San Diego MSA Housing Affordability is a Constraint

There was positive news for the defense industry in the past few weeks as Congress passed a two year federal budget deal. The Bipartisan Budget Act of 2015 was signed into law in early November. The bill increases the FY2016 discretionary budget by $50 billion and FY2017 by $30 billion, to be split evenly between defense and non-defense spending. Additionally the government debt ceiling was raised until March 2017. Congress still has a December 11th deadline to pass a number of appropriations bills. A shutdown was averted in late September as a short-term funding bill was passed. The chances of a government shutdown has declined significantly now that there is a framework for spending. The San Diego economy is expected to benefit from defense related spending as the U.S. military pivots operations towards the Pacific.

Housing affordability remains a major issue for San Diego. Area home price growth has consistently outpaced income growth for the past three years and is expected to grow by another 5.7 percent in 2015. Using the American Community Survey and applying our forecast for income growth, median household income for the San Diego MSA is expected to be $69,170 this year. According to Core Logic Inc., the median existing single-family home for the metro area has averaged $454,610 in 2015. Therefore, the initial cost of a home, in addition to a rising mortgage rate and tight credit environment, continues to be a hurdle for prospective homebuyers. This is a long-term issue for San Diego as labor availability is dependent on affordable housing.

Water bills will rise as the San Diego city council approved rate hikes. The first rate increase of 9.8 percent will occur in January 2016, followed by another 6.4 percent in July 2016, 6.4 percent July 2017, 5.0 percent July 2018, and 7.0 percent July 2019. The monthly bill for a typical single-family will increase $21 by 2019.

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Click here for the complete San Diego MSA Regional Economic Update: San Diego 2015Q4.

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