Homebuyers need to make more than $400K in this Bay Area region to afford the 'typical' home, analysis finds
SAN JOSE, CALIFORNIA - AUGUST 15: A general view of a home advertised for sale in a residential neighborhood on August 15, 2024 in San Jose, California. The median single-family home price has surpassed $2 million in the San Jose metro area, marking
SAN JOSE, Calif. - New research has found that the gap between the cost of buying a home and the cost of renting is ever-widening, and in the U.S., the Bay Area has the biggest home buying premium.
Highest income needed
The analysis by Redfin found that in the San Jose-Sunnyvale-Santa Clara metro area, an annual income of $408,557 is needed to afford the typical home for sale, the highest in the nation.
That’s more than 8% higher than a year ago and about 218% more than what’s needed to afford the typical apartment for rent in that South Bay region.
Redfin said the annual income of $128,580 needed to afford a typical apartment for rent in the San Jose-Sunnyvale-Santa Clara metro area was also the highest in the nation.
"We consider a home affordable if a buyer taking out a mortgage spends no more than 30% of their income on their monthly housing payment," the real estate brokerage explained, noting that it based its analysis on median home sale prices and median asking rents, along with mortgage rates and property-tax payments over a three-month period ending on Feb. 28.
The median home sale price in the San Jose-Sunnyvale-Santa Clara metro area stood at $1,514,289, with the median asking rent calculated to be $3,215.
SF-Oakland-Berkeley next highest
The next highest home buying premium was in the San Francisco-Oakland-Berkeley region, according to Redfin. Figures showed an annual earning of $296,984 would be needed to afford a typical home in that area.
To afford a typical apartment, a household would need $107,720 to afford a typical apartment in that core-based statistical area (CBSA).
Redfin put the home sale price in the San Francisco-Oakland-Berkeley region at $1,080,775, with the median asking rent coming in at $2,693.
The real estate brokerage company said that across the country, we’re seeing a growing gap between the income a household needs to afford homeownership versus the earnings needed to afford an apartment.
"The cost of buying a home is rising faster than the cost of renting," Redfin analysts noted. They also stressed that most of these places that were seeing the biggest home buying premiums were in tech-heavy regions on the West Coast, which has a history of soaring housing prices.
After the San Francisco-Oakland-Berkeley region, the Seattle-Tacoma-Bellevue region came in third, followed by the Austin-Round Rock-Georgetown areas of Texas.
The Los Angeles-Long Beach-Anaheim region rounded out the top five places with the biggest buy-to-rent premium among the 42 core-based statistical areas analyzed by Redfin.
The real estate company defined buy-to-rent premium as the ratio of income needed to afford a typical home to the income needed to afford a typical apartment.
Shrinking gap
There were only six regions, including one in Northern California, that saw a shrinking gap between the income needed for buying a typical home versus renting a typical apartment.
Redfin listed the Sacramento-Roseville-Folsom area among those that had rents rise faster than home prices.
The area’s year-over-year change in the median home sale price was less than 3%. The median asking rent grew more than 4% from the previous year.
Redfin put the income required to afford a typical home for sale in that region at $158,682. That’s still about 98% more than the $80,160 needed to afford the typical apartment for rent.
The median home sale price in the Sacramento-Roseville-Folsom area was $576,111, with the median asking rent calculated at $2,004.
Big picture view:
Across the U.S., Redfin said that Americans need to earn $116,633 a year to afford the median-priced home for sale. That’s almost 82% more than the $64,160 they need to afford the typical apartment for rent.
What they're saying:
"It has become increasingly challenging for American renters to make the shift to homeownership thanks to the triple whammy of rising home prices, high mortgage rates and a shortage of houses for sale," said Redfin Senior Economist Elijah de la Campa.
Redfin experts also noted that the Trump administration's tariff policies could change the dynamic, as tariffs lead to higher construction costs.
"The gap between what someone must earn to buy versus rent may shrink in the coming months," de la Campa said, "but only because rents are expected to rise as the number of new apartments hitting the market tapers off due to a construction slowdown."
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