San Francisco housing affordability, in one chart

By Austin Zehnder, San Francisco finance and real estate professional, founder of Zehndra and creator of @housingcharted.

If I could show you only one chart about San Francisco housing affordability, it would not be a price chart. It would be a payment chart: the same home, at different mortgage rates, plotted as a monthly payment. Price gets the headlines, but payment is what a household actually budgets. That distinction changes everything.

When rates were near 3 percent, a large loan produced a payment many households could stretch to. At 7 percent and above, the same loan produces a payment thousands of dollars higher each month, see what a mortgage rate does to a monthly payment. Affordability collapsed even where prices barely moved, because the payment did the moving.

That single insight reframes the usual affordability debate:

Price to income ratios understate the rate effect. A home at 5x income can be affordable at a low rate and unaffordable at a high one.
Small price cuts do not offset large rate moves. A 5 percent price cut on a large loan saves far less per month than a 1 point rate drop.
Waiting for prices to fall is not the same as waiting for payments to fall. Payments fall when rates fall, when prices fall, or when you buy less house. Those are three different bets, with different odds.

For San Francisco specifically, where prices are high and therefore loan amounts are large, the rate effect is magnified. Every point of rate is more dollars per month than in a cheaper market. That is why my @housingcharted charts always show the payment next to the rate. A chart without the payment is a chart without the point.