With supply chain shortages slowing new home construction, the price for existing homes is skyrocketing higher all over the country, and nowhere is that more true than in the already-expensive state of California.
Home prices have long been the topic of discussion in the Golden State, but that debate is heating up in a big way lately as California leads the country in mortgage debt thanks to those high prices.
Let’s jump in and take a closer look at some of the critical numbers to see if we can gauge just how big of a problem increasing mortgage debt might be here in California.
Average Mortgage Debt in California
The 2020 State of Credit Report published by Experian noted that California is home to the highest mortgage debt in the entire country. The average homeowner here is on the hook for just under $400,000.
Of course, the average mortgage debt doesn’t mean much if we don’t add some context, so let’s take a look at how it relates to the value of those homes and the income of the homeowners.
California Home Prices
The average price of a home in California sits more than $300,000 above the overall national average, making it the most expensive state in the union. The average cost for one of those homes is pushing $600,000, and you’d be lucky to find something even that affordable in the Bay Area.
With home prices rising so quickly, most mortgage debt associated with homes in California is actually quite reasonable. But if anything were to happen to the economy and those home prices came crashing down, we could see another situation similar to what happened with the Great Recession in 2008.
Average Income for California Homeowners
The other factor that we have to consider when evaluating the danger of mortgage debt in California is the average income of the people who hold those mortgages. As it turns out, New Jersey, Maryland, Connecticut, and Hawaii are the only states with a higher average income than California.
The Golden State boasts a median household income of over $80,000, which helps us understand how residents can afford the expensive homes here.
Putting it All Together
When you factor in the incredibly high home values and incomes, and then remind yourself about the record-low interest rates, the fact that California is home to the highest average mortgage debt in the country makes a ton of sense.
If you then consider that we are also talking about one of the largest states in the country, it becomes a no-brainer that California would be home to the largest amount of total mortgage debt in the country.
Provided that nothing major happens to damage the country’s real estate market, one could certainly argue that this amount of debt is sustainable. But if something were to destabilize those real estate prices, California will likely lead the rest of the country into a massive recession because of that mortgage debt.
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