When it comes to the real estate market in California, renters and homeowners are feeling the burn. The annual closing reports for the 2016 real estate market are coming in, and the numbers yield some valuable insight.
The State of California, in particular the coastal enclaves around Los Angeles and San Francisco, widely benefits from the strong job market and annual household income of residents around Silicon Beach and Silicon Valley. Though it seems a lot of wealth has been created as a result of the growth of the technology and entertainment sectors, the statistics tell a different story.
CA Real Estate Report: Homeownership in California is becoming merely a dream
For many Californians, home ownership is quickly becoming out of reach. Though income slightly increased year over year, and interest rates have been low, the housing affordability index (HAI) has been consistently under 40% for the past 14 consecutive quarters. According to a 2016 California Association of Realtors real estate report, only 40% total of the state’s home buyers generated enough income to qualify to buy a median priced home.
“A minimum annual income of $100,290 was needed to make monthly payments of $2,510, including principal, interest, and taxes on a 30-year fixed-rate mortgage at a 3.76 percent interest rate.”
Median home prices statewide rose to $515,940, some of the highest in the nation when compared to the rest of the US at $234,900. Predictably, prices are highest in counties with close proximity to technology centers — Alameda, San Francisco, Marin, San Mateo, and Los Angeles. At a finer granularity, prices in cities immediately adjacent to these tech centers are far higher than the state average, and nearly 7x the US median.
Real estate market in Silicon Valley & San Francisco Bay Area
Perhaps tech giants like Adobe, Apple, Facebook, Google, Intel, and many more come to mind when thinking of Silicon Valley. While these companies certainly pay excellent wages and offer great benefits, they make up but a fraction of the available jobs in the market. For everyone else, even above average wages relative to the rest of the nation still equate to a much different financial picture. Saving and investing for personal wealth, starting a family, and enjoying long-term quality of life are much more difficult to achieve when compared to other economic areas of the US that are more affordable.
Real estate in West Los Angeles & Silicon Beach
Silicon Beach is home to Snapchat and many other tech startups and a few venerable entertainment companies. Silicon Beach and LA Metro suffer the same affordability problems as SF Bay. The cities in this area are priced in parity with Silicon Valley, again with some of the highest median home prices in the nation:
- Santa Monica, CA — $3,395,200
- Pacific Palisades, CA — $2,175,000
- Venice, CA — $1,632,000
If the vast majority of working families and individuals in California cannot afford housing in the cities they hold jobs in, it is not surprising that most are forced into leasing houses and apartments that fall within their budget. However, the rent is extremely costly. Santa Monica has overtaken New York City as the highest rental price in the nation for a 1 bedroom unit, followed closely by Venice, San Francisco and Tiburon.
The Silver State is a golden opportunity
The majority of the people that have relocated to Nevada in the last few years were former Californians. Entrepreneurs, business owners, investors, and professionals from a wide range of fields including law, medicine, and technology have recently taken the leap. Many have opened offices here, or work from a home office, while others prefer to keep their existing business operations in their home state and just move their personal residence.
Though there are several possible reasons for this mass exodus, one of the most cited is Nevada’s state tax structure. Nevada has zero state income tax and a very favorable corporate tax climate and the cost of living is comparatively low. Compared to the other states in the US that also enjoy no income tax, Nevada also has the distinct advantage of close proximity to the San Francisco, Los Angeles/Orange County and San Diego metropolitan areas. With daily (even hourly) direct flights to every major city in the world, with routes from all of the major airlines, southern Nevada has become far more attractive to this crowd in recent years.
Aside from the obvious practical reasons, there are additional lifestyle factors. The warm Southern Nevada climate, vast outdoor recreation areas, and world class PGA golf courses definitely ease the transition from California with a minimum of pain. For cosmopolitan types, Las Vegas delivers in spades — pulsating nightlife, michelin star-rated restaurants, luxury shops, haute couture and the potential each day to meet interesting people from around the world all contribute to the allure of the famous Las Vegas Strip.
Pound for pound, home buyers punch far above their weight in Nevada. In contrast to California, the median sales price for new homes is much lower at $329,596. For resales, it is $235,000.The median sales prices of the highest end developments are still significantly lower than most of the cities in SF Bay or LA Metro. McDonald Highlands in Henderson has a median sales price of $877,000. The Ridges, a high end development in Summerlin comes in at $950,000. If you have always dreamed of a luxury home that you otherwise would never be able to be afford in California, check out the luxury real estate listings around Las Vegas.¢