Northern CaliforniaSouthern California

California’s Housing Costs to Income Ratios

July 29, 2015

California has always been expensive, and it is getting even more expensive as buyers from all over the world flock to the Golden State. Even considering today’s low mortgage rates, the ratio of monthly housing costs (which include mortgage, PMI, taxes, and insurance) to income is getting quite high in certain markets.

The housing costs to income ratio has recently surpassed the historical average in most major California markets, even with record low mortgage rates. First-time home buyers are particularly sensitive to this ratio, as this buyer demographic is generally more payment sensitive than move-up or retiree segments. The chart below shows the housing costs to income ratio since 1985 in the major California markets.

Source: John Burns Real Estate Consulting, LLC

* We calculate the housing costs to income ratio by dividing the market’s median monthly housing costs by the median income. We consider housing costs as 95% LTV; PITI plus mortgage insurance payment assumes purchase of home at 80% of the median-priced existing home.

The ratio in the major Southern California coastal markets hovered around 35% during the mid-to-late1990s, when mortgage rates ranged from 7%–9%. The ratio more than doubled over the following eight years, reaching 70%–85% at the market peak in 2007. The current ratio for these markets is approximately 50%, which is above the historical average for these markets and equivalent to levels seen in 2003–2004. The same trend can been seen in Northern California markets. Only Sacramento and the Inland Empire remain affordable, at 30% of the median household income.

Although affordability is currently only slightly worse than the historical average, elevated housing costs to income ratios in a rising interest rate environment exposes these markets to considerable risk if mortgage rates rise. This is especially true if wage growth remains somewhat stagnant.

Pro Forma Payments and Incomes

We advise all of our clients to note the monthly housing costs and median incomes they are assuming in their pro forma spreadsheets. As rates and incomes change, this will help our clients identify when the target home buyer can afford more or less home than originally thought.


Building Market Intelligence™

Every week, we deliver analysis to over 40,000 subscribers with our Building Market Intelligence™ newsletter. Subscribe to our weekly BMI newsletters to stay current on pressing topics in the housing industry.

About The Author

Contact Us

If you have any questions about our services or if you would like to speak to one of our experts about we can help your business, please contact Client Relations at

Products and Services Mentioned

green check icon

Research Membership

Our research services enable our clients to gauge housing market conditions and better align their business and strategic investments in the housing industry. We provide a thoughtful and unique holistic approach of both quantitative and qualitative analysis to help clients make informed housing investment decisions.
green check icon

Metro and Regional Housing Package

An overview of major housing and economic trends, as well as forecasts across 100 MSAs nationwide. The information in this subscription package provides a complete picture of housing supply, demand, and affordability through local insight, proprietary surveys, and extensive data analysis.
green check icon

Real Estate Consulting

Our experienced team of consultants helps clients make sound housing investment decisions. We thrive on their success and work with many clients over multiple years and numerous projects.

Latest Insights

2024 Mid-year Review: Economy and Housing in the Sweet Spot
Dear Consultant: Will BTR Rent Growth Outpace Apartment Rent Growth Over Time?
The Death of the Hallway (and Other Design Trends)