We already know that the gap between wages and rents in Los Angeles is huge, but let’s not forget about the chasm dividing wages and the cost of homeownership. Bloomberg takes a look at how that chasm hits Millennials—here defined as people between 18 and 33—in the LA metro area and finds that there is a $45,761 difference between the amount that a person would need to make a year in order to buy a median-priced home, and the average median income for people of that age in Los Angeles. That’s a huge divide, and it’s probably even bigger when considering the pesky issue of making a down payment.
Based on 2013 Census information for median income, and assuming “an escalation of 2 percent per year” (which is probably generous), the median income for Millennials in LA is $35,027. Mortgage payments are calculated assuming a 20-percent down payment and a 30-year fixed mortgage. The median home value—calculated using Zillow information from the first four months of this year and accounting for single-family, detached houses—is $560,175. Bloomberg finds that, in order to buy that house, a Millennial would need to be making $80,788, which is more than double the median income for their age group.
And the kicker is that Bloomberg is assuming that these young people have even managed to save up the money for that down payment, which is wishful thinking to say the least. “Families where the head of household was under 35 years old had a median net worth of $10,400 in 2013, according to the Federal Reserve’s Survey of Consumer Finances.” So instead of putting money toward something they might eventually own, Millennials probably just end up paying more rent.
Senior Director, Coldwell Banker New Homes Division
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