greater than the asking price.
“Although more new homes are expected to come onto the market in 2022, wages have not kept up with home price growth, keeping new construction out of reach for many, especially first-time buyers who don’t have the benefit of equity from a home sale,” Black said.