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    Can I Afford A House In Los Angeles?

    Can I afford a house in Los Angeles

    Can I Afford To Buy a House in LA? There appears to be a frenzy for the few houses listed for sale in Los Angeles today.   In the past, record-low mortgage rates and the Coronavirus lockdown made people go crazy for real estate, driving up prices to seemingly unheard-of levels.  Make sure you don’t overpay or put yourself in a position of being house poor for the next thirty years. In case you were wondering, in 2024, the median price of a home in LA is $1.2 million. That is with a median price per sq/ft in LA of “just” $728. 

    What Salary is Needed to Purchase a Home in LA?
    It’s no secret that L.A. real estate prices are unreal. How to afford a house in Los Angeles. So how much do you have to make your home in Los Angeles . . . and still, have enough left over for groceries? Let alone having extra money to travel or enjoy the better things in life?  Unless you have a huge pile of cash lying around, you will need to qualify for a mortgage.  The good news is that unless you are self-employed, you will likely be able to qualify for a mortgage larger than you honestly will want to afford.

    By David Rae Certified Financial Planner™, Accredited Investment Fiduciary™

    The City of Angels has the reputation of being filled to the brim with amazingly glamorous and successful people just rolling in money and living in palaces on the beach. And it’s true; we grow ‘em here on trees. But for all the retail-is-just-a-detail crowd, there are exponentially more hardworking ‘normal’, ‘average’, and ‘median’ people who live in homes they own here too. With McMansions going for $4 to $6 million + a pop, cute Spanish teardowns at $1.9 million for the lot upon which to build said structures and even a modest condo in a ‘good’ neighborhood approaching a million now, how on Earth are regular SoCal Joe’s swinging it? As an LA Financial Advisor, I often get asked, “How much can we spend on a house?”

    Housing in LA- Location, location, location

    Calculating real estate averages is tricky here in my hometown of L.A. because of the vast disparity of wealth between neighborhoods. A 3-bedroom in Lynwood, for example, is going to cost considerably less than the same square footage in Brentwood. It gets confusing, too, because where, exactly, are we talking about? Los Angeles the city or Los Angeles County? Furthermore, when people think of L.A., it’s pretty much limited to the fabulous 310, 323, 213, 424, and selected edges of the 818 area codes. Then, too, the iconic Westside glamazon burgs of Santa Monica, West Hollywood and Beverly Hills are incorporated cities each and of themselves and technically not part of the City of Los Angeles at all (although they are in L.A. County.) Confused yet?  Don’t even get me started on the current cost of a second home in Palm Springs.

    Location is still important for your home purchase. That being said, if you are able to work from home (and avoid commuting) you may have more options for which neighborhoods in Los Angeles will meet you housing needs.

    But we have to start somewhere, so here goes.

    Basic L.A. House Buyin Math 

    Update 5/12/2021:

    • In Los Angeles County, the median home price rose 15.3% from a year earlier to $715,000, while sales climbed 11.2%.  Using the math below, that means you would want to have an income around $143,000 per year to buy the median house in LA.

    2024 Update: The Median Home Price In Los Angeles is now over $1.2 Million. 

    According to the website HowMuch.net, your household needs to make roughly $95,000 a year to be able to afford the median home in L.A., which they value at around $480,000. Using these metrics, you would need to earn around $237,500 (or more) to afford the current median home in LA.   With the skyrocketing mortgage rates, the number is probably higher.

    I’m not sure what HowMuch.net thinks of as ‘median,’ but that strikes me as extremely low for the L.A. area. From what I see, $480,000 would only get you a one-bedroom shack in an unattractive, far-from-the-action outlying area.

    Update: According the LA Times, the median housing price in Los Angeles County jumped to $610,000 in 2020.  (In many areas this may just be a studio or 1- bedroom condo).

    In contrast, Trulia lists the median house in the L.A. area at around $680,000 for all homes (averaging condos and townhouses into the mix too).  Using HowMuch.net’s calculations, to afford this figure, your household would need to earn approximately $134,500 per year.

    Related: Can I afford the cost of living in Los Angeles? (Click here to read)

    Getting Down With The House Down Payment To (afford a house in Los Angeles)

    Of course, any income assumption for home purchase also has to factor in the ability to come up with a down payment, which is a good indicator of how well you handle your finances if nothing else.

    But with an annual income in the mid-$50,000s (the median for L.A. County), this is a tough nut to crack.

    Assuming you find the house of your dreams in the $715,000 price range with a 20% down payment and an 8% return on savings after fees and taxes, here are some estimates of what you would need to save per day to get the down payment together.

    For 1 Year = Save $391.78 per day

    For 5 years = Save $66.78 per day

    For 10 years = Save $27.04 per day

    Can you save this much? It’s not impossible, but it will most likely take more than just cutting back on your Starbucks runs. Consequently, many people will have trouble affording a home locally. If you are partnered and can double that figure, the picture gets brighter but still, it could be a challenge.

    Home a Loan- LA Mortgage Considerations

    You can potentially qualify for a loan at up to 45% of your income, but this comes with a caveat.  With a mortgage this high, it’s easy to fall into the trap of being house-rich and cash-poor. This would mean ‘paying’ for vacations on a credit card if you take them at all. Or, more likely, forgetting about saving for your retirement. Or if you have offspring, perhaps even suggest that your kid take out ridiculously onerous student loans in addition to working three part-time jobs while carrying a full load of classes in college.  (Hey, it’s her fault she didn’t get a full-ride scholarship to Stanford, right?)

    Afford a House in Los Angeles. Conclusion:

    All of this seems a high price to pay just to live in the Southland. But for those of us who love it here, smoggy days and all, this is a price worth paying because L.A. gives back as much as it takes. Also, in real estate, as in life – and these are words to live by – just because something is difficult doesn’t mean it is impossible. You just have to be strategic, clever and lucky. In future posts, I’ll show you ways to do this. Meanwhile, check out my previous post for home-buying tips.

    Mortgage Rates dropped to record lows in 2020 but have climbed to more historical norms here in 2024. In fact, they are right around where they were when I purchased my first home way back in 2007.  You shouldn’t rush out and buy a house if you are not secure in your job or even sure you want to stay in Los Angeles for the long term.   It would definitely be risky to rush out and buy a house in Los Angeles, hoping pricing will jump if/when mortgage rates drop again.

    While I do think unaffordability and higher mortgage rates will put downward pressure on the appreciation of Los Angeles homes, I don’t think Los Angeles real estate is headed for a crash.

    Live for Today, Plan for Tomorrow.  If you are in LA, you know the weather will be perfect! The Los Angeles Real Estate Prices are Not.

    David Rae Los Angeles Financial Planner
    Los Angeles Financial Planning Expert David Rae appeared on the CBS News- Can I afford a house in Los Angeles?

    DAVID RAE, CFP®, AIF® is a Los Angeles-based retirement planner with DRM Wealth Management. He has been helping friends of the LGBT community reach their financial goals for over a decade. He is a regular contributor to  Forbes.com,  Advocate Magazine and Huffington Post, as well as the author of the Financial Planner Los Angeles Blog. Follow him on Facebook, or via his website www.davidraefp.com

    If you like Los Angeles Real Estate, you might also enjoy:

    How Much Money To Live Comfortably In Los Angeles? True Cost Of Living LA

    Connect With David Rae, Financial Planner LA

    David Rae, CFP® AIF®

    President / Founder DRM Wealth Management LLC

    1(323) 905-4380

    david.rae@financialplannerla.com

    "Can I Afford A House In Los Angeles?"

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