Sunday, February 04, 2007

OC Affordability

There's been a lot of discussion about affordability of homes in here in OC. By most measure, affordability, on average, is relatively quite low, but that is better in some areas than it is for others. But how much better or how much worse? Quite a bit more than you might imagine

I took average household income from the OC Register and combined it with 2006 median prices from the LA Times. I then divided the median housing price by the average household income; giving a measure of relative affordability I'll call the price/income ratio. Having a look at the data, you quickly realize that affordability is by far the lowest for the less-fortunate among us, while if is much less of an issue for the well-to-do. I don't think this is much of a surprise to anyone. What I think you might find surprising, however, is just how much worse affordability is for the less-fortunate.

In one Santa Ana ZIP code the price/income ratio was 21.8, meaning that the median house price was about 22 times that of the average income indicating a profound lack of affordability. While I am sure there are SOME people in the ZIP code that can afford to buy, I would hazard to guess they are few and far between and that many or most of the properties sold in those areas are likely sold to investors.

In stark contrast, the price/income ratio for Newport Coast is 6.95, meaning that the median housing prices is merely 7 times as much as the average income. Compared to our Santa Ana ZIP, affordability is three times greater, making home purchasing very accessible to the local residents and worlds away from the circumstances of less-affluent areas. So how do things look for the balance of the ZIP codes? Well, it depends.

For the least-affluent ZIP codes, with average incomes less than $50k/year, relative affordability is rather grim with price/income ratios largely above 15 or very unaffordable. Between 50k and 75k the ratio improves to roughly the 14 to 12 range or somewhat more affordable and has and then improves again around the $100,000 range of about 12 to 10. And then after $100k, affordability generally improves, but gets dispersed.

The graph below shows the price/income ratio by average income plotted for OC Zips. .

So when talking about affordability, I think it's safe to say that in general housing is relatively unaffordable but keep in mind there are many areas either prohibitively or severely unfaffordable.

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