What you now need to earn to afford a median-priced home in the Sacramento region
After nearly a decade of steady and sometimes steep price increases, the Sacramento four-county regional median price hit $530,000 in March - the highest it has ever been in pure dollars.
That is still slightly lower, adjusted for inflation, than the out-of-control price peaks in 2005, just before the last real estate bubble dramatically burst, launching the Great Recession. The median sales price in August of that year would translate to $560,000 currently.
Still, at this pace, it may be a just matter of months – or even weeks – before we finally surpass the frothy highs that occurred just before the last real estate crash, which lasted five years.
What exactly is a median price? And, at $530,000, how much do you have to earn to afford that house?
The median is basically the house in the middle: Half of the houses sold in the region sold for more and half sold for less. The median varies widely by county. In Sacramento County, where more homes are smaller and older, the median is $483,000, according to real estate analyst Ryan Lundquist. In Placer, it is $605,000, and in El Dorado, it’s $595,000.
What home do you get for that price?
In Sacramento, that could give you a traditional three-bedroom, two-bathroom home like a Fuego Way residence listed for $485,000 in the Laguna section of Elk Grove
In Placer, the typical house sold may look like this 2,200-square-foot home listed on Zillow with three bedrooms and bathrooms on Afterlight Lane on the western edge of Roseville.
And in El Dorado that could mean a Chalet-style home in the Pioneer Village community of South Lake Tahoe like a 1,450-square-foot property recently listed for $579,000.
Who can afford that house?
According to an analysis earlier this month by ATTOM Data Solutions of Irvine, it now requires an annual salary of $76,300 to comfortably buy a median-priced house in Sacramento County, as of the end of 2020, and more than $100,000 to comfortably buy at the median price in Placer.
The Sacramento County analysis is based on two key assumptions:
The buyer has $100,000 or so in cash or savings for a 20% down payment.
The monthly mortgage cost, at today’s interest rates, equals 28% of the person’s monthly earnings. ATTOM analysts calculate that 28% is a safe margin for a home buyer.
But the median household income in the county at the end of 2020 was $66,800, according to ATTOM. That means a median-earning family would have to spend nearly one-third of its monthly income on housing costs on a median-priced home.
Historically, that is steep, but nowhere near the worst year, just before the real estate crash, when families would have to spend 53% of their monthly income to get into a median-priced house.
Nor is it anywhere near the light 15% of median earnings it took to buy a house here in 2012, at the end of the Great Recession, when housing prices had plummeted.
Ironically, real estate analysts and economists say there are plenty of potential buyers in the Sacramento market who can afford the median-priced house and much higher.
Tim Collom of House Real Estate said his agents are seeing a continued steady flow of buyers from the Bay Area and other higher priced coastal areas who have sold more expensive homes.
“These are buyers who are very healthy financially,” he said, many of whom have cash to pay 50% or more of the cost of a home.
