We’ve all heard it before: The San Francisco Bay Area is one of the most expensive places in the country to buy a home.
But a new study from real estate analysis firm Point2 found that San Francisco and other famously expensive big cities aren’t the only areas where housing is priced out of reach. Renters in non-core cities—mostly suburbs that are often considered cheaper, like Hayward or Richmond—tend to earn far less than they’d need to buy a starter home.
“The first step up the property ladder used to come with a supportive push from an accommodating inventory of starter homes. But, that was decades ago,” analysis from Point2 states. “It’s not just the concept of a starter home that’s pretty much disappeared, but the home itself—in main markets, as well as secondary ones.”
Three East Bay cities appear on the list of U.S. secondary markets where the average renter cannot afford a starter home: Antioch, Richmond and Hayward. And although Fremont renters had the highest median income among Bay Area secondary markets, Point2 found the city also has the priciest starter homes, at an average of nearly $953,000.
Southern California’s non-core cities fared even worse. In Burbank, where the average renter household income hovers around $63,000, potential buyers need a minimum yearly income of $193,000 to afford a starter home. In other words, the typical renter earns just 33% of the necessary income to obtain a key element of the American dream.
Two factors combine to foil first-time homebuyers: California’s pricey real estate prices, and would-be homeowners’ comparatively low average incomes.
Further, the inventory of new starter homes—which Freddie Mac defines as properties smaller than 1,400 square feet—has shrunk nationwide, dropping from a 13% share of all new housing inventory in 2003 to 7% in 2021, according to the U.S. Census Bureau.
In San Francisco's wildly expensive housing market, the median starter home costs over $1 million. That’s as expensive as all the median starter homes in the country’s top 10 most affordable cities combined, according to Point2.
But with an average renter household income of just over $100,000, the city’s renters are roughly 60% short of achieving the homeownership dream. It’s worse in nearby San Jose, where the average renter is 63% short of being able to buy a starter home.
The Bay Area real estate market continues to struggle after a remarkable 2021 rebound. In fact, the home sales volume in the Bay Area is the lowest since the bottom of the 2008 financial crisis, according to Compass Real Estate reports.
“New listing and sales volumes have risen from their [lows] in mid-winter, but remain historically low,” Compass analyst Patrick Carlisle wrote in a June report. “Ultimately, it always boils down to supply and demand: When buyers compete for too few listings, home prices rise; when sellers compete for too few buyers, prices drop.”
Two of the largest insurers in California—State Farm and Allstate—also recently announced plans to stop accepting new applications for homeowners insurance, citing the Golden State’s high construction and reinsurance costs, inflation and wildfire risks.
That drastic move appears to have caught both homebuyers and the real estate industry off guard, raising concerns that the insurance changes will put homeownership even further out of reach.
But there’s some good news for San Francisco’s renters: Beaten out by three Santa Clara County cities, it is no longer the most expensive in the Bay Area for one-bedroom renters.
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