Want to enter the world of California homeownership? Become a voracious saver.
My trusty spreadsheet had some fun with a curious study by Consumer Affairs that looked into a major challenge for first-time homebuyers: the down payment.
The report pondered how long it would take to save 10% of the median purchase price, a common goal for first-timers, assuming the wannabe owner saved 10% of income left over after paying taxes and life’s “essentials,” using the median household income.
Of course, the California “affordability” numbers were ugly.
For starters, the Golden State has the highest down-payment goal: $83,200 vs. a median of $38,750 across the 50 states. After California came Hawaii at $74,400, and Massachusetts at $63,900.
As for California’s big rivals, Texas ranked No. 31 at $33,900, and Florida ranked No. 22 at $40,400. The U.S. lows were found in West Virginia at $24,000 and Iowa at $24,700.
However, Golden State paychecks are generous. That makes the potential monetary pie from which to save – income minus tax and core costs – sizable in California at $33,200 of the leftover income?. That’s No. 11 among the states and 19% above the 50-state median of $27,900.
Maryland had the highest excess income at $42,600, followed by Utah at $41,500. Texas was No. 12 at $33,000, and Florida was No. 38 at $24,500. Lows? West Virginia at $17,100 and Louisiana at $18,500.
Quarter-century work
This is the painful part. If a Californian saved 10% of that excess income for the down payment, it would take 25 years to reach the down payment goal.
Yes, a quarter-century. It’s 11 years longer than the nation’s 14 years.
That’s the longest in the nation, ahead of No. 2 Montana at 24 years, No. 3 New York at 23, and No. 12 Florida at 16.5. Lows? Iowa at 8.7 years, Ohio at 9.9, and Maryland and Texas at 10.3.
And while “Californians need 25 years to save a down payment” is a great headline, it’s more a frustrating statistic than any helpful guide.
Steep savings goal
To determine the slice of excess income required to be saved to meet the down-payment goal in five years, the spreadsheet recalculated the same data. And to speed the process, I assumed those savings would earn 3% a year.
For a Californian to accomplish this lofty financial feat, this math says $18,200 a year must be saved. That’s the highest burden among the states and more than double the median of $8,500 across the 50 states.
Next was Hawaii at $16,200 and Massachusetts at $14,000. Lows? West Virginia at $5,200, then Iowa at $5,400. Texas was No. 31 at $7,400, and Florida was No. 22 at $8,800.
Can it be done?
Is this savings target do-able, California?
Well, that requires the typical wannabe California owner to stash away 55% of all spare cash after paying for taxes and basic needs for five consecutive years to build a nest egg equal to a 10% down payment.
Ouch! More than half.
That’s the largest share nationally and is nearly double the 30% median of the states. Next comes Montana at 53% and New York at 50%. Florida was No. 12 at 36%.
Where is it easiest to build a down payment? This math says Iowa requires 19% of excess income saved, Ohio’s at 22%, and Texas is 22%.
It’s yet another example of brutally overpriced housing in California. And that means many Californians need a generous relative or two to cover their down payment.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com