Across the United States, real estate markets have recovered significantly since the ravages of the housing crash. California was one of the states most severely impacted by the downturn, but in the years since, prices have come roaring back, and then some. For decades, real estate has been expensive in the Golden State. Today, buying a house in California — or even renting — is just a different experience than any other place in the country.
Click through to see exactly how the real estate market in California stands alone, and what makes it such an expensive place to buy a home.
Overview: How California Real Estate Compares to the US
When comparing California’s real estate market to the rest of the country, the differences are stark. At the state level, no matter which metric you use, home prices are essentially double the national median. In large California cities, prices are much higher.
1. Median List Prices Are Higher
The median home listing price in California is nearly double the national level: $495,000 vs. $256,000. California’s price is also more expensive than the median listing price in 48 other states. The only state that tops California is Hawaii, but keep in mind that Hawaii only has 452,030 households versus California’s 12.8 million households.
2. The Price Per Square Foot Is Higher
In California, you have to spend more to get less space. Currently, the U.S. median list price per square foot is $139. For houses in California, the price is $292, which is more than double the national figure.
For a closer look at price per square foot, compare California housing markets to other U.S. cities. For example, six out of the top 10 cities with the highest price per square foot are in California: Malibu, Laguna Beach, Montecito, Palo Alto, Beverly Hills and Del Mar. In Del Mar, you’d pay an incredible $1,701.54 per square foot, according to Zillow.
How much home can you buy for $300,000 in every state? In California, not much.
3. More Cities Have a Median Home Price of $1 Million or More
According to Zillow data, 49 cities in California have median home prices greater than $1 million. In contrast, the second-largest state by population, Texas, has only four cities with median home prices above $1 million. Similarly, Florida offers up only seven cities with median list prices of $1 million or more.
In fact, five out of the top 10 cities in the U.S. with the most million-dollar homes are located in California. In 2017, Newport Beach had 1,341 such homes; San Jose had 2,048; San Diego had 2,357; San Francisco had 2,616; and Los Angeles had 7,055.
4. Prices Are Continuing to Rise Across the State
Affordable cities don’t last long in California, and the priciest cities seem to only get worse. For example, Arcadia has one of the highest median listing prices at $1.65 million. Despite this, the city saw home prices rise by well over 50 percent from 2015 through 2017, which was the biggest percentage increase in the country, according to Zillow. San Juan Capistrano wasn’t much different. From a median list price of $895,000 two years ago, prices have shot up close to 50 percent to a current median price of nearly $1.33 million.
5. Housing Prices Are Outstripping Income Growth
With home prices surging beyond already expensive levels, how can home buyers possibly keep up? It’s not easy. Housing costs in California are outstripping growth in incomes, affecting both people looking to rent a home and those looking to buy. Three of the five most expensive rental markets for one-bedrooms in the U.S. are in California, according to Apartment List’s National Rent Report: San Francisco, San Jose, and Oakland.
6. Rent Takes 50% of Income or More in Cities
The general rule of thumb is to spend no more than 30 percent to 40 percent of your income on housing costs. But if you’re interested in homes in California’s priciest markets, you will have to earn more to make your budget work.
According to Zillow, the median rent for all homes in Los Angeles is $2,828. Meanwhile, the median monthly pay after taxes in Los Angeles — based on the median gross household income of $51,538 — is approximately $3,316.83. On that salary, the cost of rent soaks up the majority of a person’s take-home pay. Many major California cities have similar figures.
7. Mortgage Payments Take 50% of Income or More in Cities
If the cost of renting a home is expensive in California, the cost of owning a home isn’t much better. In seven of California’s 10 largest housing markets, estimated monthly mortgage payments consume 50 percent or more of the city’s median income, based on a 20 percent down payment and the median home price. In Los Angeles you’d have to work over 100 hours a week to afford a home.
8. Wage Stagnation Means Housing Costs Hurt More
California has one of the highest costs of living in the U.S., second only to Hawaii. Exorbitant home prices can make the cost of living higher, but so can stagnating wages. As California home prices continue to rise, incomes don’t keep pace, creating more cities where monthly mortgage payments exceed more than half your income.
9. California Needs More Housing to Be Built
The demand for housing in California is unquenchable. However, houses are in short supply and new homes are not being built fast enough to replace dwindling inventory. Prices are rising due to this squeeze, but at least they’re not rising due purely to speculation, like in the housing bubble and crash.
10. The Supply of Homes to Buy Is Miniscule
Months of supply is the measure of how many months it would take for the current inventory of homes on the market to sell, given the current pace of home sales. Months of supply is a good indicator of whether a particular real estate market favors buyers or sellers. Typically, a market that favors sellers has less than six months of supply, while more than six months of supply indicates an excess of homes for sale that favors buyers.
As of December 2017, the U.S. has 2.6 months of supply of homes — historically quite low. Certain California cities have that level beat, however. According to Redfin data, Los Angeles, San Diego, San Francisco and San Jose all have a lower supply of homes than the national average. San Jose faces a particular shortage with less than a month’s supply of inventory.
In major cities like Oakland, the amount of inventory as a percentage of the city’s overall population is also tiny.
11. Homes Sell Much Faster
Zillow data show that for the U.S. overall, homes spent an average of 74 days on the market in June and July of 2017, the fewest number of days for the year. California, however, saw homes sell even faster, reporting an average of 56 days on the market in June 2017.
12. Homes Sell Above Listing Price
It’s common for a home’s sale price to differ from its listing price. But in overheated or high-demand housing markets, the frequency of homes being sold above their list price increases noticeably. According to Redfin data, for the U.S. as a whole, roughly 20 percent of homes were sold above their asking prices in December 2017. In contrast, San Jose saw more than 80 percent of homes sold above asking prices.
13. California Crashes Harder, Too
The entire country’s housing market endured a major blow when the housing bubble crashed about 10 years ago. According to the S&P/Case-Shiller U.S. National Home Price Index, U.S. housing prices declined more than 25 percent between the peak in July 2006 and the trough in February 2012. But the crash was far more severe for California’s real estate market.
Nationally, home prices slid into decline, but in California they went into freefall. According to the Index, Los Angeles home prices fell by more than 40 percent from their peak in April 2006 to their trough in May 2009.
About the Author
Andrew DePietro is a finance writer with years of experience covering topics such as taxation, Social Security, entrepreneurship, investing, real estate and housing markets. His work has appeared on MSN, Yahoo Finance, Fortune, Forbes, CBS and U.S. News. Before writing for GOBankingRates, Andrew worked as a research assistant and graduated from the University of Pennsylvania with a degree in History.