The title naturally caught our eye (Why You Can’t Afford a House in San Francisco), and we think the author’s analysis gets off to a strong start. But then he sputters. And falls flat.
The entire premise of this article is that housing prices should be directly correlated with purchasing power (a combination of interest rates and income). The author’s model seems to work quite well on a national level where, based on his assumptions, the median household income of $60k provides enough purchasing power for a $215k home (versus an actual median home price of $187k). But then he goes and gets a bit cocky,
Now that we understand what drives home prices—loan size dictated by rates and income—most everything else about the real estate market, even at the local level, falls neatly into place.
The punch line? Prices are high because we San Franciscans make a lot of money, and you can’t afford a house in San Francisco because you don’t earn enough. Genius!
(Of course the mean San Francisco household income is around $75k, which, based on the author’s model, would predict a median house price of $270k. Just slightly below our current median price of $723k…)
· Why You Can’t Afford a House in San Francisco [Efficient Frontier]