Like many of the major metropolitan areas of the United States, California is undergoing a housing crisis — and has been for years. Skyrocketing property values nationwide have had a deleterious effect on prospective homeowners, and it’s even getting difficult for California residents to make ends meet with high rent or mortgage payments. Things have been made worse still by the recent surge of inflation, not to mention the rising home loan interest rates. In short, the housing market in California is straining the budgets of many who live there, leaving them wondering: is it better to rent or buy?

Rent or Buy?

When considering whether to buy or rent in California, the most basic step is to compare average monthly mortgage payments with average monthly rent. As most everyone knows, California’s home prices (and thus mortgage payments) are significantly higher than the national average. In fact, the state routinely tops the list, alongside Hawaii, which is one of the most overvalued in the country. As of now, the median home price in the United States is $412,000. In California? It’s $787,000. It’s enough to make you wonder if you can even afford to live in Los Angeles.

That translates to a monthly mortgage payment of $3,759, on average, as compared to the national average of $2,883. Unfortunately, that’s not likely the end of your expenses if you choose to be a homeowner in California. Property taxes add another layer of expense, and they can add up to a significant chunk of change if you live in an in-demand area. Homeowners Association (HOA) fees can also be pricy, should they apply, which they probably will be if you live in a planned community or condominium complex. That’s before you get to maintenance costs, repairs, upkeep, and homeowners insurance.

Is it any better for renters? The answer is not altogether encouraging. The average renter in the United States pays $1,326 a month. The median rent in California, on the other hand, can range up to $2,808, although the average tends to hover around $1,500 a month, depending on where you live.

Renters do have an advantage in that they’re generally not responsible for maintenance, repairs, and upkeep, as that’s the landlord’s responsibility. This means no surprise costs (not counting rent hikes) and a more stable level of expenses. Renters can even insure their belongings the same way homeowners can by purchasing renter’s insurance. California homeowners already pay less than the national average for their insurance — 35% lower, according to The Zebra’s Kristine Lee. However, the news for California renters is even better: though renters insurance premiums in California are more than the national average, they still only come to about $233 annually. That’s around $19 a month to secure your belongings and safeguard your liability in case of an accident in your rental unit.

How Much Do You Need to Live Comfortably?

As previously mentioned, California is one of the most overvalued states in the US in terms of property costs. Areas like San Francisco, Silicon Valley, and Los Angeles are especially demanding in terms of finances. For example, living comfortably in San Francisco would demand an annual salary of well over $100,000 a year. You might fare slightly better in the Central Valley or some parts of Southern California, but you’ll still need a substantial income in order to live comfortably.

State Programs to Assist Buyers

There is one bright spot for prospective California homeowners: the state offers several programs to assist individuals in financing. The most notable of these is provided by the California Housing Finance Agency CalHFA, which offers several options:

• CalHFA First Mortgage Loans: These loans are aimed at low and moderate-income families. The loan can be combined with other down payment and closing cost assistance programs.

• MyHome Assistance Program: The MyHome Assistance Program offers a deferred-payment junior loan for up to 3.5% of the purchase price or appraised value of the home (whichever is lower). This loan can be used to assist with down payment and/or closing costs

• School Teacher and Employee Assistance Program: This program provides down payment assistance specifically for teachers, school administrators, and staff members working in K-12 public schools in California.

It’s not easy securing a place to live in California. As to whether buying or renting is better, the answer is: it depends on your needs. The high cost of living makes it a challenge everywhere, and with no end in sight to the housing crisis, it’s likely to remain a challenge for a long time to come. When making the decision of whether to rent or buy, consider the future you want in the Golden State: do you want to put down roots and hopefully reap the benefits of your home equity? Or would you rather save some money on insurance and wait to put down roots? 

Published by: Holy Minoza